This paper concerns the private international law aspects of prospectus liability. More specifically, it deals with the location of financial (i.e. intangible or immaterial) losses in prospectus liability cases and the validity of jurisdiction and choice of law clauses in a prospectus. Our paper critically analyses the CJEU’s Kolassa v Barclays Bank and Profit Investment v Ossi judgments as well as the Advocate-General’s conclusion in Universal Music International Holding BV. We focus on the Recast Brussels I Regulation and the Rome II Regulation, and on how these instruments apply to intangible damages suffered by investors located in multiple jurisdictions.
We conclude that, with both Kolassa and Profit, the CJEU has failed to provide adequate guidelines to clarify existing questions and uncertainties. We think that the outcome of these cases may have been sensible. The court of the applicant’s domicile has jurisdiction in cases that involve prospectus liability and a jurisdiction clause may be upheld under certain circumstances, but we conclude that the CJEU’s decisions are open to multiple interpretations at best, and display a misunderstanding of the law and practice of the issue and custody of securities at worst.
With regard to the location of financial losses in prospectus liability cases, we propose a radical new approach to the determination both of the place where the event happened which gave rise to the damage (Handlungsort) and of the place where the damage materialised (Erfolgsort). For the Handlungsort, we propose the place where the competent national authority is established that is designated to approve the prospectus. For the Erfolgsort, we propose the domicile of the injured party in whose securities account the losses are suffered as the relevant connecting factor (forum actoris). This approach might seem not to be in accord with the Recast Brussels I Regulation, but it would be in line with the CJEU’s own ‘place where the investor suffered [the loss]’ and it would introduce a predictable connecting factor for both the issuer and its investors.
It should be noted that when our paper was published, the CJEU had not yet delivered its decision in Universal Music. However, we do not think the CJEU’s judgment changes our conclusions. In Universal Music the CJEU held that, failing any other connecting factors, the Erfolgsort may not be construed as being ‘the place in a Member State where the damage occurred, when that damage consists exclusively of financial damage which materializes directly in the bank account of the applicant and is the direct result of an unlawful act committed in another Member State’. While we agree with both the outcome of the case and with the CJEU’s reasoning, we believe Universal Music was idiosyncratic in the sense that the only connecting factor with the courts of the Member State that the applicant claimed to have jurisdiction (i.e. the courts of the Netherlands), was the bank account from which the applicant paid the amount that she claimed as damages. The court stressed the fact that a company “may have had the choice of several bank accounts from which to pay” the amount claimed as damages. We are therefore doubtful whether this judgment can be extrapolated to prospectus liability cases, because in these cases damages are commonly suffered in a securities account, which is not selected by the applicant when damages are suffered therein. The CJEU also seemed to recognize the distinction (see Universal Music, paras. 36-37).
More importantly, we argue that jurisdiction and choice of law clauses in a prospectus must be upheld, and that Kolassa and Profit are wrong to the extent that they do not recognize that there is an agreement and a freely assumed legal obligation between the issuer and the (ultimate) investor. Although, in Profit, it was concluded that jurisdiction clauses in a prospectus could be upheld under certain circumstances, the CJEU failed to give a clear, autonomous rule on whether a jurisdiction clause can be enforced against third party purchasers of securities by referring the matter to the national courts to decide under the applicable national law.
In light of the current state of affairs, one can only hope that the CJEU, in future cases, sees reason to reconsider or, at least, to clarify the answers it gave in Kolassa, Profit and Universal Music. Hopefully, these answers will provide more adequate guidance. For now, in prospectus liability cases, the CJEU has sent issuers and investors into the woods, with a mission to locate something that is not there without a proper compass.