Bank Liable for Ignored Limit Order: Court of Cassation 2024/4964

Trading of more than 42 million lots in one year, a transaction volume above TL 152 million, commission of more than TL 224,000 paid to the bank, and an investment account that ended at zero. The case of a customer who deposited TL 550,000.00 into an investment account at a bank was heard for more than ten years around one question: which of these figures falls within the bank's liability? The 11th Civil Chamber of the Court of Cassation upheld, by majority, the judgment that places on the bank only the loss arising from failure to follow a limit-price order; the dissenting opinion argued that the bank was liable for the whole erosion of the account.

In its decision of 12 June 2024 (Docket No. 2023/2445 E., Decision No. 2024/4964 K.), the 11th Civil Chamber of the Court of Cassation upheld by majority the first-instance judgment, which awarded TL 24,500.00 in compensation for the bank's transaction contrary to a limit-price order, and found the sale of shares made to cover a collateral shortfall to be in line with the regulations.

💼 How Did the TL 550,000 Account Fall to Zero?

According to the statement of claim, the claimant deposited TL 550,000.00 into an investment account at the defendant bank. The claimant argued that the bank's investment staff carried out margin and short-selling transactions solely to generate brokerage (commission) fees, that the money in the account was therefore reduced to zero, and that finally, on 25 July 2011, a debt arising from the margin transactions was charged to the claimant. The claimant paid this debt to the bank with interest, under reservation of rights.

The claimant's allegations can be summarised as follows:

The claimant first requested TL 10,000.00 and, by an amendment petition dated 13 October 2014, divided the claim into two items.

The defendant bank, for its part, argued that the transactions complied with the regulations, that the claimant did not top up the collateral despite notification, and that in this situation the bank had authority to sell on its own initiative.

🧮 Two Separate Loss Items

The claims as clarified by the amendment are decisive for understanding the result of the decision:

In the end the first item was accepted and the second was rejected. In the words of the dissenting opinion, the claimant's total claim is approximately TL 578,000.00.

📘 The Margin Trading Communiqué and Topping Up Equity

The first-instance court's decision of 24 October 2018 relied on Article 17 of the SPK's Communiqué Series: V, No: 65 on Margin Purchases, Short Sales and Securities Lending and Borrowing Transactions in Capital Market Instruments. According to the provision as set out in the judgment:

The court stated that, although a warning had been given that a sale would be made, the claimant did not make the required top-up in the account, and that had the claimant topped up the equity at the rate set in the Communiqué, the Kiler shares in the account would not have been sold. The fact that the bank had earlier not asked for equity to be topped up and later asked for it to be topped up to the legal rate was likewise not regarded as abuse of a right in view of the agreement and the regulations.

On the other hand, the court accepted that the loss caused by failure to follow the limit-price order may be claimed from the bank, and awarded TL 24,500.00.

🔁 The 2020 Reversal and the New Judgment

The 11th Civil Chamber of the Court of Cassation reversed this judgment by its ruling of 14 October 2020 (Docket No. 2019/932 E., Decision No. 2020/4121 K.). According to the grounds for reversal, although the court had followed the Chamber's earlier reversal ruling, it made no separate assessment and did not give reasons capable of review as to how the defendant's acts complied with the agreements and the SPK regulations. A supplementary report, or a report from a new panel of experts, was requested to assess whether the acts attributed to the defendant complied with the agreements and the SPK regulations.

Following the reversal, the court drew the following distinction in its new judgment:

As a result, the amended claim was partly accepted; the court ordered that TL 24,500.00 be collected from the bank with advance interest from the date of the action, and rejected the claim for the excess.

✅ The Chamber Majority Upholds the Judgment

On appeal, the claimant's lawyer argued that the bank had acted contrary to the regulations from the formation of the agreement; that it had not opened a separate loan account; that it had not asked for equity to be topped up; that many transactions were carried out without instructions and approval was sought afterwards; that end-of-day confirmations were not obtained; that margin transactions continued without notification even though equity had long since fallen below the limits; and that the statements never reached the client.

After a hearing, the Chamber characterised the dispute as a claim for compensation of the loss suffered because of the bank's transactions contrary to the securities trading agreement and the regulations, and identified Articles 17 and 18 of Communiqué Series: V, No: 65 as the relevant law. On the grounds that the judgment was given in line with the reversal ruling followed by the court and that there was no error in the assessment of the evidence, all of the claimant's appeal objections were rejected and the judgment was upheld. A hearing attorney's fee of TL 17,100.00 was awarded against the claimant.

🗣️ The Dissent: Trading Volume, Commission and Article 2 of the Civil Code

The most instructive part of the decision is the dissenting opinion. It lists the set of agreements in the case as follows: the Capital Market Instruments Custody Transaction Framework Agreement dated 3 June 2010, an undertaking, a letter of consent to pledge, a retail customer information form, a Capital Market Transactions Risk Disclosure Form, and a securities loan agreement with a limit of TL 500,000 dated 27 September 2010.

The figures given in the dissent are striking:

According to the dissenting member, the bank, as an institution built on trust, allowed the principal to melt away until the date on which it was established that the customer's equity could not cover the loan collateral, did not warn its customer, and thereby brought about an abuse of a right within the meaning of Article 2 of the Turkish Civil Code. In addition, the judgment upheld by the majority itself accepts that the bank's intermediary services were faulty and contrary to the regulations, and the Kiler shares were sold without instructions.

The dissent's criticism of method is also important: determining the bank's fault by dividing the customer's money into amounts and interpreting in the bank's favour was found contrary to the Chamber's settled practice. Under that practice, the parties' faults are determined first and, where there is contributory fault by the customer, it is established and deducted from the compensation. In this case no fault ratios were determined, and there is no evidence of contributory fault by the customer. According to the dissent, the whole of the approximately TL 578,000.00 claimed should have been refunded with interest.

🔍 Distinctions the Decision Shows

Although the decision upholding the judgment is short, when read together with the first-instance judgment the following distinctions stand out:

For a regional court of appeal assessment of sale on the bank's own initiative in margin transactions, see our article on sale on the bank's own initiative in margin share tradingTR; for a decision on the interpretation of order types, see our article on sell stop versus limit orderTR.

💬 Frequently Asked Questions

For detailed information and legal support, you can contact Savun Law & Consultancy. Contact channels are on the contact page, and other decision reviews on investment and capital market disputes are in the Precedent DecisionsTR archive.