“If they had been aware of the essential characteristics of the product that they were purchasing and its inherent risks, they would never have signed it”. This was the judgement of the Senior Judge of the Supreme Court’s Civil Chamber in its ruling on 18 May 2021, settling the appeal filed by the company that had entered into the swap agreement.

In November 2007, the client company signed a contract entitled “zero cost collar with cap cancelling forward hedge”, which was a financial swap for the nominal amount of 4,000,000 euros. From the settlement in January 2010 to the maturity date, all settlements were negative for the customer and positive for the bank, resulting in a closing balance of 286,454.03 euros in favour of the latter.

The client company’s legal representatives initiated proceedings, requesting that the signed contract be annulled or, alternatively, that it be voidable. The specific basis for its claim was the absence of or error in consent, deceit, a violation of consumer and user rights and a conflict of interests between the financial institution and the plaintiff.

Furthermore, it requested that the contract be terminated due to the respondent being in breach of its contractual obligations of due diligence, good faith and disclosure and a breach of its obligation to provide advice and information on the product that was the subject of the litigation.

In the first proceedings, Court no. 7 of Palencia upheld the petition to make the financial swap agreement that was signed voidable, accepting that there had been an essential and excusable defect of consent and that the parties must proceed to the mutual repayment of all settlements made as a result of the application of the contract that had been declared void. Additionally, in the opinion of the Senior Judge, the minimum disclosure requirements were not met, as there was no clear explanation of the loan to which the transaction was supposedly link, nor how the hedging of interest rate rises works, or the high levels of risk being assumed by the client.

In a second hearing, it was declared that the action for annulment due to defect of consent had surpassed the statute of limitations as 4 years had passed since the initial settlement, resulting in the client company filing the aforementioned appeal.

It was asserted in the petition that the period for filing suits must be calculated from the date of fulfilment of obligations under the contract, which in the case in hand was 11 October 2012, the date of the last settlement.

However, in the second legal basis in its recent ruling, the Supreme Court’s Civil Chamber recalls that the specific issue pertaining to the calculation of the period for filing an action for annulment due to defect of consent in the swap contracts, which was disputed at the time, was finally settled by the High Court in Supreme Court Judgement 89/2018, of 19 February.

“In swap contracts or ‘mortgage hedging’, the obligations of the contract have not been fulfilled until the contractual relationship is concluded or terminated, as this is when the obligations have been fulfilled by both parties and the financial consequences of the contract actually occur. (…)

Thus, considering that a period of four years had not passed between the maturity date of the swap contract (11 October 2012) and the date on which the claim was filed (11 June 2016), in the Supreme Court’s opinion, in the case at hand, “there has been a breach of the provisions of art. 1301 of the Spanish Civil Code, as applied by the Provincial Court, so the appeal must be upheld”.

As noted above, the Supreme Court’s Civil Chamber upheld the appeal filed by the client company, rendering void the judgement issued by Section One of the Provincial Court of Palencia and upholding the judgement issued by Court of First Instance and Preliminary Investigation no. 7 of Palencia, insofar as it had upheld the claim that was filed, rejecting the arguments put forward by the respondent bank.