Investor protection through contractual and non contractual remedies

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Barry Turner
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1 Investor protection through contractual and non contractual remedies Herbert Kronke Emeritus Professor, Heidelberg University Judge, Iran United States Claims Tribunal, The Hague Seminar, Oslo 2 3 May 2018

2 contractual v. non contractual Heidelberg University Rome I applicable 17 Dec 2009 Rome II applicable 11 Jan 2009 statistics German cases all reported cases = pre Rome I/Rome II Contractual characterization Delictual characterization S. Ct. (BGH) 2 4 C.A. (OLG) D.C. (LG) 6 2 (+ 1 distinguishing) 1 distinguishing

3 Contractual v. non contractual Heidelberg University Culpa in contrahendo, the most frequently asserted claim, in Germany and many other legal systems traditionally characterized as contractual Article 2 (I) Rome II culpa in contrahendo changing places Predictable consequences for investor protection within Rome system

4 The law s objectives and the legal concepts (tools) employed Axiom Investor protection = market protection Consumer protection = specific rules (Article 6 Rome I) designed to regulate specific markets, subject to functional carve outs (Articles 6 (4) (d) (e) and 4 (1) (h)) Axiom regulation of society (incl. markets) at large, i.e. beyond individual transactions non-contractual liability Rome II specific legislation

5 Types of contract on secondary market intermediary contract for investor traders (e.g. banks, brokers) sale + purchase buyer custodian custody account holder stock exchange multilateral bringing together [only participants] clearing & settlement c&s [depending] other financial services e.g. agency principal, etc.

6 Non compliance with regulatory framework Obligations Liability in case of non compliance Primary market: to publish a prospectus (substantivelaw harmonised) Art. 156 Swiss PILA, Art. 114 Belgian PILA Claims based on misrepresentations governed by lex societatis of issuer elsewhere, depending on characterization, contractual v. delictual alternative approach: law of market (?) akzessorische Anknüpfung / rattachement accesoire / secondary connection mechanism

7 Non compliance with regulatory framework Specifically: inaccurate prospectuses after entry into force of Rome II Typical absence of pre or quasi contractual relationship between issuer and as yet unidentified members of public Disappearance of principle of ubiquity and most favourable principle and replacement by lex loci damni But: potential plurality of places where investors affected and predictability for issuers and intermediaries general connecting factor ill suited, adaptation required Solution: law of the relevant market governs

8 Proposal German Council for PIL Heidelberg University Article 6 a Rome II Regulation: Illicit acts on the financial market (new) (1) The law applicable to a non contractual obligation arising out of an illicit act on the financial market shall be the law of the country where the affected financial instrument has been admitted to trading on a regulated market. In the case of multiple listings, the law applicable shall be the law of the country where the financial instrument was acquired or disposed of. The same shall apply in the case of trading outside a regulated market unless the person claimed to be liable could not reasonably foresee this law. (2) Where it is clear from all the circumstances of the case that the act is manifestly more closely connected with a country other than that indicated in paragraph 1, the law of that other country shall apply. (3) Where the law applicable cannot be determined on the basis of paragraph 1, the noncontractual obligation shall be subject to the law of the country with which it is most closely connected. (4) If the illicit act affects markets in more than one country, the person seeking compensation for damage who sues in the court of the domicile of the defendant may instead choose to base his or her claim on the law of the court seised, provided that the financial instrument has been admitted to trading on a regulated market in this Member State or is publicly offered there. (5)Where an illicit act on the financial market affects exclusively the interests of a specific person, Articles 4 and 14 shall apply. (6) The law applicable pursuant to paragraphs 1 to 4 may be derogated from only by an agreement entered into after the event giving rise to the damage occurred.

EUROPEAN UNION. Brussels, 22 June 2007 (OR. en) 2003/0168 (COD) C6-0142/2007 PE-CONS 3619/07 JUSTCIV 140 CODEC 528

EUROPEAN UNION. Brussels, 22 June 2007 (OR. en) 2003/0168 (COD) C6-0142/2007 PE-CONS 3619/07 JUSTCIV 140 CODEC 528 EUROPEAN UNION THE EUROPEAN PARLIAMT THE COUNCIL Brussels, 22 June 2007 (OR. en) 2003/0168 (COD) C6-0142/2007 PE-CONS 3619/07 JUSTCIV 140 CODEC 528 LEGISLATIVE ACTS AND OTHER INSTRUMTS Subject: REGULATION