In March, after the imposition of sanctions against Russia, Estonian banks announced that they would soon cease ruble transactions. Swedbank gave its clients a short notice to decide what to do with their Russian ruble balances.
One customer suffered significant losses due to the rushed decision and now plans to seek compensation. Jevgeni Smorodin was one of Swedbank’s clients who was forced to make a quick decision on how to deal with their rubles. According to him, he had very few options. Specifically, Swedbank forced him to convert his money. The bank sent a notice to the client stating that due to the urgency, immediate action should be taken when the exchange rate for converting rubles to euros was 1:139. As a result of this transaction, the client lost nearly 10,000 euros. While currency risks can materialise with any currency, in this situation, the bank violated the client agreement by allowing only a few days for decision-making.
LEXTAL Attorney at Law and Partner Ksenia Kravtšenko comments on this situation:
Our practice has seen similar cases related to forced ruble conversions at unfavorable rates. We see the rights for clients to demand legal remedies in cases of breach of contract by the credit institution, including filing damage claims.
Regarding the sanctions against Russia, the European Commission explains that there is no direct prohibition on making money transfers to or from Russian counterparts unless such transfers fall under specific sanctions (including cases where the counterparty’s account is held in a sanctioned bank, the counterparty is listed in a sanctions list, or the payment represents payment for a sanctioned product) and do not exceed established limits. Similarly, European citizens and legal entities are not prohibited from holding, for example, ruble deposits in European Union credit institutions if a client still considers it a good investment and the bank offers such a service.
It should not be ignored that by converting at an unfavorable rate, which may have been in effect for a shorter period than the notice period for changing the contract, the bank reduced its obligations to the client in euro equivalent. It is worth noting that one of our client’s credit institutions, which performed the same maneuver, justified its actions by concern for preserving the client’s money, which seems particularly cynical.
When filing a damage claim, the client must prove the following: the validity of the contract at the time of the breach, the breach by the bank, the existence of damage, a causal link between the breach of the contract and the resulting damage, as well as foreseeability of the damage for the bank.
Regarding clause 1.2.5 of Swedbank’s contract, the wording related to “exceptional circumstances,” “compelling reasons,” etc., allows for the interpretation that a self-interested party may exploit. Generally, this paragraph refers to changes in the interest rate or other financial service-related payments by the credit institution – this right of the credit institution is explicitly provided for in the law.
This contract clause does not justify immediate currency conversion as it excessively and disproportionately infringes on the client’s rights.
In this case, the burden of proving the existence of a basis for immediate termination of the contract lies with the party that did not comply with the notice period. This party must act diligently and consider, among other things, the other party’s legitimate interests.
If such haste results in harm to the other party that could have been avoided or reduced by complying with the notice period, it is unlikely that the existence of a basis for immediate termination can be proven.
Additionally, it is essential to note that such a clause generally contains standard terms of the contract with the bank (meaning the client cannot influence their content). If it has been used to cause harm to the client, the client has the right to demand the invalidation of the clause and its non-application in such a situation.