9.2 Single passport, prospectus liability claims and lex loci damni

The objective of the Prospectus Directive 2003 is to grant issuers a single passport in order to facilitate the widest possible access to investment capital.1 This single passport is granted by the competent authority of the home Member State.2 As already mentioned in the introduction, the private law liability of the issuer for the information in the prospectus is not harmonised. Issuers and their directors may therefore be confronted with prospectus claims to which different laws apply. The possible multiplicity of jurisdictions and applicable private law prospectus liability regimes may deter cross-border offerings of securities in order to reduce the possibility of multiple court proceedings. The consequence is that one of the main objectives of the Prospectus Directive 2003 to achieve an interaal market for capital will not be realised.

The rules of private international law in the different Member States determine the law applicable to prospectus liability claims. At present, the Rome II regulation prescribes the application of the lex loci damni for claims brought before courts in the European Union3 As a consequence, the law of the place where the direct damage occurs is applicable to all claims arising from non-contractual obligations, including claims for pure financial loss, brought before a competent court in any Member State. In section 8.3 it will be analysed whether prospectus liability claims fall into the categories which are excluded from the scope of the Rome II regulation. If not, the law of the place where the direct damage occurs is applicable to prospectus liability claims.

If the law of the place where the financial loss was sustained by the investor, as interpreted by the European Court of Justice in Kronhofer in regard to jurisdiction onder the Brussels I Regulation, is applicable to prospectus liability claims, issuing companies, its directors and the lead manager and/or other sponsoring banks could face the application of many different prospectus liability rules as a result of the fact that investors are likely to have their investment accounts in many jurisdictions given the increasingly globalised financial markets.

The question is whether the lex loci damni-rule does not create unjustified uncertainty as to which law is applicable. It is impossible for the issuer and its directors to foresee the place where the direct damage to the investor occurred. Moreover, the `arbitrary' application of different laws with respect to identical claims related to the same securities could infringe upon the equal treatment of investors.

As I concluded in chapter 7, the private law liability regimes applicable to claims arising from false or misleading information in prospectuses differ widely between the Member States in the protection that it provides to investors incurring a financial loss as a result of the unfortunate investment based upon the misinformation.4 Therefore, it is important for issuers, its directors, the lead manager and/or other sponsoring banks and investors alike to have a conflict of law rule with respect to the prospectus liability that 'strikes a für balance between the interests of the person claimed to be liable and the person sustaining the damage'.5