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Incorrect Advice to Investors and the Liability of Banks

Since the beginning of the worldwide economic crisis, one has very often heard complaints from investors who bought shares of stock or other securities at a high price and have now nearly nothing in their hands. They allege that the bank who sold the stock did not provide sufficient advice and claim compensation of their loss. This seems to be an easy matter, but in reality it runs into many difficulties. Before demonstrating some of these problems and trying to solve them under Austrian and to some extent German law, something must be said about a bank’s duty to inform its customers who wish to invest their money and attempts must be made to define 'incorrect advice'. Afterwards I discuss some problems related to the establishment of the bank’s liability even if the claimant has been able to prove incorrect advice. I will do so by examining an example from Austrian court practice. The topic and the arguments in Austria and Germany may be of some interest for South African lawyers as general problems are under discussion and as South African courts had to decide recently on claims of investors – I refer to the decision in of the Eastern Cape Provincial Division which is briefly considered below.