Limitation issues arising in Spanish finance litigation

December 2012

Spanish court decisions on the limitation period for "lack of informed consent". Mis-selling claims against Spanish banks have made it difficult to predict with any certainty when the limitation period starts running. This article examines the conflicting court decisions and looks at how claimants are making alternative types of claims for which the limitation periods are longer.

Banks in Spain have faced an avalanche of mis-selling claims over the past few years. Many of these claims have been based on an alleged “lack of informed” consent in which claimants alleged that they did not understand the main characteristics and risks of financial products and, consequently, they were unaware that the invested capital could reduce in value. As a consequence, they did not give informed consent at the time of entering into the investment agreement and thus, these claimants argue, the investment agreement is void.

Article 1301 of the Spanish Civil Code provides a four-year period to file actions based on an error in consent by a contracting party. As most of the investment agreements in question were entered into between 2007 and 2008, many claimants are currently facing procedural limitation defences.

There has been a real divergence in opinion about the exact point at which a limitation period starts to run (dies a quo). Article 1301 states that the time limit for this type of claim is to be calculated to start from an agreement’s “consummation date”. According to Spanish case law, an agreement’s consummation takes place when all the reciprocal obligations arising under it have been fulfilled by both parties. However, the interpretation of what this means for an investment agreement has become a hot topic in the Spanish courts. It is possible to detect three alternative approaches to the dies a quo in Spanish case law so far:

• when the agreement was entered into - Judgment of the Provincial Court of Zaragoza, 30 March 2012. This judgment found that the contractual relationship with a bank in relation to the purchase of certain preferred shares is limited to the purchase order, and therefore, the dies a quo is to start on the date of signing of that order; or
• when the agreement has reached its expiry date – Judgment of the First Instance Court of Valencia, 13 June 2012, which states that the dies a quo does not start until there are not further obligations to be fulfilled by the bank, ie the exercise of a purchase order; or
• when the claimant first becomes aware that the investment was not as he/she understood to be – Judgment of the First Instance Court of Santa Cruz de Tenerife, 12 April 2012, in which an investor in preferred shares had only become aware that the call option was not guaranteed when the issuer had not been able to exercise a call option on the shares.

To be able to predict which point is correct in any given case is therefore very difficult at present. Some claimants are therefore employing strategies in order to try and circumvent the four-year limitation period enshrined in Article 1301.

For example, some are bringing other actions (different from the action for error in the consent) to take advantage of more generous limitation periods, basing their claims on “radical” nullity of the investment agreement. This is a remedy granted by the courts only when dealing with extreme situations, for example when a very complex financial product is sold to an unsophisticated investor with no financial experience at all, who argues that the bank did not inform the investor of any of the relevant characteristics of the product in question 5).

A claimant must show that there was no consent at all. There is no time limit for this type of claim in the Spanish Civil Code. Therefore, the dies a quo is irrelevant when considering radical nullity.

Moreover, some claimants are, as an alternative, trying to make claims based on Article 1124 of the Spanish Civil Code, which entitles a party to terminate an agreement should the counterparty breach its essential obligations thereunder. The time limit to bring such an action is 15 years. Many claimants have argued that the essential obligation of a bank was to duly inform investors of the main characteristics and risks of an investment. In their view, a bank’s failure to do this has caused damage which have resulted in the investor losing their invested capital.

It is not clear at present whether these alternative claims will be successful. Until the issue is resolved by higher courts, banks should therefore remain mindful of the identified issues of limitation periods in mis-selling claims.