PROSPECTUS LIABILITY AND PRIVATE INTERNATIONAL LAW
The Netherlands, Curaçao, St. Maarten and the BES-islands
The Netherlands
Since 11 January 2009 Rome II* has been applicable in the Netherlands with regard to the applicable law on non-contractual obligations. Rome II is not applicable in Curaçao, St. Maarten, Aruba and the BES Islands. This observation obviously does not exclude a certain reflex effect.
Rome II applies to events causing loss occurring after 11 January 2009 (Section 31 Rome II). Non-contractual obligations, insofar as they are relevant here, involve obligations arising from (legal) obligations to pay compensation pursuant to a wrongful act (tort).
In my opinion prospectus liability is covered in the scope of Rome II. After all, it is rather generally stipulated in Section 2 subsection 1 of Rome II that the term ‘loss’ means any consequence arising from a wrongful act (onrechtmatige daad), unjust enrichment (ongerechtvaardigde verrijking), management of another’s affairs (zaakwaarneming) or pre-contractual liability (precontractuele aansprakelijkheid). So this also covers pure financial loss (losses suffered, lost profits), which will often be the case in connection with prospectus liability.
Under the operation of Rome II the applicable law must be determined, also by the Dutch court, according to the location where the loss occurs, regardless of in which countries the indirect consequences of this event occur. So it concerns the location where the direct loss has been suffered (lex loci damni). In the event of financial loss, the court must determine in which country the loss has been suffered or the profit was missed; after all, the pure financial loss occurs in that country (Section 4 subsection 1 Rome II). The country where the loss occurs will in many cases (also) be a country other than the country where the investing general public has initially been appealed to by means of a prospectus.
For instance an investor living in Austria comes to mind who subscribes to securities via his investment account held in Germany, which securities are offered by a Dutch issuing company in a prospectus – also – available in Austria. Investors’ losses will often occur in multiple countries. For instance under Rome II the right of the country where the investor holds his investment account is applicable not the right of the primary publication location. For each investor it must be ascertained in which country he suffered his loss or missed his profit.
If there are ten investors who suffered a loss in ten different countries and believe that they have a claim on the grounds of a misleading prospectus (or statements made outside the prospectus which caused confusion amongst the general public relevant for the investment decision) each claim will be governed by the law of the respective country. Moreover, it can happen that one and the same investor holding investment accounts in various countries, suffers losses in multiple countries.
So with regard to the doctrine of prospectus liability Rome II creates uncertainty for the issuing company and its directors, but also for the syndicate leader or others who played a central role in the preparation, guidance and implementation of the issue. Taking the example of ten investors as a starting point, the application of the law of ten countries could therefore lead to very different outcomes. For instance it is quite imaginable that if the WOL case (see my previous posting) had been submitted to the highest court of justice in France, Greece or Germany, and had been assessed according to the national law of the respective court, the final ruling would have been (partly) different. This fact is at least at odds with the starting point of the European (and also Dutch) regulations that investors must be treated equally.
Curaçao and Sint Maarten
Pursuant to the private international law and private inter-regional law of Curaçao (and St. Maarten) prospectus liability is considered as a species of wrongful act (tort) and therefore governed by the law of the country where the wrongful act has been committed (lex locus delicti).
The location where the investing general public has initially been appealed to by means of a prospectus is considered as the location of the wrongful act. In this connection this is also called the primary publication location.
A claim submitted to the court in Curaçao against a Curaçao NV or BV which recommends its shares by means of a prospectus initially issued for instance in the Netherlands or the United States, will be governed by Dutch or American law respectively. This opinion is supported by the ruling with regard to the (then still) Netherlands Antillean company Polynesian NV (Supreme Court 20 December 1985, NJ 1986, 231) which had made available an issue prospectus in the Netherlands. In this ruling Dutch law was applied to the question of whether liability existed for untrue statements included in the prospectus without any considerations of private international or private inter-regional law.
Could this be considered differently? The answer is affirmative. For as long as the legislator has not formulated any rule in this respect and for as long as no available case law points in a certain direction, other connecting factors than the primary publication location are defensible. The country where the (direct) loss occurs comes to mind, or the country where the aggrieved party has his fixed domicile or residence, or (in the event of a listing) the law of the country where the respective securities are included in the listing.
BES (Bonaire, St. Eustatius and Saba)
Pursuant to the private international law and private inter-regional law of the BES Islands, prospectus liability is considered as a species of wrongful act and therefore governed by the law of the country where the wrongful act has been committed (lex locus delicti). The same applies as has been said with regard to Curaçao and St. Maarten.
Karel Frielink
Attorney (Lawyer) / Partner
(20 March 2014)
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* Regulation (EC) no. 864/2007 of the European Parliament and the Council of 11 July 2007 on the law applicable to non-contractual obligations, Official Journal L 199 of 31 July 2007, 40 (‘Rome II‘). See Karel Frielink, ‘Internationale niet-contractuele aansprakelijkheid vanuit Nederlands perspectief‘ (International non-contractual liability from a Dutch perspective), in: F.G.B. Graaf and W.A.K. Rank (edit.), Financiële sector en internationaal privaatrecht (Financial services sector and private international law), Amsterdam: NIBE-SVV 2011, p. 101-114.
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