Case law Developments in PIL Views and comments

Effectenbezitters: Which Lessons for Applicable Law?

This is the third post of an online symposium on the recent judgment of the CJEU in Vereniging van Effectenbezitters v. BP after the posts of Matthias Lehmann and of Laura van Bochove and Matthias Haentjens.

The author of this post is Prof. Geert van Calster, who teaches at and is Head of the department of European and International Law of the University of Leuven (Belgium), and an independent legal practitioner at the Brussels Bar.


Leiden University’s Round Table on the consequences of CJEU Vereniging van Effectenbezitters v BP (VvE) provided me with an opportunity not just to talk on the consequences of the ruling for applicable law, but also to discuss those views with an excellent group of scholars. That afternoon’s discussion no doubt has had an impact on some of what I write below, however clearly this post is my own responsibility.

Contractual or non-contractual obligations?

Clearly a first element of note is that the applicable law picture looks entirely different depending on whether one is looking at a contractual (triggering application of the Rome I-Regulation) or non-contractual (meaning Rome II will apply) relationship. The general assumption is that in a case like VvE, Rome II is engaged.

This results firstly from parties claiming jurisdiction on the basis of Brussels IA’s tort gateway, Article 7(2). The suggested parallel between the Brussels Ia and Rome Regulations then indicates that where jurisdiction goes, applicable law needs to follow (below I talk more about that parallel).

Further, there is CJEU case-law making a contractual jurisdictional basis unlikely. In CJEU C-366/13 Profit Investment Sim, the Court held that a choice of court contained in a prospectus produced by the bond issuer concerning the issue of bonds may be relied on against a third party who acquired those bonds from a financial intermediary under quite narrow circumstances only. These circumstances include considerations of applicable national law. In CJEU C-375/13 Kolassa the Court held that, on the facts of the case, there were no indications that there was a contract under either the consumer title or the general Article 7(1) gateway, between the holder of a securities account and Barclays, the issuer of certificates held in that account.

On the other hand, following the CJEU’s much stretched notion of ‘contract’ in C-337/17 Feniks and follow-up case-law, I do not think that the existence of a ‘contract’ between the issuer of the financial instruments and the (very) downstream investor can be entirely ruled out.

In the remainder of this post however I shall assume the majority’s intuition that the applicable law analysis be pursued under the Rome II Regulation.

A reminder: the general rule of Article 4(1) Rome II

The standard applicable law rule to purely economic loss, is included in Article 4(1) Rome II and holds that the applicable law is the

law of the country in which the damage occurs irrespective of the country in which the event giving rise to the damage occurred and irrespective of the country or countries in which the indirect consequences of that event occur

There is no specific rule for purely economic loss as such. However, there may be circumstances in which purely economic loss may be covered by one or two of the specific categories included in Rome II. I am thinking in particular of the product liability rules (with discussions on whether financial instruments may be qualified as a ‘product’ under same), and the rules on unfair competition and infringement of competition law.

Further variations to the rule exist in Article 4 itself, and via the scope of applications, which excepts a number of non-contractual obligations hence giving space for residual, national private international law to take over.

Need for absolute parallel between Rome II and Brussels Ia?

To the degree one assumes that Article 7(2) Brussels Ia’s tort jurisdictional gateway, and Rome II’s rules on applicable law for non-contractual obligations need to be applied in synchronicity, clearly a judgment like VvE will have an important impact on the application of Article 4 Rome II’s general rule.

However the CJEU itself is ambivalent on the need for such parallel. In Kainz, the CJEU specifically rejected the need for consistency between Brussels Ia and Rome II, while in other cases the recital’s encouragement of consistency has had an impact on the court’s rulings.

Once must tread with caution therefore in extending the VvE findings to the applicable law discussion. Those with an interest in doing so will find support in the authorities to talk down the impact of VvE on applicable law.

Echoes of an exception, and a tailor-made lex causae not achieved

First the Finnish and then the UK delegation to the Rome II Committee, actually (unsuccessfully) suggested an exclusion from the scope of application for financial instruments. The UK proposal to that effect would have added to Rome II’s exclusions from the scope of application

Non-contractual obligations arising out of transactions, such as issuing, admission to trading, offering or marketing, relating to financial instruments, including transferable securities, moneymarket instruments, units in collective investment undertakings, options, futures and other derivatives instruments

In that discussion reference was also made to the fall-back lex contractus rule for certain financial instruments in Article (4)(1)h of the Rome I Regulation.

When it transpired that the proposal for this exception had the support of neither the EC nor enough Member States, the UK suggested singularity of lex causae by introducing a specific heading for financial instruments in which either the lex loci incorporationis (of the issuer) or the law of the place where the issuer has its primary listing, would be applicable to non-contractual loss.

The former suggestion echoed somewhat the difficulties in establishing the exact scope of Rome II’s corporate law exception (Article 1(2)d Rome II). CJEU Kolassa (a 1980 Rome Convention case) unfortunately failed to bring much clarity on this point.

 National case-law: Petrobas

In Petrobas Rotterdam, the Dutch court identified the locus damni in an investor suit as

the location of the market(s) where the financial instruments are listed and traded.

It emphasised predictability and it conceded a Mozaik effect, including of course application of non-EU laws (in the case at issue, viz the Brazilian and Argentinian investors). This finding might in fact chime with the CJEU in VvE where as other posts on this blog clarify, the

place of statutory duties of information

was upheld as locus damni. This synergy between the finding at the applicable law level in Petrobas, and the jurisdictional criterion in VvE, only applies of course provided all places of listing and trading are subject to such duties.

If one were to apply the ‘law of the place of statutory duties of information’, however, rather like at the jurisdictional level, this would raise the mental twister that this criterion is more akin to locus delicti commissi than locus damni, as Matthias Lehmann has pointed out.

Moreover, like in VvE, such criterion does not help us for unlisted financial instruments.

Finally, Article 4(3)’s ‘manifestly more closely connected’ variation to the lex loci damni rule clearly will give a judge some (but not much: the Article needs to be applied restrictively) room for manoeuvre to identify a different law with more, and intense, affinity to the case.

Help on the horizon? Pending case before the CJEU

As was helpfully pointed out by Tomas Arons at the aforementioned Round Table, in the pending case C-498/20 ZK , in his capacity as liquidator in the bankruptcy of BMA Nederland BV v BMA Braunschweigische Maschinenbauanstalt AG, locus damni considerations in Rome II in a case of purely economic loss (alleged breach of duty of care by a mother holding for allegedly failing to provide its daughter company with adequate financing) are currently sub judice before the CJEU. The judgment in that case will undoubtedly feature VvE and will hopefully clarify the application of Rome II to cases of purely economic loss.

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