A client dies after entrusting his bank with a discretionary portfolio management mandate. Must the bank immediately liquidate the managed portfolio? May it continue discretionary management after death? What risks does the bank run towards the heirs if it continues, or if, on the contrary, it no longer performs a single act on the portfolio entrusted to it?<\/p>\n
The discretionary management contract entails a mandate conferred by the client on the manager and a contract for services. All the contracts linked to discretionary management have an intuitu personae character, whose corollary is their extinction, in principle, on the mandator’s death. Article 2003 of the (former) Civil Code provides that the mandate ends by the revocation of the agent, the agent’s renunciation, or the death or insolvency of either the mandator or the agent. The Code thus lays down in principle the prohibition on the agent performing legal acts after the mandate’s end, unless the agent was unaware of the death and unless those acts are subsequently ratified by the deceased’s heirs. For some authors these principles also apply to the discretionary portfolio management contract.<\/p>\n
The mandate is based on the parties’ presumed intention. Clauses contrary to article 2003 are lawful, and the parties may agree that the mandate survives the death; such clauses may be express or tacit and, in discretionary management, are validated in principle by doctrine. However, this must be tempered by the fact that the rules of succession devolution mean that, independently of contracts, the mandator’s assets are transmitted, on his death, to the heirs, so that the agent then acts no longer on the deceased’s assets but on those of his heirs. Some might therefore see, in a clause allowing management to continue after death, a post-mortem mandate contrary to the public-order rule of the heirs’ seisin of the deceased’s assets. Indeed, a mandate cannot deprive the heirs of the right to freely dispose of the assets forming the succession through a mandate whose performance begins only after death. The question is controversial in doctrine. Continuing management post-mortem under a derogation from article 2003 therefore carries a risk for the manager.<\/p>\n
If the manager does not continue discretionary management after death: liability?<\/strong> Article 1991 of the Civil Code provides that the agent is bound to complete the mandate as long as it remains entrusted to him and is liable for damages resulting from non-performance, and is likewise bound to finish the matter begun at the mandator’s death if there is danger in delay. Some case law in discretionary management has followed article 1991: the agent must continue current affairs if ceasing his mission risks causing harm to the mandator’s beneficiaries. Moreover, a tacit will to continue the mandate beyond death could be invoked by the heirs and inferred from the very object of the mandate, namely the management and (prudent or aggressive) growth of a securities portfolio. It nonetheless remains that the contractual clauses allowing the manager to end management may be applied.<\/p>\n If the manager continues discretionary management after death: agency of necessity to the banker’s rescue?<\/strong> The manager risks being reproached for performing management acts despite the mandate’s end, and having his extra-contractual liability sought if the managed portfolio loses value. The heirs could argue that, under article 1991, there was no danger in delay, and that continuing management should have been limited to what is strictly indispensable. In practice, continuing acts of management could pose prejudicial problems: whom to inform of the execution of orders when the succession is complex, international or unknown? What if the succession is renounced? Who bears any coverage obligations, commissions and fees? How to assess the management profile if the beneficiaries disagree? If these arguments are raised in a dispute, the application of the Civil Code rules on agency of necessity (gestion d’affaires), a legal institution close to the mandate, could offer arguments favourable to the manager. Under articles 1372 to 1375, whoever voluntarily manages another’s affair, whether or not the owner knows of it, tacitly undertakes to continue and complete the management begun until the owner can attend to it himself, and is subject to all the obligations of an express mandate; the manager is bound to continue even if the owner dies before the matter is concluded, until the heir can take over. Management must be carried out prudently (as a bonus pater familias), and the manager is entitled to fair and adequate compensation.<\/p>\n Some clauses of the management contract or of the banks’ General Regulation of Operations allow the bank to dispense with performing any management act after death. It is prudent, however, that such clauses be drafted explicitly, mentioning death as a cause of termination of the mandate and indicating the fate reserved to the managed portfolio in such a case. Management contracts systematically provide for the bank to terminate on notice. In practice this termination can be problematic: to whom should the termination letter be addressed if the heirs are unknown? How to reconcile the acknowledgement of receipt with the death of the letter’s addressee?<\/p>\n The need for an ad hoc clause.