Seminar Duty of care. Tom Van Dyck Partner Member of the Bars of Brussels and of New York. Amsterdam 23 April Brussels London

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1 Seminar Duty of care Tom Van Dyck Partner Member of the Bars of Brussels and of New York Amsterdam 23 April 2013 Brussels London

2 Contact details Contact details Thierry Tilquin Head Corporate & Finance Jan Vincent Lindemans Partner Banking jv.lindemans@liedekerke.com Tom Van Dyck Partner Banking t.vandyck@liedekerke.com (direct) (mobile) 2

3 Structure The national setting Remedies Recent case law Recent rules Hot topics of debate 3

4 The national setting (1/3) Key points to note «Never look back at the past with today s glasses» The investor s personality matters Joint negligence results in shared liability «* + se replacer dans le contexte historique, économique et financier, en tenant compte des données économiques et financières qui étaient connues à l époque et en considération des circonstances qu un gestionnaire de fortune normalement prudent pouvait ou devait raisonnablement prévoir» (Brussels, 19 February 2008) «Cerner la personnalité de l investisseur peut se révéler utile en matière de gestion de fortune, que ce soit pour apprécier l étendue de l information à lui donner par le gestionnaire * + *ou] la responsabilité des parties dans les dommages vantés» (Brussels, 14 June 2011) 4

5 The national setting (2/3) Plaintiffs typically sue on various legal grounds Contract law Tort law Financial law MiFID (rules of conduct and organization rules) Prospectus law FSMA Circulars Fair trading law 5

6 The national setting (3/3) Some examples Plaintiffs may argue that they have made an error Wrong presentation of essential characteristics Decisive nature of the error Plaintiffs may argue that they have been deceived Intentional deceit Decisive nature of deceit Plaintiff may argue that the bank was negligent Proof of an error (the bank did not act prudently and diligently) Proof of damages Proof of causal link 6

7 Structure The national setting Remedies Recent case law Recent rules Hot topics of debate 7

8 Remedies (1/3) Typically damages (but with exceptions) Typically a court will award damages Exceptions An agreement that was entered into in breach of laws of public order will be null and void Deny the wrongdoer to initiate a legal claim in court Presumption of causality «Het nadeel dat de belegger wordt berokkend, wordt, behoudens tegenbewijs, geacht het gevolg te zijn van het misleidende, onjuiste of inconsistente karakter, ten aanzien van het prospectus, van de informatie in de reclame of in andere documenten of berichten met betrekking tot de verrichting * +, indien het misleidende, onjuiste of inconsistente karakter dan wel de strijdigheid van deze informatie van die aard is dat een positief klimaat op de markt kon worden gecreëerd of de aankoopprijs van de beleggingsinstrumenten positief kon worden beïnvloed» (Art. 61, 4 in fine Prospectus Law) 8

9 Remedies (2/3) Typically damages (but with exceptions) «Met dit artikel wordt het vermoeden ingevoerd dat er, in geval een financiële dienstverlener naar aanleiding van een financiële verrichting de regels die loyale, billijke en professionele behandeling van de afnemers van financiële producten en diensten beogen niet naleeft, een oorzakelijk verband bestaat tussen deze miskenning en de betrokken beleggingshandeling» (Twin Peaks II, April 2013) Presumption of causality extended to (parts of) MiFID Including information rules Including appropriateness and suitability test Also applicable to services provided under European passport 9

10 Remedies (3/3) Typically damages (but with exceptions) «[Deze bepaling] biedt de mogelijkheid om de nietigverklaring te vorderen van de inschrijving op of de aankoop van op onregelmatige wijze aan het publiek aangeboden beleggingsinstrumenten. Volgende openbare aanbiedingen worden daarbij geviseerd : (a) de openbare aanbiedingen in verband waarmee geen prospectus door de FSMA of de bevoegde buitenlandse autoriteit werd goedgekeurd, * + en (c) de openbare aanbiedingen waarbij reclamestukken in het publiek werden verspreid zonder door de FSMA te zijn goedgekeurd» (Twin Peaks II, April 2013) Nullity as sanction Civil law consequences Increases liability risks of the issuer and the bank ( ) and the advisors 10

11 Structure The national setting Remedies Recent case law Recent rules Hot topics of debate 11

12 Recent case law (1/5) Citibank Sale of structured products issued by Lehman Brothers Key elements Criminal «class action» Fair trading law Pre-MiFID Court of first instance (1 December 2010) reversed by the Court of appeal (21 May 2012) 12

