On 12 September 2018, the Court of Justice of the European Union (CJEU) confirmed that in prospectus liability cases, a court can only assume international jurisdiction on the basis that the alleged damage consists of purely financial loss which occurred directly in an investor's bank account held with a bank established within its jurisdiction if additional specific circumstances also contribute to that court assuming jurisdiction.
The CJEU thus confirms its earlier judgment in an almost identical case, Kolassa, as explained in the subsequent Universal Music judgment (which was reported in an earlier Stibbe Blog)
Ms Löber – of Vienna, Austria – purchased securities that were issued by Barclays Bank – with its seat in London, UK, and a branch in Frankfurt, Germany – on the basis of a German 'base prospectus' which was also notified in Austria. She purchased the securities through two investment accounts held with two separate Austrian banks, one in Salzburg and one in Graz, while she held a bank account (or current account) with a bank in Vienna. The funds invested in the securities were used in a pyramid scheme, rendering them substantively worthless. Ms Löber sought to recover damages from Barclays before a court in Vienna, arguing that she had relied on the misleading prospectus in making her investment decision.
Legal framework and preliminary questions
The general rule under the Brussels I Regulation is that the court of the Member State where the defendant is domiciled has international jurisdiction. The guiding principle in this respect is that the rules of jurisdiction must be highly predictable. The Brussels I Regulation provides for a number of special and exclusive heads of jurisdiction derogating from this general rule. These are exhaustively listed and justified from the perspective of proximity of the court to evidence and the sound administration of justice. In matters relating to tort, Article 5(3) allows a claimant to bring his case before the court of the place where the harmful event occurred. According to standing case law, starting with Bier, this place encompasses both the both the place where the damage occurred (the Erfolgsort) and the place of the event giving rise to it (the Handlungsort) and it is for the claimant to decide which court is seized.
The questions of whether purely financial damage can create an Erfolgsort on which the court can base jurisdiction, and where to localise the purely financial damage has given rise to a considerable body of case law. As Article 5(3) is to be interpreted strictly, the Erfolgsort cannot be construed so extensively that it also includes any place where the adverse consequences of an event, which has already caused damage elsewhere, can be felt. In other words: only the courts of the place where damage is directly suffered have international jurisdiction under Article 5(3). As such, the CJEU has held in Kronhofer that the Erfolgsort does not refer to the place where the claimant is domiciled or where his assets are concentrated.
In Kolassa, the CJEU held that in prospectus liability cases the courts of the claimant's domicile have jurisdiction based on the Erfolgsort, "particularly when the damage alleged occurred directly in the applicant’s bank account held with a bank established within the area of jurisdiction of those courts". In the subsequent Universal Music judgment, the CJEU clarified this finding, notwithstanding that Universal Music concerned a rather different factual context. It essentially held that Kolassa should be seen in the specific context of that case, which consisted of a number of specific circumstances jointly contributing to the attribution of jurisdiction to those courts. Consequently, purely financial damage occurring in the claimant's bank account alone is insufficient to create a relevant Erfolgsort.
CJEU's findings in Löber
In Löber, the CJEU further reconciled the decisions in Kolassa and Universal Music and applied the framework articulated in both judgments to Ms Löber's case. The CJEU first established that Ms Löber was domiciled in Austria and all the relevant payments in relation to the purchase of the securities were made from accounts held with Austrian banks. Then, the CJEU went on to list the further additional circumstances that are required to establish jurisdiction of the Austrian courts in this specific case:
- the securities were purchased on the Austrian secondary market;
- the prospectus in relation to the securities at issue was notified with the Austrian financial supervisory authority;
- Ms Löber relied on the misleading prospectus when making an investment decision; and
- the contract obliging her to make the investment, which resulted in the definitive reduction in her assets, was signed in Austria
In conclusion, the CJEU held that the courts of Austria had jurisdiction over the tort action brought by Ms Löber. This attribution of jurisdiction was partially based the specific circumstances required as previously mentioned by the CJEU in Kolassa and Universal Music. Furthermore, the CJEU observed that this conclusion was consistent with the objectives of legal certainty, proximity of the court to the dispute and the sound administration of justice.
The OGH in Volkswagen
While the Austrian Supreme Court (OGH) referred Löber to the CJEU for a preliminary ruling, it did not do so in a different case it had to decide only two months later in re Volkswagen. In the latter case, an unnamed private investor (Mr J) alleged that Volkswagen had made misrepresentations that had misled him and the wider investing public regarding diesel engine emissions. As the true nature of the matter surfaced, share prices plunged. The investor claimed to have suffered price loss as a result.
To establish the international jurisdiction of the Austrian courts, the investor relied on the CJEU's judgment in Kolassa. Mr J argued that as the Volkswagen securities were 'located' in his account held with an Austrian bank and he suffered direct losses in Austria, the Erfolgsort should be located there as well. The OGH, however, rejected this argument outright and found it unnecessary to await the outcome of the CJEU's ruling in Löber, since the Volkswagen case concerned listed securities – i.e. securities that are admitted to trading on a regulated market – and no argument based on prospectus liability was advanced. Instead, the OGH localised the Erfolgsort in Germany, as all relevant connecting factors – the regulated market, the global note and the issuer – were located there. As a result, it could at most be said that indirect financial loss was suffered in Austria, which, according to standing case law of the CJEU, is not enough for the Austrian courts to assume international jurisdiction.
The two Austrian cases discussed above, Löber and Volkswagen, show that international jurisdiction based on the Erfolgsort in cases of purely financial damage will depend on a comprehensive assessment of all the evidence before the court seized. The CJEU did not offer a more general catalogue of circumstances on which claimants can rely in order to determine the jurisdiction of courts in tort claims claiming financial damages. It is clear, however, that it is not enough to rely only on the confluence of domicile and location of a bank account in which damage is directly suffered. A claimant should state additional circumstances that justify derogation from the main rule that only the court of the defendant's domicile has jurisdiction.
Note: While Council Regulation (EC) No. 44/2001 ('Brussels I') has been replaced by Regulation (EU) No. 1215/2012 ('Brussels I (Recast)'), no material changes have been made to with respect to alternative jurisdiction in tort cases. Thus, Löber remains relevant for the interpretation of what is now Article 7(2) Brussels I (Recast).