‘All roads lead to Rome’: Beware of the consequences! The law applicable to prospectus liability claims under the Rome II Regulation

As stated in the introduction, a prospectus aims to ensure investors that they are provided with reliable information about the securities which they are invited to purchase. Two mechanisms exist to enforce the publication of reliable information in the prospectus: the public enforcement mechanism and civil liability claims. The liability of issuers and its directors for the prospectus is an example of the latter. Given the international nature of the securities market, the question has to be answered which law is applicable to a prospectus liability claim? The Rome II Regulation provides from 11 January 2009 the rules to decide which law applies to claims arising
from non-contractual obligations. From the above analysis it is clear that the Rome II Regulation is applicable to prospectus liability claims against the issuing company and its directors or officers, which are brought before a Member State court by investors. Consequently the law applicable to this prospectus liability claim is the law of the country in which the damage occurs: the lex loci damni. The country in which the damage occurs has to be determined in accordance with the respective case-law of the ECJ on the Brussels I Regulation on jurisdiction in civil and commercial matters and its predecessor. The damage arising from false or incomplete information in the prospectus is a pure financial loss. According to the ECJ in Kronhoferthe place where the investor holds his investment account is the place where the direct financial loss is sustained by the investor. Given the universal scope of application of the Rome II Regulation as laid down in Article 3, investors holding an investment account outside the European Union may bring proceedings against the issuer and its directors before a court in a Member State and have their domestic prospectus liability laws applied. Since the securities market has internationalised, issuers and its directors may be confronted with many laws applicable to liability claims arising from the issue of securities through the publication of a prospectus. In my opinion this outcome is not desirable and impedes the objective of the PD 2003 to achieve an internal market for capital by granting a single passport to issuers. I have therefore recommended that the European Commission should either use its power to lay down a proposal to amend the Rome II Regulation, or adopt a Directive which harmonises the national laws with respect to the civil responsibility of the issuing company and its directors. With respect to the adaptation of the Rome II Regulation, I propose a new provision which stipulates that the law applicable to liability claims against the issuer and/or its directors based on the provision of false and/or incomplete information by the issuer and its directors to investors should be the law of the Member State in which the securities are admitted to trading on a regulated market where the actual transaction took place. When securities are not admitted to trading the law applicable to liability claims against the issuer and/or its directors based on the provision of false information by the issuer and its directors to investors should be the law of the Member State in which the prospectus is published (the place where the event giving rise to liability in tort occurred). If the
Rome II Regulation is amended so as to achieve the aforementioned result, I could adhere to the proverb: ‘all roads lead to Rome’.