The German Federal Court in Karlsruhe (Bundesgerichtshof – BGH is the highest court of civil and criminal jurisdiction in Germany) in case XI ZR 152/17, decided on 19 December 2017 with a judgment in favor of the borrower. Notwithstanding the fact that in a concrete lawsuit it is not about a consumer, who has special protection, the German Federal Court has ruled that the explanatory duty of the bank in terms of foreign currency loans must include specific weaknesses and risks of such a product.
In the German court case, it is extremely important that in the action against the bank it is not about the consumer as a borrower, but the public legal entity – a local community as a borrower. A loan in Swiss francs was taken in 2007 by a local community from the province of North Rhine-Westphalia (18.000 residents, the loan amount 3 mio euros). The Court has decided that the bank is also obliged to fulfill its explanatory duty also in the case of loan agreements with companies and other legal entities. Although the decision of the German Federal Court relates to a specific court case, this judgment in the German legal order actually means that all the lower instance courts in Germany will act in accordance with that judgment.
Significant that the highly respected German federal court has ruled that the serious financial consequences of FX denominated loans have to be made explicitly clear to businesses and companies as well as consumers. Whilst not a binding precedent on other jurisdictions the high regard for German jurisprudence is likely to be influential on other jurisdictions and bring much needed redress for business and corporate victims of mis-selling.