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Lin & Partners Successfully Defends CTBC Bank in Structured Products Class Action Lawsuit

October 1, 2014

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Jennifer Lu
+886 2 2 2705 5929 x120
attorneys@linandpartners.com.tw

In a judgment issued on August 12, 2014, Lin & Partners, a leading Taiwan law firm to global corporations, financial institutions, and government agencies, successfully defended CTBC Bank Co. Ltd (formerly known as Chinatrust Bank) at trial in the Taipei District Court in a class action lawsuit brought by structured notes investors. CTBC Bank, a subsidiary of CTBC Financial Holding Co., Ltd., is one of Taiwan’s largest privately operated banks with over two trillion New Taiwan Dollars in assets. Eric Hsu, who heads Lin & Partners’ Dispute Resolution & Investigations practice, represented CTBC Bank at trial.

The lawsuit was brought in 2009 by non-profit organization representing almost 200 investors in over 80 structured note products issued by global financial institutions and distributed in Taiwan by both local banks and the Taiwan offices of global banks. The disputed products are linked to both equity and fixed income underlyings, and have a variety of payout structures. The 19 named defendants include local and global financial institutions as well as the Financial Supervisory Commission, Taiwan’s financial industry regulator.

This lawsuit is novel both for being the first known class action over complex financial products as well as naming the regulator as a defendant.

Unlike common law jurisdictions, class action lawsuits in Taiwan over financial products are rare due to procedural hurdles in the Civil Procedure Code, the difficulty class members may have in funding legal costs combined with restrictions on contingent fees, difficulty in proving causation, and a historical reluctance to award any damages (emotional distress, punitive, etc.) beyond actual investment losses.

The plaintiffs sought over US$8 million from CTBC Bank and their allegations included violations of applicable laws and regulations governing the sale of banking, securities and wealth management products, thus making the contracts invalid. The defendants alleged that the Financial Supervisory Commission was deficient in its regulatory responsibilities, thus making the defendants eligible for government compensation.

In its ruling, the court found that mis-selling can only be determined on a customer-by-customer basis and thus the matter is inappropriate for a class action. The regulator was absolved of responsibility because the products are not securities within its regulatory scope (and rather, are bonds within the regulatory scope of Taiwan’s central bank) and it’s not for private parties or the courts to determine which regulatory regime applies to the products. The ruling also found no support for alleged violations of applicable laws, and noted that the products by their very nature are risky. The court also noted a series of recent Taiwan Supreme Court judgments that confirmed the legality of structured note sales via distributing banks.

The plaintiffs have filed notice to exercise their right of appeal, which is now pending a review by the court of procedural matters before proceeding.
*** About Lin & Partners ***

Lin & Partners is a Taipei, Taiwan boutique law firm, with practice groups in Banking, Corporate and M&A, Dispute Resolution & Investigations, Electronic Commerce & E-Payments, Employment, Financial Products, Gaming & Hospitality, Government Affairs & Public Policy, Infrastructure & Public Procurement and Intellectual Property. The firm is annually recognized by numerous publications for its expertise and as a leading law firm in Taiwan.