Cross-border Enforcement of Listed Companies' Duties to Inform (IVOR nr. 87) 2012/3.3:3.3 Administrative proceedings

Cross-border Enforcement of Listed Companies' Duties to Inform (IVOR nr. 87) 2012/3.3

3.3 Administrative proceedings

Documentgegevens:

mr.drs. T.M.C. Arons, datum 07-05-2012

Datum: 07-05-2012
Auteur: mr.drs. T.M.C. Arons
JCDI: JCDI:ADS370840:1
Vakgebied(en): Ondernemingsrecht (V)

The information contained in the prospectus has to conform to a double standard and is subject to a double enforcement mechanism: public enforcement by the AFM and private enforcement by investors claiming damages for a misleading prospectus.

The private law duty to inform the investor fairly, honestly and accurately and not to make misleading statements is not laid down in a special provision of the Dutch Civil Code for investors.1 However, this duty can be derived from the general tort law rule laid down in section 6:162(1) DCC and the application of the lex specialis rules laid down in sections 6:193a up to and including 193j DCC. These rules are applicable to consumers, including non-professional investors. The particular rules regarding private law prospectus liability will be dealt with in the next paragraphs.

On the other hand, the FSA and Prospectus Regulation 2004 determine which information must be mentioned in the prospectus. Section 5:13 FSA2 is the public law equivalent of the private law misleading norm. The public enforcement of the content requirements of the prospectus is first of all achieved by the mandatory approval of the prospectus before publication and distribution thereofby a competent authority of a Member State. In the Netherlands, the AFM is the authority competent to perform this test. In principle, the test does not encompass more than a tick-off checklist with respect to subjects, format and signatures.

Furthermore, it is not the AFM's duty to investigate whether the issuer behaved tortiously towards third parties.3 However the AFM has, on the basis of section 1:80 FSA, the competence to impose a fine (bestuurlijke boete) on the issuer who is under a duty to publish a prospectus if the prospectus violates the public law information duties laid down in Prospectus Regulation 2004 even after the AFM has given its approval with respect to the prospectus.4 Besides the aforementioned competence to impose a fine, the adoption of the Unfair Commercial Practices Act introduced section 8.8 in the Consumer Protection Enforcement Act (Wet handhaving consumentenbescherming, CPEA). This section states that the trader has to comply with the unfair commercial practices rules laid down in the DCC.5 The AFM is competent6 to impose a fine or to impose an order for incremental penalty payments (last onder dwangsom) if the trader violates the unfair commercial practices rules.7 As a consequence of this competence, the AFM can use public law sanctions against any issuer including those that are exempted on the basis of sections 5:3 or 5:4 FSA from the duty to publish a prospectus.8 It is stil unclear how the competences to impose public law sanctions on the basis of section 1:80 FSA and section 8:8 of the Consumer Protection Enforcement Act respectively are related.9

On the one hand, compliance with the FSA standard does not disculpate in the case of a private enforcement action. On the other hand, a violation of the FMSA provisions is not automatically a violation of the private law norm. Violation of these public law provisions is not necessarily sufficient to qualify as misleading. However, a judge confronted with a private law prospectus liability claim will take account of the public law provisions with respect to the content requirements of the prospectus, if at least one of the litigating parties submits this claim.10

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Cf. s. 44 German Stock Exchange Act (Börsengesetz) and s. 90 of the UK Financial Services and Markets Act 2000.

S. 5:13 FSA: 'The prospectus shall contain all information which, according to the particular nature of the issuer and of the securities offered to the public or admitted to trading on a regulated market, is necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and losses, and prospects of the issuer and of any guarantor, and of the rights attaching to such securities, in particular the information as mentioned in, the annexes included, article 3 up to and including 23 of the PR 2004. This information shall be presented in an easily analysable and comprehensible forma S. 5:13 FSA is the implementation of art. 5PD 2003.

S. 1:25(2) FSA: 'Under this Act, the Authority for the Financial Markets shall be required to exercise the supervision of conduct of the financial markets and to decide on the admission of financial enterprises to those markets.'

