On 12 May 2021, the Court of Justice rendered its long-awaited judgment in the case Vereniging van Effectenbezitters v. BP. The case concerned the international jurisdiction for a collective action based on issuer liability for inaccurate, incomplete and misleading information in capital markets.
The Court ruled that under Article 7(2) Brussels I bis Regulation such actions may be brought at the place where the issuer is subject to statutory reporting obligations, which is usually the place where the financial instruments are traded on a stock exchange. In contrast, they could not be brought at the location of the investment account in which the financial instrument are held.
The ruling is important from a capital markets perspective, yet it also adds another piece to the puzzle of where to localise purely financial or economic loss.
The facts of this case go back to the accident at the Deep Water Horizon oil platform in 2010, which was one of the biggest environmental disasters of all time and laid the Southern coast of the U.S. to waste.
The Dutch action underlying the reference alleges that BP, who operated the platform, failed to properly inform its shareholders about its security and maintenance programme prior to the accident. What is particular about this case is that the claim was brought by an association under Dutch law as a collective action on behalf of all persons who bought, held or sold BP shares in the three years preceding the accident. It is also important that the shares of BP are dually listed in London and Frankfurt, but not in the Netherlands.
The Rechtbank Amsterdam and the Gerechtshof (Court of Appeal) Amsterdam denied international jurisdiction of the Dutch courts on the grounds that no damage was suffered in the Netherlands.
The Dutch Hoge Raad, to which the dispute was presented at last instance, decided to submit a reference for a preliminary ruling to the CJEU. It wanted to know whether Dutch courts have jurisdiction to decide over (1) the collective action, and (2) any individual claim that may be brought subsequently by BP investors. In addition, the Dutch highest court asked two questions on whether Article 7(2) of the Brussels I bis Regulation determines, besides international jurisdiction, internal territorial jurisdiction as well.
The CJEU held that the Dutch courts have no jurisdiction over the action brought. Importantly, the court also stated that this jurisdiction is independent of the collective nature of the action. It refused to answer the questions regarding international and internal territorial jurisdiction as they would be merely hypothetical at this stage.
The reasoning of the CJEU centres around the well-known question of how purely financial damage is to be localised. This problem has already kept the CJEU busy in many other cases, e.g. Kronhofer, Marinari, Dumez, Kolassa, Universal Music and Löber, to name but a few.
Of these, the most relevant for the current case were Kolassa and Löber, given that both were as well concerned with allegations of incorrect investor information. However, the present case differs from these precedents in that it does not relate to deficiencies of informing the primary market – the market on which financial instruments are issued by the issuer to the investors – through a prospectus. Instead, it concerns deficient information of the secondary market – on which financial instruments are traded amongst investors – through insufficient ad hoc disclosure.
This difference is crucial. In Kolassa and Löber, the CJEU located the loss of investors on the primary market at the place of the investor’s domicile provided that it coincides with the place of establishment of the bank with which the investor held his account. The account meant here was most probably a payment account, because the investor had paid the financial instruments from this account and thus arguably suffered damage there.
The same reasoning could not be applied in the case of Effectenbezitters because many of the investors had already bought (and paid) the financial instruments on the secondary market when the deficient disclosure occurred. The most likely place of the damage they suffered was thus not the place of their payment account, but that of their investment account, i.e. the account in which they hold the BP shares. The difference is important because the payment and the investment account are not necessarily administered by the same institution, and thus do not need to be located at the same place.
Yet in the end, the CJEU did not localise the damage at the place of the investment account. Its main argument was that this would not ensure foreseeability of the competent court in the same way as in the Kolassa and Löber cases (para. 34). Indeed, investors in the secondary market potentially hold their investment accounts anywhere in the world. The issuer could thus not know in which country it may be sued for insufficient investor information.
Instead, the Court opts for the place in which the issuer has to comply with his statutory reporting obligation for the purposes of the listing of its shares on a stock exchange (para. 35). This solution is remarkable. It deviates from the conclusions by AG Sánchez-Bordona, who suggested to disapply Article 7(2) Brussels I bis in such cases for lack of an identifiable place of damage. The Court instead adopts for a ‘market localisation’ of the damage, which has long been defended in the literature.
The collective nature of the action brought is, in the opinion of the Court, “not in itself decisive” for the determination of the place where the harmful event occurred in the sense of Article 7(2) Brussels I bis (para. 36). It thus does not matter for jurisdictional purposes whether the claim is brought on behalf of a number of investors or by an individual investor. In either event, the Dutch courts had no jurisdiction because the BP shares were not listed in the Netherlands.
The ruling of the CJEU is to be welcomed. In particular, the Court must be applauded for rejecting to localise the at the place of the investment account, since such a localisation would have resulted in a dispersal of court competence. This would not only have led to unforeseeable venues from the point of view of the issuer, but also been disadvantageous for investors, as they could have brought a collective action exclusively at the domicile of the issuer (Article 4 in conjunction with Article 63 Brussels I bis).
The solution chosen by the Court to retain the place where shares are listed as the place of damage is certainly ingenious. This criterion leads to predictable results and chimes well with the regulatory duties, which largely depend on the place where the instruments are traded. It also facilitates the bundling of investor claims in collective actions, provided that the law of the country of listing disposes of a mechanism for collective redress. The Court is also right in holding that collective action and individual actions are not treated differently under the current Brussels Ibis regime.
Two points remain open: (1) the place of damage in case of dual listings in the EU, and (2) the place of damage in case of non-listed financial instruments (those that are traded over the counter – OTC). The Court will possibly have the opportunity to clarify these points in later rulings.
While the decision of the CJEU is thus satisfying from a policy point of view, it is hard to reconcile with the option offered in the Bier case between the ‘place where the damage occurred’ and the ‘place of the event which gives rise to and is at the origin of that damage’.
The CJEU allegedly determined the first place in Effectenbezitters, but it needs considerable tongue twisting to say that the ‘damage occurred’ at the place where the issuer failed to fulfil its statutory duties of information. This is rather the place at the origin of the damage than that where the damage occurred. This point is important, as it may create difficulties in the context of Article 4(1) of the Rome II Regulation, which has taken up the first-mentioned prong of the Bier case and refers to the ‘law of the country in which damage occurs’. In reality, the CJEU has created a new, special localisation rule for wrongful investor information cases, which deviates partially from the Bier case. Transposing this case law to the Rome II Regulation may be difficult.
This is merely a first assessment of the case. The European Association of Private International Law will use the occasion of this ruling for an online symposium on the localisation of financial loss. The question is of general importance and has already been addressed several times on this blog (see e.g. the CJEUs Volkswagen judgement or Rechtbank Rotterdam’s judgment in Petrobas). We will discuss it in more depth, with the first contribution coming from Laura van Bochove (Leiden).