On 12 May 2021, the Court of Justice of the European Union (the 'CJEU') held in a landmark decision that the courts of a Member State where a bank or investment firm is located, and with which an investor has an account where direct damage has allegedly occurred as a result of misleading information from a listed company, cannot assume international jurisdiction if the listed company was not subject to statutory disclosure obligations in that Member State. A listed company can only be expected to foresee investor claims in the Member State in which it is subject to disclosure requirements in view of its listing.
The CJEU thus answers the questions that were referred by the Dutch Supreme Court (link) in a security class action initiated by the Dutch Association of Shareholders (Vereniging van Effectenbezitters, 'VEB') against BP Plc. ('BP'). VEB had requested a declaratory judgment on the basis of Article 3:305a Dutch Civil Code regarding BP’s liability towards investors who bought, sold, or held BP Ordinary Shares in the period running up to and just after the 2010 explosion on the Deepwater Horizon oil platform.
Prelude: Kolassa, Universal Music, Löber
Central to the VEB v. BP case is the international jurisdiction in matters relating to tort (Article 7(2) Regulation (EU) 1215/2012 ('Brussels I (Recast)')), which allows a claimant to sue in the courts of the place where either its damage directly occurred (the Erfolgsort) or the event giving rise to the damage took place (the Handlungsort). This head of jurisdiction is an exception to the general rule that defendants can only be sued in the courts of the Member State where they have their domicile. Article 7(2) must therefore be applied restrictively. Moreover, Brussels I (Recast) stipulates that this alternative ground for jurisdiction in matters relating to tort is based on a close connection between the court and the legal action. The existence of a close connection should ensure legal certainty and avoid the possibility of the defendant being sued in a court of a Member State which he could not reasonably have foreseen.
Any determination according to Erfolgsort in cases of purely financial damage, such as securities claims, is generally considered to be particularly difficult. The CJEU has already clarified that the Erfolgsort cannot be located by default where the claimant is domiciled and where its assets are concentrated. Only direct damage can create international jurisdiction.
In previous case law, the CJEU was invited to consider where purely financial damage occurred in prospectus liability cases concerning non-listed securities (see especially Kolassa and Löber). The CJEU favoured jurisdiction of the courts of the place of domicile of the claimant by virtue of where the damage occurred, if such damage arrives directly into the applicant’s account with a bank established within the area of jurisdiction of those courts. The CJEU later clarified that damage which materialises in a bank account is by itself insufficient to establish jurisdiction; there must be other connecting factors. In Kolassa and Löber, the decisive additional circumstance appears to have been that the issuer of the prospectus had also specifically notified such prospectus in Austria, where the investors lived. By notifying and publishing the prospectus in Austria, the issuer availed itself of liability claims in Austria.
See in more detail the Stibbe Blogs on Universal Music and Löber.
CJEU judgment in VEB v. BP
The facts in VEB v. BP are notably different from earlier case law. First of all, it does not concern a prospectus liability claim, but a claim in connection with continuous disclosure requirements. Second, BP's securities were listed in London and Frankfurt. Third, the VEB brought a class action rather than an individual case.
The CJEU acknowledged these differences and held that it is not foreseeable for a listed company that it can be sued in each and every state in which an investor holds an account in which the securities are administered. The criteria related to residence and to the place where the holders of securities hold an account do not, in such a case, enable the issuing company to anticipate international jurisdiction of the courts before which it could be sued. The CJEU concludes that, in the case of a listed company such as BP, only the courts of the Member States in which it was subject to disclosure obligations in view of its listing can be regarded as having jurisdiction by virtue of the occurrence of the damage (following the Erfolgsort). Only in those Member States is it reasonably foreseeable for such a listed company that an investor market exists and that it can be held liable.
This judgment will also have a significant effect on the law applicable to investor claims, because under both Dutch and EU private international law, the Erfolgsort is the decisive element in the determination of the applicable law. As a result of the CJEU's decision, the law applicable to investor claims concerning allegedly misleading disclosures now coincides with the public law regulatory framework.
Moreover, the CJEU very briefly touches upon the collective nature of the securities class action brought by VEB. In short, the domicile of the investors whose interests the VEB promotes, is relevant neither in individual cases nor in class actions.
The Stibbe team consisted of Fons Leijten, Jeroen Kortmann, Winfried van Hemel and Olivier Schotel. In this matter, Stibbe worked alongside Sullivan & Cromwell LLP.
For the coverage in Het Financieele Dagblad, click here (in Dutch; behind paywall).