Source: http://www.allenovery.com/publications/en-gb/european-finance-litigation-review/eu-developments/Pages/CJEU-rules-on-jurisdiction-in-prospectus-liability-claim.aspx
Timestamp: 2019-08-25 14:14:43
Document Index: 644746546

Matched Legal Cases: ['CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ']

CJEU rules on jurisdiction in prospectus liability claim - European Finance Litigation Review - Allen & Overy
The Court of Justice of the European Union (Fourth Chamber) has ruled on jurisdiction in a prospectus liability claim, concerning index certificates issued by a UK bank, and purchased by an Austrian investor (consumer) via a professional intermediary. The court ruled that under Article 5(3) Brussels Regulation1 (now Article 7(2) Brussels Recast) the "place where the harmful event occurred" includes where an investor suffers loss. The CJEU held that the court at the place where the investor is domiciled has jurisdiction, on the basis of where the loss occured, particularly when the loss occurred in the investor's bank account in that jurisdiction.
Article 5(1) - matters relating to contract
A CJEU ruling concerning a document which is so commonly used by finance parties will always attract attention. The CJEU has concluded that a bank having its seat in the United Kingdom may be sued in respect of liability in tort/delict in Austria as the place of domicile of an investor who acquired certificates, in particular when that loss itself occurred directly in the applicant's bank account in Austria.
The case highlights the risk of issuers facing a legal challenge by an investor in a court other than that which has been selected in the contractual documentation. Where a prospectus liability claim is brought can affect its outcome. Despite the harmonisation of content requirements, the Prospectus Directive3 provides for only limited harmonisation of liability for information included in a prospectus. Responsibility for the contents must be taken at least by the issuer or its board, the offeror, the person requesting admission to trading or the guarantor (Article 6), however, the standard of liability is left to individual Member States to determine. Article 4(1) Rome II Regulation uses the same test of the "place where the damage occurred" in order to determine the applicable law in tortious claims. Recital 7 of the Rome II Regulation provides that the scope and provisions of Rome II should be consistent with, inter alia, the old 2001 Brussels Regulation. It seems therefore that the Kolassa ruling could also impact on the applicable law applied in non-contractual disputes such as prospectus liability claims, allowing a Member State court where an investor is domiciled (and where the loss was suffered) to apply its own law to a prospectus liability claim.
The European Securities and Markets Association (ESMA), at the request of the European Commission, published a report in 2013 comparing liability regimes applied by Member States in relation to the Prospectus Directive4. It compares the civil, administrative and government liability, criminal liability and sanctions applied in each regime. ESMA concluded that the diversity of different regimes could, particularly on cross-border transactions, make it difficult for market participants to assess their respective risks and rights in relation to prospectus liability.
It is not surprising that the CJEU ruled that the applicant could not invoke jurisdiction on the basis of Article 15 (consumer claims) or Article 5(1) (matters relating to contract) given the lack of any contractual nexus between Mr Kolassa and the Bank. It is more noteworthy, however, that the CJEU placed emphasis on the location of the applicant's bank account, rather than focussing solely on domicile. This may be regarded as unwelcome to the extent that it creates further uncertainty over the question of where an issuer may be sued – not only will domicile be relevant but what bearing does the location of any account have, if in a different place? The ruling does not appear to deal with the situation where the investor uses monies from a bank account located in another Member State – would the other Member State's court have jurisdiction in such a scenario? If the answer is yes, this would be problematic from a risk assessment point of view for banks. While it is possible to predict that investors from a Member State where a prospectus is distributed may purchase, it is completely impossible to predict with any certainty from where the investment proceeds will be paid.
1This has been superseded by Regulation (EC) 1215/2012 ("Recast Regulation") which replaced the Brussels Regulation from 10 January 2015. See: http://www.allenovery.com/publications/en-gb/Pages/Brussels-Regulation-recast-an-update.aspx.
2http://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:62013CC0375
3Directive 2010/73/EU, amending Directive 2003/71/EC on the prospectus to be published when securities are offered to the public or admitted to trading.
4http://www.esma.europa.eu/system/files/2013-619_report_liability_regimes_under_the_prospectus_directive_published_on_website.pdf