9.6 Concluding remarks

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 mechanisme exist to enforce the publication of reliable information in the prospectus: the public enforcement mechanism and private law liability claims. The liability of issuers and its directors for the prospectus is an example of the laffer. The international nature of the securities market raises the question which law is applicable to a prospectus liability claim?

From 11 January 2009, the rules laid down in the Rome II regulation determine 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/or its directors brought before a Member State's court by investors. Article 4(1) of this regulation prescribes that 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 European Court of Justice on the Brussels I regulation on jurisdiction in civil and commercial matters and its predecessor the Brussels Convention. The damage arising from false or incomplete information in a prospectus is pure financial loss.

The European Court of Justice ruled in Kronhofer that the place where the investor holds his investment account is the place where the direct financial loss is sustained by the investor. A consequence of the universal scope of application of the Rome II regulation as laid down in Article 3 is that investors holding an investment account outside the European Union may bring proceedings against an EU-incorporated issuer and its directors before a court in a Member State and have their domestic prospectus liability laws applied. In the internationalised securities market, 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 Prospectus Directive 2003 to achieve an intemal market for capital by granting a single passport to issuers. I therefore recommend aligning the applicable liability regime to the applicable financial disclosure duties on the basis of the escape-clause Article 4(3) of the Rome II regulation. The connecting factor for the financial disclosure duties prescribed by EU financial market directives is the registered office of the issuer.

This alignment would enhance foreseeability for issuers and investors alike. Furthermore, the proposed connecting factor would also bring about an alignment with the company law disclosure duties in annual accounts, halfyearly reports and interim reports. Moreover, the public enforcement of the prospectus rules by the national competent authority approving the prospectus and the private enforcement of the information contained in the prospectus via the prospectus liability rules are subject to the jurisdiction. If one single law applies, irrespective of cross-border listing, investors can claim damages collectively, because the court is able to rule upon common questions of law or fact.

The escape clause is to be used in exceptional circumstances. Therefore, it may be necessary, when the Member States' courts and the European Court of Justice do not apply this clause in the abovementioned manner, that the European Commission uses its power to propose an amendment that will align the liability regime and the applicable regime of financial disclosure duties.