Notice that the annex to s. 1:80 FSA does not contain a reference to s. 5:13 FSA.

Notice that s. 6:193f(f) DCC refers to s. 5:13 FSA. This suggests that the AFM can impose a fine or an order for incremental penalty payments for a breach of s. 5:13 FSA even though it is not included in the annex to s. 1:80 FSA.

An intra-Community infringement is not a requirement even though s. 3:1 CPEA refers to the AFM as the competent authority for intra-Community infringements of the unfair commercial practices. Frielink in his commentary in JOR (2009) 195 notes correctly that the legislator in the Bill Financial Markets 2010 Amendment Act (Wijzigingswet financiële markten 2010) intended to extend the scope of application of ss. 3.3 and 3.4 CPEA to `national' infringements but astonishingly did not amend s. 3.1 so as to achieve this extension. In the Act fmally adopted, the legislator maintained this anomaly.

S. 3.4(4) CPEA. Lieverse, in my opinion, correctly argues that the public enforcement of private law norms by the AFM, and in appeal, the administrative courts, creates the undesirable possibility of different rulings between the administrative court and the civil court regarding the same private law norm. Lieverse (2010), p. 105.

See also: Boomsma (2010), p. 54. It is noteworthy that the Unfair Commercial Practices Act introduced a new provision (s. 3:305d(1) DCC) on the basis of which the AFM can request The Hague Court of Appeal to order the person who commits a violation in the sense of s. 1:1(k) of the CPEA to stop this violation. S. 1:1(k) CPEA states that a violation is an infringement (s. 1:1(f) CPEA: 'any act or omission contrary to the laws that protect consumers' interests, as defined in the Annexes to his act, that harms, or is likely to harm, the collective interests of consumers.') or an intra-Community infringement (s. 1:1(g) CPEA refers for a definition of an intra-Community infringement to s. 3(b) of the Regulation on consumer protection cooperation.). S. 3.3(1) of the Consumer Protection Enforcement Act states that the AFM can, amongst others, file a request on the basis of s. 3:305d DCC if there is an intra-Community infringement of the misleading advertising rules laid down in ss 6:194 and 6:195 DCC and the intra-Community infringement is related to a financial service or a financial activity. A financial service or financial activity is a financial service in the sense of s. 1:1 FSA or an offer of securities to the public or an admission of securities on a regulated market situated in the Netherlands in the sense of s. 5:2 FSA. S. 3.4(4) CPEA does not allow the AFM to request The Hague Court of Appeal on the basis of s. 3:305d(3) DCC to order the trader who violates the unfair commercial practices rules of the DCC to rectify the misleading information. Unlike the Consumer Authority (Consumentenautoriteit) on the basis of s. 2.6 CPEA, the AFM cannot be a party to a settlement agreement with the violator, and request the Amsterdam Court of Appeal to declare, in proceedings created by the Collective Settlement of Mass Damage Act, this agreement binding on all the persons affected by the violation unless they opt-out. For critique on this competence of the Consumer Authority because of the potential inequality between the negotiating parties to such a settlement contract created by the Consumer Authority's dual role, I refer to Meerdink (2010), pp. 208-209. In chapter 8, I will elaborate upon this procedure created by the Collective Settlement of Mass Damage Act (WCAM).

Notice that the Unfair Commercial Practices Act introduced a new provision (s. 3:305d(3) DCC) on the basis of which foundations or associations with full legal capacity whose articles state that it seeks the protection of similar interest of other persons can request The Hague Court of Appeal to order the person who commits an unfair commercial practice to rectify the information.

10.

In Boterenbrood v Mees Pierson, the Dutch Supreme Court made use of the public law rules with respect to the content requirement of the prospectus in its judgment whether the private placement memorandum (or prospectus) is misleading. The public law provisions have to be considered as the reasonable information standards for investors at that time. Dutch Supreme Court 8 May 1998, Boterenbrood v Mees Pierson, NJ 1998 (888), para. 3.9.