Giorgio Risso
PhD Candidate, University of Genoa, Department of Law – Visiting PhD student, King’s College London, The Dickson Poon School of Law
Introduction
On 28 January 2015, the Court of Justice of the European Union (CJEU) decided on the application of EU conflict of jurisdiction rules over prospectus liability.[1] More specifically, the judgment concerns the application of Articles 5(1)(a) and (3) and 15(1) of the Brussels I Regulation.[2] This comment will only look at the issues related to Art. 5(3), since the correct localisation of harmful events in financial torts is at the heart of recent and intensive discussions (also from the perspective of a recast of Rome II Regulation).
The facts
The case arose from the claim of a retail investor, Mr Kolassa, domiciled in Austria, who had purchased a number of certificates issued by Barclays Bank, an entity registered in the UK but with a branch in Germany. Such certificates, which had the form of bearer bonds, had been sold by Barclays Bank only to institutional investors, on the basis of a previously distributed prospectus. According to the applicable general conditions, the value of the bonds was linked to the value of a portfolio, composed by several target funds, and administrated by a different company. The institutional investors who had subscribed the certificates had resold them (mainly to retail investors) on the secondary market. In this context, Mr Kolassa had instructed his bank to acquire a certain amount of bonds through its German parent company. Moreover, in conformity with the internal policy of the bank, the certificates were held in its own name on behalf of Mr Kolassa, in Germany.
Due to unsuccessful management of the portfolio, the value of the certificates significantly decreased, causing relevant economic loss to the claimant. For this reason, Mr. Kolassa brought a legal action before the Austrian court (Handelsgericht Wien) against Barclays Bank, maintaining that had the prospectus contained the correct information, he would not have invested in those certificates. The jurisdiction of the Austrian court was affirmed by the claimant on the basis of, inter alia, Art. 5(3) of the Brussels I Regulation. The Austrian court submitted a reference for a preliminary ruling to the CJEU, in order to verify its jurisdiction.
The judgment
In its judgment, the CJEU first examines the applicability of Art. 5(3) to a case where the violation of financial market rules[3] concerning the mandatory content of a prospectus has allegedly caused damage to an investor. According to a long string of previous decisions, Art. 5(3) covers any action generally related to liability, which does not concern “matters related to a contract”.[4] In this regard, Art. 5(1) and (3) should encompass all the circumstances of liability. It follows that the absence in the present case of a contractual relationship between the investor and the issuer allows Art. 5(3) to apply.
The real challenge for the CJEU was, however, represented by the precise localisation of the harmful event in one (or more) Member State(s), in order to establish jurisdiction. Indeed, as it is well-known, Art. 5(3) states that jurisdiction has to be exercised by the national courts where “the harmful event occurred or may occur”. It has been interpreted in the leading case of Mines de Potasse[5] by considering both the place of the damage (locus damni) and the place of the event giving rise to it (locus actus). The reasons for considering both places appropriate for jurisdictional purposes lies in their particularly close connection to the dispute, which favours the good administration of justice and the efficacious conduct of proceedings.[6]
As regards the conduct, the CJEU firmly refuses to localise it in Austria, where the claimant was domiciled. From the request for reference, it can be easily inferred that all the actions (and omissions) related to the publication of the prospectus had been committed in the UK, so that English courts should have jurisdiction on the basis of this criterion. The consecutive dissemination of the prospectus in Austria[7] is not taken into consideration by the CJEU. Such a choice, however, appears consistent with the approach taken in the Shevill case,[8] where the event giving rise to the damage was localised in the place of publication of the magazine rather than in the places of circulation.
As regards the locus damni, the CJEU states that “the courts where the applicant is domiciled have jurisdiction […] when that loss occurred itself directly in the applicant’s bank account held with a bank established within the area of jurisdiction of those courts”.[9] In other words, according to the reasoning of the CJEU, economic losses arising from the purchase of financial instruments can, under certain circumstances, be localised in the place where the investor’s account is maintained,[10] rather than in the place (i.e. the market) where financial instruments have been acquired. This principle may also be extended to cover situations where the investor is not the “direct holder” of the securities.[11] Nevertheless, the place of investor’s account should be considered under Art. 5(3) only when financial instruments are recorded on the account itself. Here, however, it is not specified whether the certificates were recorded on Mr Kolassa’s bank account in Austria, but it is merely stated that they were held, as covering assets, in Germany.[12]
Some reflections and possible future perspectives
According to the well-known Kronhofer case,[13] the domicile of the claimant does not always coincide with the place where the damage occurred by reason only of the fact that some indirect damage has been suffered there. The decision of the CJEU in the present case explains that the place where an investor’s account is maintained can be relevant for determining jurisdiction under the Brussels I Regulation for the first time. Nonetheless, this principle seems to clash with the suggestion that the market on which the financial instruments have been purchased should be taken into account as a decisive factor.[14] Moreover, one has to note that national case law on the localisation of economic losses with regard to other financial torts has recently taken a different approach. For example, the Italian Supreme Court (Corte di Cassazione) has resolutely refused to identify the locus damni with the place where investors’ bank accounts are held, in a case concerning Credit Rating Agencies’ liability.[15] In justifying its decision, the Corte di Cassazione has in particular highlighted the fact that the market where financial instruments are purchased is the only one where direct damages occur.