<\/strong> A clause should systematically appear in discretionary management contracts governing the fate of management on the client’s death: either management ceases immediately on death (the option that seems preferable to us, though the fate of the managed securities must still be settled), or it continues, whether on the same bases as contractually agreed or on more prudent ones. An example clause for ending management: on the holder’s death, the portfolio management contract ends; any order executed by the bank after the holder’s death is valid and enforceable against the holder’s beneficiaries, in so far as they are presumed to have been passed in ignorance of the death. An example clause for continuing management: by derogation from article 2003, it is expressly agreed that this contract will not end on the Client’s death, and the Bank is therefore authorised to continue performing the contract until the liquidation of the managed assets forming part of the succession (an equivalent Dutch-language clause exists in some contracts). An intermediate clause can also be envisaged to limit the risks of a fall in the portfolio’s value, for example: this agreement remains valid until revocation or the client’s death; on termination for any reason, the Client or his successors undertake to give the company, within one month, instructions on liquidating or transferring the portfolio, and where the company has not received appropriate instructions it may, without being obliged to, manage the portfolio defensively until it obtains them. The existence of an ad hoc clause allowing management to continue risks, however, being invalidated on the basis of the nullity of the post-mortem mandate, and not resolving the various practical problems noted above.<\/p>\n It is because of these practical difficulties and uncertainties that it seems preferable to provide for automatic termination of the management mandate on death, and to terminate (or expressly confirm the termination of) the management agreement as soon as the death is known, in accordance with the contractual provisions allowing such termination, provided the termination arrangements are practically possible.<\/p>\n In the absence of an ad hoc clause, whether or not he performs management acts after the client’s (known) death, the manager is exposed to a liability risk if the portfolio falls in value. The risk seems higher, however, given the current and growing consumerist trend in financial law, if the manager refrains from acts tending to protect and safeguard the portfolio against a sudden market fall. This risk seems mitigated if the manager uses the contractual clauses allowing him to terminate the management agreement unilaterally. We believe that, on death and in the absence of an ad hoc clause, the manager must expressly terminate the discretionary management agreement under the contract. If he intends to continue managing the portfolio, this must be on a prudent basis, until he obtains appropriate instructions from the heirs. To further reduce the risk of management the heirs might consider still too imprudent, the manager is advised to show diligence by contacting the notary handling the succession and warning him that management will continue on a prudent basis until clear instructions from the heirs.<\/p>\n This article is a translation and a condensed version. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" A client dies after entrusting his bank with a discretionary portfolio management mandate. Must the bank immediately liquidate the managed portfolio? May it continue discretionary management after death? What risks does the bank run towards the heirs if it continues, or if, on the contrary, it no longer performs a single act on the portfolio… Continue Reading →<\/a><\/p>\n","protected":false},"author":185562167,"featured_media":3169,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","advanced_seo_description":"When a client dies, does the bank continue discretionary portfolio management? The mandate ends on death (art. 2003), but article 1991 and agency of necessity nuance this. The need for an ad hoc clause.","jetpack_seo_html_title":"Continuing Discretionary Management After Death: Risk or Necessity?","jetpack_seo_noindex":false,"jetpack_seo_schema_type":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":true,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_wpcom_ai_launchpad_first_post":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[6325],"tags":[],"class_list":["post-9584","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-non-classe","clear","fallback-thumbnail"],"jetpack_featured_media_url":"https:\/\/i0.wp.com\/droitbancaire.be\/wp-content\/uploads\/2020\/07\/analysis-1841158_1280.jpg?fit=1280%2C853&ssl=1","jetpack_likes_enabled":true,"jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/pbYDZD-2uA","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts\/9584","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/users\/185562167"}],"replies":[{"embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/comments?post=9584"}],"version-history":[{"count":1,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts\/9584\/revisions"}],"predecessor-version":[{"id":9585,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/posts\/9584\/revisions\/9585"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/media\/3169"}],"wp:attachment":[{"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/media?parent=9584"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/categories?post=9584"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/droitbancaire.be\/en\/wp-json\/wp\/v2\/tags?post=9584"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}In practice<\/h2>\n
Importance of the contract concluded and the clauses stipulated<\/h2>\n
How to act in the absence of an ad hoc clause?<\/h2>\n