Kick-backs as a new gateway for unwinding unwelcome investments

Reversing failed investments at cost prices has always been a desire of many investors. Usually, the contractual agreement underlying the investment decision distributes the opportunities and risks of such investments in an appropriate manner, thus ensuring legal certainty on both sides of the contract. The German Federal Court of Justice (Bundesgerichtshof) is upsetting this established structure by further developing its kick-back case law, causing euphoria on the investor side and shaking heads on the part of financial service providers and numerous courts of instance.

Service providers who advise on investment decisions do not usually do so free of charge. Not only did the Commercial Code stipulate as early as 1897 that, in case of doubt, merchants do not provide services free of commission; in general, the principle of remuneration has emerged in practice in the area of professional support for investment decisions, whether by brokers, consultants or other service providers, and has thus superseded the contract law provisions of the Civil Code, which were still based on the assumption of unpaid activity.

However, the legislators of the late 19th century already recognized that the investor must be protected from shady service providers: The Civil Code had brokers in mind here who receive commission from both contracting parties without disclosing this to both contracting parties, and thus put the interests of the investors at a disadvantage due to their (from the legislator's point of view excessive) greed for commissions. Such brokers lost their right to commission.

Kick-backs as a new gateway for unwinding unwelcome investments

In 1905, the Imperial Court also had to deal with a banker who bought shares at a lower price than the price charged to the customer and concealed this bonus and kept it for himself. Of course, the bank owed the customer payment of the difference.