1.2 Illustration of the problem

When an allegedly misleading prospectus is published and distributed at an initial public offering, it will, as intended by the issuing company and the sponsoring banks, reach a vast number of investors. These investors have, at least, the following legally relevant features in common• an identical defendant, the same prospectus containing allegedly misleading information, a single home Member State's supervisory authority that approved the prospectus, and probably the same kind and/or amount of losses per share.

For reasons of procedural efficiency, equal treatment of investors and expedience, it is worthwhile for the investors as well as the issuing company, if a single person or entity representing the entire group of investors who invested in the same securities on offer is able to initiate collective proceedings against the defendant(s) who is/are responsible for the publication and distribution of the allegedly misleading prospectus. In this way, one single jurisdiction is designated to rule bindingly upon the common legal questions/ issues. The place(s) where the securities were listed or offered to the public is (are) no longer relevant; one court will rule for the entire group of investors who acquired the securities at a particular issue. The defendant company as well as the (group of) investors benefit from this system because litigation on the common legal questions/issues is concentrated within a single jurisdiction. When the courts in this jurisdiction have ruled on these common questions/ issues, the defendant(s) and (a) representative investors association(s) may not wish to continue litigating and will deal with the individual damage claims by collective settlement. For the same reasons of practical/procedural efficiency and expedience, the negotiating parties should be able to bind all the group members to the agreed final settlement, with the exception of those investors who expressly notify that they do not wish to be bound to the settlement.

However, the divergence between the laws applicable to the various prospectus liability claims renders it very problematic to use the aforementioned collective enforcement mechanisms, i.e. collective court proceedings, collective settlement or a combination thereof. First of all, the prospectus roles applied by the home Member State's supervisory authority are very likely to differ from the laws applicable to the private law prospectus liability claims. Because of this divergence, the issuer whose prospectus complies with the information requirements as applied by its home Member State's supervisory authority, may be confronted with different information duties in regard to the private liability claims.

Secondly, this problem is aggravated by the fact that the investors who invested in the same securities on offer are likely to hold their investment accounts in different Member States. In that case, the Rome II regulation prescribes the application of different laws to claims based on a single event: the publication and distribution of a prospectus. The court may not be able to collectively rule on the common questions/issues because it cannot apply a single set of laws to answer them.

Thirdly, even if the court is able to rule on the common legal questions/ issues in collective proceedings, the question crises whether this collective judgment will be recognised in the other Member States. Recognition on the basis of the Brussels I regulation on jurisdiction and enforcement of judgment is necessary to render EU-wide binding and preclusive effect (res judicata) to judgments rendered by a Member State's court.1 Res judicata ensures that the court's rulings in a final and non-appealable judgment can no longer be legally challenged; the parties are precluded from relitigation. In order to be recognised under the Brussels I regime, the judgment must qualify as such on the basis of criteria laid down in that regulation.

The fourth problem is whether a court's judgment declaring a settlement reached between the defendant and a representative investors association as binding (unless the investor opts out) qualifies as a judgment in the sense of the Brussels I regulation.

It is noteworthy that issues in regard to jurisdiction, recognition, preclusive effect and enforcement, particularly arise in court proceedings where members of the group that was affected by the alleged tortfeasor, are not party to the collective proceedings (opt-out collective action models).2 Therefore, special attention is paid to the opt-out collective settlement mechanism available under Dutch Collective Settlement of Mass Damage Act ("WCAM"). In this procedure, the Amsterdam Court of Appeal is requested by petitioners to declare the settlement binding for all interested parties, i.e. persons who suffered loss as a result of the alleged tortfeasor 's behaviour.