However, to what extent the CJEU judgment will be able to influence other kinds of financial torts (e.g. cases of Credit Rating Agencies’ liability) in the future is still uncertain. Indeed, some specific features of the present case have driven the result reached by the CJEU. One of those is the diffusion of the prospectus in Austria, which represents – according to Advocate General Szpunar – a clear indicator that a harmful event occurred in the place of claimant’s domicile.[16] This assertion, nevertheless, is not completely convincing as long as the diffusion of the prospectus by Barclays Bank is part of the fact giving rise to damage and should consequently be taken into account with regard to the locus actus. Instead of increasing certainty, the present judgement seems to create even more confusion, since it leaves open the possibility of different outcomes in cases not having exactly the same characteristics. That is confirmed by a recent reference for preliminary ruling, where the Dutch Court of Cassation asked, inter alia, how to localise pure economic losses under Art. 5(3) of Brussels I Regulation.[17]
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[1] Case C-375/13 Harald Kolassa v Barclays Bank plc [2015]. For a first comment on this case: M. Lehmann, Which Court is Competent for Prospectus Liability Cases? The CJEU Rules in Kolassa (Case C-375/13) see at <www.conflictoflaws.net>, accessed February 2015.
[2] Council Regulation (EC) N. 44/2001 of 22 December 2000 on jurisdiction and the recognition and enforcement of judgements in civil and commercial matters [2001] OJ L12/1, which has been replaced by the new Regulation (EU) N. 1215/2012 (entered into force on the 10th January 2015). The provision on non-contractual liability, unchanged in its substance, is now contained in Art. 7(2).
[3] See Directive 2003/71/EC of the European Parliament and of the Council of 4 November 2003 on the prospectus to be published when securities are offered to the public or admitted to trading and amending Directive 2001/34/EC [2003] OJ L345/64.
[4] Case C-548/12 Marc Brogsitter v Fabrication de Montres Normandes EURL [2014].
[5] Case 21-76 Handelskwekerij G.J. Brier B.V. v Mines de potasse d’Alsace S.A., in Racc. [1976].
[6] Case C-189/08 Zuid-Chemie BV c. Philippo’s Mineralenfabriek NV/SA [2009].
[7] Kolassa (n 1) [13].
[8] Case C-68/93 Fiona Shevill c. Presse Alliance SA [1995].
[9] Kolassa (n 1) [55].
[10] From the perspective of conflict of laws, see Art. 9 of the Collateral Directive (Directive 2002/47/EC).
[11] Ibid [15].
[12] See Opinion of Advocate General Szpunar on Case C-375/13 Harald Kolassa v Barclays Bank plc [2014], [17].
[13] Case C-168/02 Rudolf Kronhofer v Marianne Maier et al. [2004].
[14] See M. Lehmann, Proposition d’une règle spéciale dans le Règlement Rome II pour les délits financiers [2012] Revue critique 485; Id, Where does economic loss occur? [2011] JPIL 527; V. Garcimartin, The law applicable to prospectus liability in the European Union [2011] Law and Fin. Markets Rev. 449.
[15] Simgest spa et al. v Moody’s Investors Service Inc. et al [2012] Corte di Cassazione Sez. Un. 8076, [2013] Diritto del commercio internazionale 847. This decision has been supported, inter alia, by N. Nisi, La giurisdizione in materia di responsabilità delle agenzie di rating alla luce del regolamento Bruxelles I [2013] Rivista di diritto internazionale privato e processuale 385; M. Stella, Ratings fuorvianti, downgradings “tardivi” e la emergente natura della responsabilità civile delle agenzie di rating straniere, ed in specie statunitensi (tra Sezioni Unite e BGH tedesco) [2013] Int’l Lis 95. Contra, C. Desogus, La competenza giurisdizionale in materia di responsabilità extracontrattuale delle agenzie di rating [2013] Giurisprudenza commerciale 1011; G. Risso, La responsabilità extracontrattuale delle società di rating: alcune riflessioni in tema di competenza giurisdizionale [2013] Diritto del commercio internazionale 849.
[16] Opinion of Advocate General (n 12) [64].
[17] See L. van Bochove, Tort jurisdiction and pure economic loss – Request preliminary ruling see at <www.conflictoflaws.net>, accessed March 2015.