Case law Developments in PIL

Consumer vs. Investor: Inconsistencies between Brussels I bis and MiFID

Which rules are more important to determine the protection of weaker parties in financial disputes – the Brussels I bis Regulation on jurisdiction and the recognition and enforcement of judgments, or the Markets in Financial Instruments Directive (MiFID)?

That is, in a nutshell, the question faced by the CJEU in Petruchová v. FIBO Group Holdings, a case decided on 3 October 2019.

Mrs Petruchová, a Czech resident, had entered into a framework agreement with a Cypriot brokerage company, allowing her to conclude highly speculative transactions in the market for foreign exchange (FOREX). The agreement contained a clause giving jurisdiction for any dispute under the contract to Cypriot courts. When a trade went awry, Mrs Petruchová nevertheless sued the brokerage company in the Czech Republic.

The solution seemed straightforward. It seemed obvious that Mrs Petruchová was a consumer in the broad sense, as defined by Article 17(1) of Brussels I bis, given that she had speculated outside her trade and profession for her private account. Under Article 25(4) of Brussels I bis, forum selection agreements with consumers are valid only where they meet the conditions set out in Article 19, which was not the case.

However, there was a nagging problem. MiFID provides for a much more nuanced protection of weaker parties to financial transactions than Brussels I bis. Not only does it distinguish between three different categories of investors (retail investors, professional investors, and eligible counterparties), it also uses different criteria to determine the investor’s sophistication. Among them are the client’s wealth, the number of trades she has previously executed, and any experience she might have in the financial industry. In addition, the investor can to some extent choose to upgrade or downgrade her categorisation.

In Petruchová v. FIBO Group Holdings, the CJEU gave priority to Brussels I bis. It stressed that the knowledge and information that a person possesses in a certain field do not matter for the purposes of determining whether she requires consumer protection (para 55-56). Nor do the value of her transactions, the risks associated with them, or her active conduct (para 59).

The Justices admitted the need for consistency of EU law, which could involve taking into account other legislative provisions when defining the “consumer” (para 61). Yet, the parallel concept of the retail investor in MiFID did not appeal to them. Their ‘killer argument’ was that the definition under MiFID also covers legal persons – a major ‘no-no’ for consumer protection (para 71).

The CJEU also did not follow a parallel to Article 6(4) of the Rome I Regulation on the law applicable to contractual obligations, which the Czech court of first instance had invoked to exclude disputes over financial instruments from the scope of consumer protection. To overcome this point, the CJEU distinguishes between the purposes of Rome I and Brussels I bis (para 64).

Instead of this complex and debatable argument, the Court of Justice could have relied on a proper reading of Article 6(4)(d) of Rome I, which excludes rights and obligations which constitute a financial instrument only “in so far as these activities do not constitute provision of a financial service”. FIBO Group Holdings had clearly rendered a financial service to Mrs Petruchová.

The upshot of the case is that the concept of the consumer in the Brussels Ia Regulation remains uniform and does not differ in financial disputes. This result has the benefit of clarity.

But one may reasonably ask why an investor defined as a ‘professional’ for the purposes of MiFID is permitted to ignore jurisdiction agreements she has entered into. Are not the latter much easier to understand than the obligations under complex financial instruments? Perhaps one could argue that the investor is only a “part professional”: professional in financial matters but an amateur in legal matters, such as forum selection clauses.

Regretfully, the CJEU has not entered into this discussion.

1 comment on “Consumer vs. Investor: Inconsistencies between Brussels I bis and MiFID

  1. Good analysis. Thanks!

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