The authors of this post are Dr. Laura van Bochove (Assistant Professor at Leiden University) and Prof Dr Matthias Haentjens (Professor of Private Law at Leiden University)
On 3 June 2021, Leiden University hosted a seminar with international experts from the judiciary, law firms, civil service and academia to discuss the recent CJEU judgement in Vereniging van Effectenbezitters v. BP. The discussion clearly showed that the judgment may be interpreted differently. Some experts, including Matthias Lehmann (see here), argued that in VEB/BP, the CJEU refused to localise the Erfolgsort at the place of an investment account and, instead, localised damage at the place of listing. We see some merit in attributing jurisdiction to the court of the place of listing, but we do not think the CJEU has chosen such a radical departure from existing case law. Rather, we believe the CJEU continues to (try to) localize the Erfolgsort, also in cases of financial loss, and may continue to consider as connecting factors in that context the investment account, possibly next to the place of listing.
We believe VEB/BP represents another change in direction. We see that the CJEU introduced ‘foreseeability’ as a relevant consideration when having to determine the place where losses have materialized. This clearly derogates from previous CJEU case law and raises new questions.
Connecting factor #1: bank account
One of the participants to our seminar, Dorine Verheij, once said that when a Dutchman rides his bike on the Champs-Elysees and gets hit by a 2CV, it is clear in which jurisdiction the damage was caused and also where it materialized. This is not so for financial loss. Financial loss, by its very nature, is immaterial and therefore as a matter of logic, not localizable. However, the CJEU has continued to (try to) localize the Erfolgsort in several financial loss cases, including Kronhofer, Kolassa, Universal Music and Löber. This case law has been fiercely criticized in legal literature. In his Opinion in VEB/BP, Advocate General Campos Sánchez-Bordona sided with this critique and suggested to abandon the Erfolgsort in financial loss cases. The CJEU did not follow suit, and we believe this is a strong indication the Court continues to (try to) localize the Erfolgsort, also in cases of financial loss. Moreover, the Court did not explicitly depart from the case law just referred to (ie Kronhofer, Kolassa, Universal Music and Löber). In these cases, the court considered as relevant connecting factors the applicant’s “bank account” (Kolassa, Löber, Universal) as well as “other specific circumstances of that situation” (Löber). In VEB/BP, the Court specifically considered the “investment account” as a possible connecting factor, whilst that it held that this factor was insufficient to attribute jurisdiction in this case.
As one of us has written elsewhere, we believe that when securities have lost value or have become worthless, possibly as a result of misleading information from the issuer of the securities, any losses suffered by the owner of the securities concern those securities specifically. Thus, it is the relevant securities account in which those securities are credited, that is the ‘place’ where the financial loss materializes (wherever that may be), rather than in any bank account from out of which these securities were initially purchased. We therefore believe it is welcome that the Court has now clarified that it is the ‘investment account’ (rather than the bank account) that may be of relevance as a connecting factor when having to determine where to localize financial loss. However, and as we have also argued elsewhere, the localization of an investment account (which we thus understand to be the relevant securities account) is dogmatically and logically impossible, since securities accounts have no physical location. This fact makes a securities account or ‘investment account’ unsuitable for any attribution of jurisdiction.
In the VEB/BP case, however, the Court concluded for other reasons that the ‘investment account’ was not adequate as a connecting factor to attribute jurisdiction to the court of the Member State where the account is held, as it held that as a connecting factor, an investment account could not ‘ensure’ the ‘objective of foreseeability’. Before we turn to discuss foreseeability as a connecting factor, first we will pay attention to the ‘place of listing’, which the Court introduced in VEB/BP as a possible connecting factor.
Connecting factor #2: the place of listing
Which factors should be considered relevant or decisive so as to attribute jurisdiction in a specific case, remains elusive. In Kronhofer, the Court held that the place of the applicant’s domicile may not be sufficient if the relevant investment account is located in another jurisdiction. This judgment did not say, however, which connecting factor would suffice to attribute jurisdiction. When the place of the applicant’s domicile coincides with the relevant investment account, this may suffice, the Court held in Kolassa and Löber. But in Universal Music, the Court dismissed this combination of connecting factors on the ground that the other case law concerned a “specific context” (yet without explaining what the element of distinction was), so that “the ‘place where the harmful event occurred’ may not be construed as being, failing any other connecting factors, the place in a Member State where the damage occurred, when that damage consists exclusively of financial damage which materialises directly in the bank account of the applicant and is the direct result of an unlawful act committed in another Member State.” Arguably, in VEB/BP, the Court found such ‘other connecting factor’ in the place of listing.
More specifically, in paragraph 35 the CJEU held:
“It follows that, in the case of a listed company such as that at issue in the main proceedings, only the jurisdiction of the courts of the Member States in which that company has complied, for the purposes of its listing on the stock exchange, with the statutory reporting obligations can be established on the basis of the place where the damage occurred. It is only in those Member States that such a company can reasonably foresee the existence of an investment market and incur liability.”
In isolation, this paragraph appears to provide for a clear jurisdiction rule, attributing jurisdiction on the basis of the place where the damage occurred to the courts of the Member State in which the listed company has complied, for the purposes of its listing on the stock exchange, with the statutory reporting obligations (the place of listing). However, this paragraph  must not be considered in isolation, as indicated by the introductory words “[i]t follows that”. These words refer to the previous paragraph , where the CJEU held that in the present case, the applicant’s domicile and the place of its investment account would not ensure the objective of foreseeability. In other words, the CJEU held in paragraph  that the combination of connecting factors that were considered sufficient for attribution of jurisdiction in Löber and Kolassa, proved inadequate in the present case, as it would not guarantee that the defendant would be able to reasonably foresee where it could be sued.
