Kolassa: Which Court has Jurisdiction in Prospectus Liability Cases?
Published 23 June 2015
Earlier this year, the Court of Justice of the European Union ("CJEU") delivered a significant ruling in relation to jurisdiction in Kolassa v Barclays Bank (C-375/13), a claim relating to bonds purchased in reliance on a wrong prospectus. The decision is important to the future handling of investor claims.
In early 2006, Mr Kolassa, an Austrian-domiciled consumer, invested €68,180.36 in index certificates ("the Certificates") which had been issued by Barclays Bank plc ("Barclays"). The investment was made through the Austrian bank direktanlage.at AG ("the Bank"). The Bank had ordered the Certificates from its German parent company, DAB Bank AG, which had in turn acquired them from Barclays. The Bank held the Certificates on behalf of Mr Kolassa, and they could not be transferred into his name. At the time of issuing the Certificates, Barclays also distributed a prospectus dated 22 September 2005.
A German investment company was engaged by Barclays to invest the funds raised by the issue of the Certificates. The investment failed, and at the time of the CJEU's ruling the Certificates were estimated to be worthless (although Mr Kolassa contested that valuation).
Mr Kolassa issued a claim against Barclays in Austria for €73,705. He alleged contractual, pre-contractual, tortious and delictual liability on the part of Barclays. Barclays refuted the substantive claim and also challenged the jurisdiction of the Austrian Court to hear it. The Austrian Court referred the question of jurisdiction under Articles 15(1), 5(1) and 5(3) of the Brussels Regulation to the CJEU.
The CJEU considered the question of jurisdiction under each of Articles 15(1), 5(1) and 5(3) of the Brussels Regulation in turn:
This Article provides that a consumer may bring proceedings in the Courts of the member state where the other party is domiciled, or the courts for the place where the consumer is domiciled. However, proceedings may only be brought in the consumer's domicile if three conditions are met: (i) the party to the contract is a consumer, (ii) the contract between the consumer and the professional has been concluded, and (iii) the contract falls into one of the categories referred to in Article 15(1)(a)–(c). In this case, because Mr Kolassa had purchased the investment via a professional intermediary (the Bank), no contract had actually been concluded between him and Barclays, and he was therefore precluded from relying on Article 15(1) in order to assert Austrian jurisdiction.
This Article provides that, in matters relating to contract, a person may be sued in the place of performance of the obligations in question. Unlike 15(1), this article does not require a contract to have been concluded. However, it does require the potential defendant to have "freely assumed an obligation" to the potential Claimant. The CJEU held that in this case, such a legal obligation was lacking, even though Barclays did have certain obligations to Mr Kolassa under Austrian law.
According to this Article, a person may be sued in matters relating to tort in the place where the harmful event occurred. In this case, the CJEU held that the place where the damage occurred for the purposes of this Article was "the place where Mr Kolassa suffered" loss. The loss occurred directly in Mr Kolassa's bank account, which was held at a bank established in Austria, and the Austrian courts therefore had jurisdiction. The CJEU stated that this approach was consistent with the Brussel's Regulation's objective of predictability because it is easy for a claimant to identify where he may bring proceedings, and for a defendant to reasonably foresee where he might be sued on this basis.
The principles applied by the CJEU in relation to Articles 15(1) and 5(1) are well established. However, its approach to Article 5(3) is potentially significant for those who may face prospectus liability claims. The fact that Mr Kolassa invested through an Austrian Bank where he was domiciled, and the precise mechanics of that investment through the Bank and its German parent company, were key to the CJEU's analysis. This can be seen to be unhelpful in that, despite the Court's confirmation that its finding was in line with the objective of predictability, it adds a degree of uncertainty for defendants. They will need to know not only the domicile of a potential claimant but also where their bank account is established, and the practical mechanics of their investment in order to predict which courts will have jurisdiction over any claim.
Moreover, there remains some uncertainty as to whether the CJEU decision would have been different had Mr Kolassa been domiciled in Austria, but had held his bank account in a different jurisdiction. Under the Brussels Regulation regime, it is not the claimant's domicile but the defendant's domicile that is relevant, and outside the consumer protection context, there has to be some other factor(s) to justify displacing the usual rule that the claimant must sue in the defendant's domicile. If the "other factor" was (on these facts) that Barclays' Prospectus was published in Austria, then the CJEU unhelpfully did not address this in its decision.
The decision exposes a lacuna in the consumer protection regime under the Regulation and a strained approach by the courts to afford the claimant the same ability to sue in his place of domicile as he would have had had there been a contract with Barclays. Given the jurisdictional difficulties that can arise, care should be taken by directors and officers responsible for preparing the Prospectus to ensure that exclusive jurisdiction provisions and choice of law clauses are included within the Prospectus wording.