13 Recent case law (2/5) Citibank «Au-delà, si le produit ou le service en cause peut, dans certains cas et pour certains aspects, échapper à la réglementation des pratiques du commerce, dès lors que son émission, son admission à la vente et ses modalités générales de distribution sur le marché (prospectus, documentation promotionnelle, ) sont l objet de législations plus spécifiques (et sans préjudice de l extension de champ d application de la LPPC et de la LPMC, aux termes de l arrêté royal du 5 décembre 2000), il n en demeure pas moins que la manière dont se réalise ensuite concrètement la vente de tels produits aux clients de la banque par les agents de celle-ci peut ne pas être conforme aux obligations résultant de la LPPC * +» «Ce n est pas parce qu un produit financier peut être vendu, ayant satisfait aux conditions légales spécifiques requises, son prospectus et la documentation promotionnelle y afférents étant le reflet sincère de ses caractéristiques, que la manière, les modalités pratiques, selon lesquelles cet instrument est ensuite effectivement proposé, exposé, distribué aux clients satisfait également aux exigences légales en termes d information correcte, loyale et sincère» 13

14 Recent case law (3/5) Citibank Court of first instance (1 December 2010) Citibank found guilty for incorrect and misleading information «Fair trade law reading of financial law» Court of appeal (21 May 2012) Acquittal of criminal liability No proof of a separate intention on behalf of the management of the bank (i.e., in order to be convicted they should have known of the incriminated acts and consented to them which was not proven by the prosecution) Appeal pending with the Supreme Court (2013) 14

15 Recent case law (4/5) Spaar Select Sale of securities leasing agreements and investment mortgage loans Key elements Criminal «class action» Fair trading law and consumer credit Pre-MiFID Court of first instance (29 November 2011) reversed by the Court of Appeal (21 November 2012) 15

16 Recent case law (5/5) Spaar Select Court of first instance (29 November 2011) Conviction of Spaar Select, Delta Lloyd Life, Kempar and one director Court of Appeal (21 November 2012) Acquittal of Spaar Select, Delta Lloyd Life and Kempar Director remains guilty of violation of consumer credit law Criterion of the average consumer Obligation to make reasonable efforts to read and understand the agreement and the associated obligations and risks Obligation to consider all information regarding the product It should be clear that the risk to bear losses is higher when the potential return is higher than the return on a classic savings account 16

17 Structure The national setting Remedies Recent case law Recent rules Hot topics of debate 17

18 Recent rules The moratorium (1/4) «Interventionist» experiments «Due to the financial crisis, there is a growing awareness that: traditional approaches need to be tightened up [and] product intervention may be a necessary complementary regulatory tool» (Jean-Paul Servais, 12 December 2012) ««The MiFID 2/MiFIR powers include product intervention in order to protect investors from inappropriate products or services by banning products. The proposed approach allows both national action and co-ordinated EU responses. The key challenge for ESMA here is the co-ordination of any action taken by national competent authorities. ESMA will need to take account of the fact that some national initiatives may be appropriate to address specific national risks - but other market failures will raise common concerns across the EU. This means that ESMA will have to manage the inevitable differences and co-ordinate accordingly as we should avoid national action creating fragmentation in the market and possibly creating consumer confusion.» (Steven Maijoor, 12 December 2012) 18

19 Recent rules The moratorium (2/4) Moratorium on the distribution of particularly complex structured products The moratorium applies to «Distribution» By a «distributor» To «retail investors» in Belgium Of «structured products» That are deemed «particularly complex» Additional rules Filing of marketing materials Product approval After sales services 19

20 Recent rules The moratorium (3/4) Moratorium on the distribution of particularly complex structured products What is «particularly complex»? Four prong test Step 1: Is the underlying value accessible? Step 2: Is the strategy overly complex? Step 3: Overly complex calculation formula? Step 4: Transparency regarding costs, credit risk and market value? If one of the 4 criteria is not satisfied, the structured product will be deemed «particularly complex» Vagueness is particularly problematic from a distributor s liability perspective (cf. fault-damages-cause) 20

21 Recent rules The moratorium (4/4) Does interventionism work? The case of the Belgian moratorium «It was also mentioned that Belgian investors are moving their capital and investments to trading platforms in other countries such as Germany and Switzerland.» (Marc Wolterink, StructuredRetailProducts.com, December 2012) Courtesy of structurerdretailproducts.com,

22 Structure The national setting Remedies Recent case law Recent rules Hot topics of debate 22

23 Hot topics Assessing risk Impact of criminal law (Citibank shockwave) Cumulative application of financial law and fair trading law Realigning procedures Testing how information is presented and transmitted Tendency towards less execution-only and more suitability Getting ready Twin Peaks II Class actions

24 Contact details Contact details Thierry Tilquin Head Corporate & Finance Jan Vincent Lindemans Partner Banking jv.lindemans@liedekerke.com Tom Van Dyck Partner Banking t.vandyck@liedekerke.com (direct) (mobile) 24