We think the Court has been most persuasive where it held that in financial loss cases such as VEB/BP, the location of the applicant’s investment account is arbitrary and not reasonably foreseeable for the defendant, ie the issuer of the relevant securities. However, this does not mean that the place of listing can logically be considered as a ‘place where the damage occurred’, as the Court seems to suggest. Neither should this be interpreted to mean that the place of listing suffices, in and by itself, as a connecting factor that can attribute jurisdiction, because the Court gives no indication that it departed from earlier case law.
First, the place of listing is a place where securities are traded. This place has no, if only indirect relevance for the localization of the place “where the alleged damage actually manifests itself” (Löber, cited in VEB/BP, para. 31), ie the place “where the applicant has suffered financial consequences” (VEB/BP, para. 29). An investor commonly orders his investment firm (ie bank or broker), to acquire or sell certain financial instruments. The investment firm may proceed to acquire those instruments, for that investor, on a regulated exchange, but these can also be acquired on other official trading venues such as multilateral trading facilities, organized trading facilities, or even internally settled on the books of the investment firm. This practical reality shows, we think, that the investor does not “suffer financial consequences” on the place of listing (possibly with the exception of the rare instance where the investor itself is an admitted member of an exchange). We therefore think the place of listing may be a relevant connecting factor, but logically in most cases it cannot qualify as an Erfolgsort.
Second, the Court introduced the place of listing only in the context of foreseeability of damage. It did not explicitly (or implicitly) depart from its earlier case law, where other connecting factors were considered adequate as discussed above. Therefore, we consider it likely (but the Court does not make this explicit), that the Court may continue to consider the investment account as the place where financial damage ‘actually manifests itself’, but that this connecting factor was not deemed sufficient in the present case for reasons of foreseeability only. Rather, the Court seemed to imply that the place of the investment account may be considered foreseeable for the defendant only if that defendant’s securities are listed in the same Member State. If anything, this interpretation would accord (better) with Kolassa and Löber.
Relevant circumstance: foreseeability
Whilst we welcome the Court’s dismissal of the investment account as a sole connecting factor in the present case, the CJEU’s introduction of and reliance on ‘reasonable foreseeability’ as a relevant circumstance is not unproblematic, as the CJEU’s interpretation of ‘reasonable foreseeability’ in VEB/BP seems to deviate from its previous case law. In that earlier case law, the threshold for foreseeability is often low, as illustrated in the ‘Dieselgate’ case VKI/Volkswagen. In that case, the CJEU attributed jurisdiction to the courts of the place where the applicants bought their cars from a third party. This third party virtually never was the same as the defendant that equipped the cars with manipulative software. Here, the CJEU held that that the manufacturer ‘by knowingly contravening the statutory requirements imposed on it’ may reasonably expect to be sued in the courts of the place where the car was purchased by the final purchaser, even though this could potentially lead to the jurisdiction of the courts of all EU member states, since the purchases of second-hand or imported cars were not excluded. Similarly, in eDate Advertising, the CJEU readily assumed the foreseeability of the place of damage in case of online infringement of personality rights, which could be anywhere where the content on the website was accessible.
Thus, in VEB/BP the CJEU seemed to have interpreted ‘reasonable foreseeability’ more restrictively and as a ground to deny jurisdiction, whilst in VKI/Volkswagen and eDate Advertising the Court used reasonable foreseeability more liberally and as a ground to attribute jurisdiction. Put differently, on the basis of VKI/Volkswagen and eDate Advertising, one could have expected the CJEU to attribute jurisdiction in VEB/BP to the courts of the Netherlands, as BP directs its activities and communications to investors worldwide. But we would think that the Court’s relatively strict interpretation of ‘foreseeability’ in VEB/BP accords better with the objectives of Brussels Ibis, ie ensuring legal certainty by preventing a multiplicity of courts having jurisdiction. Whether the CJEU will use a similar, strict interpretation of reasonable foreseeability in future cases remains to be seen.
VEB/BP and future case law
The VEB/BP case was eagerly awaited, especially by Dutch investors, multinationals and their lawyers. Should the CJEU have attributed jurisdiction to the Netherlands, this would have allowed other collective actions for investment losses to be opened in the Netherlands, making the Dutch courts an attractive go-to jurisdiction for the recovery of investment losses. This now seems to have been limited to cases where the financial losses were ‘reasonably foreseeable’ to have materialised in the Netherlands. Consequently, the CJEU’s judgment in VEB/BP will also have implications for other pending cases, including VEB’s pending collective action in the Amsterdam court against Volkswagen for misleading information in relation to ‘Dieselgate’.
We believe VEB/BP is to be applauded in view of the objectives of the Brussel Ibis Regulation, as the Court has dismissed the investment account which has always been highly unreliable a connecting factor. However, the Court’s reasoning gives rise to several new questions which does not seem helpful for applicants or defendants, including: has the investment account been permanently dismissed as a connecting factor? (we think not); is the place of listing to be considered as the sole connecting factor in cases concerning listed securities? (we think not); is reasonable foreseeability now to be interpreted strictly? (we are doubtful). It is to be hoped that the CJEU answers these questions in future cases, which will be as eagerly awaited as VEB/BP.