The damage limb of Bier: pure financial loss in bad investment cases
Cases in which ‘damage’ takes the form of pure financial loss, that is, financial loss which is not derived from or the result of personal injury, or damage to or loss of property, are harder to deal with. One may take as an example a case in which the claimant is supplied with advice which is negligent or fraudulent, on which he acts by acquiring an asset and instructing his bank to release the funds to pay for the asset to be acquired. By the time the acquisition is completed, it is clear that several States may have been involved. The advice may be received in England; the decision to act on it is taken while the claimant is in Spain, from where he telephones his German agent to acquire securities in Belgium, then giving instructions to his Swiss bank to transfer funds to a Luxembourg bank, after which the securities are delivered or transferred to his agent in Belgium. If at the end of all this the securities turn out to be worthless, with the undeniable truth that loss occurred,[1] what was the place where it arose?
There is no obviously right answer: the conclusion to which the law comes must be derived from what appears to be the underlying reason for the rule. The traditional response of the English lawyer might have been to look to the place where the advice was received and acted upon, but where receipt and acting are separated in time and place the problem is not solved. Another view might be that if the real loss is parting with money, the place where the loss arises is the place where the money (except that it is not money, so maybe ‘recorded wealth’ is better) passed out of the claimant’s control and is irreversibly lost, though this might allow the claimant to determine the place where the loss arises by careful selection of the source of payment. On another view, if the loss is not seen as the payment out of money but as the acquisition of something worthless, the loss may arise where this is acquired, or where the relevant proprietorship is electronically recorded.
In Kronhofer v Maier, an Austrian claimant had been induced by a German entity to make investments. The claimant transferred funds from Austria to an investment account in Germany, and this was then used by the defendant to purchase worthless securities. The claimant sought to sue in Austria, on the ground that the ultimate or final damage, which was really loss, had occurred there. But according to the judgment, this was not to be permitted, as the investments, and the departure of funds from an account in Germany, had all been in Germany. The European Court did not suggest that the loss might be seen as the earlier transmission of funds from the claimant’s Austrian bank, observing without comment that that analysis had not commended itself to the referring court. The contention of the claimant that his loss occurred in Austria, because that was where he was established, was rejected. The judgment offers no clear guidance on the proposition that the loss occurred in Austria because it was from there that the funds were pushed out onto a slippery slope, but it is to be inferred that this was not the place where the loss occurred, because although at that point loss had come a step closer, the claimant could still have recalled his money, and it had not therefore been lost. Not until it was paid out of the German investment account was the money lost.
In Kolassa v Barclays Bank Pic™ an investor asserted that false statements in a bond issuer’s prospectus had caused him to make an investment contract with an intermediary which had an interest derived from the bond; the investor did not have a direct contractual relationship with the issuer. The investment failed, and the investor sued the issuer. The European Court ruled that the investor was permitted to say that the loss occurred in the relevant bank account. Unfortunately, it did not explain whether this reference was to the account from which the purchase money had been paid out in the first place, or the investment account with the intermediary in which was held and recorded the customer’s (worthless) entitlement in relation to the bond. Both accounts were in Austria, but the ambiguity in the judgment was a puzzle.
The judgment was also open to criticism on the ground that the place of the account from which the funds were sent and lost was liable to be hidden from the defendant and - surely implausibly in all but the oddest of cases - open to manipulation by the claimant. In Universal Music International Holding BV v Schilling,[2] which was not an investment case, a company had sustained loss when a lawyer advised it to conclude a share purchase contract which exposed it to disastrous liabilities to the counterparty. The company baulked at paying; its dispute with the counterparty was settled by an arbitration agreement which the company signed. When the company sued the lawyers whose negligence had landed it in the mire, the judgment indicated - not following what had been said in Kolassa - that the place where the loss occurred was not that of the account from which payments were made, but the place where the company concluded the contractual obligation which committed it to sustaining losses. Unfortunately, the Court did not explain whether the contract it had in mind was the original share purchase contract or the arbitration/settlement contract: both had been concluded in the Czech Republic, but again, the ambiguity in the judgment was a real problem. But wherever it was, the relevant place was not that of the debited bank account.
In Lober v Barclays Bank Plc,2i' the facts of which were materially indistinguishable from those of Kolassa, the Court, rejecting the advice of its Advocate General, reverted to the view that the place of the claimant’s depleted bank account could be seen as the place of the occurrence of the damage. Although it observed that there were additional points of contact with that place, it concluded that the objective of the Brussels Regulation ‘which is to strengthen the legal protection of persons established in the European Union by enabling the applicant to identify easily the court in which he may sue and the defendant reasonably to foresee in which court he may be sued, is met by upholding as the place where the damage occurred the place where the bank is established in which the applicant possessed the bank account in which the damage occurred’. As there was no contractual relationship with Barclays, the issuer of the bond, it would be very difficult to claim that it could have foreseen where Ms Lober’s loss would occur. But that may simply reflect that Barclays’ business model was one in which it chose to expose itself to such risks.
The result is that we are back where we began, and that the usual answer will be that the loss occurs in, and at the place of, the bank account which was depleted, certainly so if there are other material points of contact with that place. The alternatives are probably worse. The Universal Music analysis, locating the damage at the place at which a contract is concluded and a commitment is created, works when contracts are made by both parties signing a single document in an office, but it works far less well when they deal remotely; and an approach which requires a court to assemble and weigh a number of connections is the very opposite of what legal certainty calls for. Unless the Court changes its mind again, investment and similar financial loss will occur in the bank account from which the money goes out and is lost to the account holder. And there is no rational reason to restrict this analysis to cases of financial loss by investment.
- [1] No point is taken as to the point in time at which the loss occurs. 2 Or the equivalent of money, such as the debt owed to a customer by his bank. 3 C-168/02, [2004] ECR1-6009. See also (on identification of the governing law) Hillside (New Media) Ltd v Baasland [2010] EWHC 3336 (Comm), [2010] 2 CLC 986. 4 CfMXI Ltd vFarahzad [2018] EWHC 1041 (Ch), [2018] 1 WLR 5553. 5 C-375/13, EU:C:2O15:37, [2016] 1 All ER (Comm) 733. The effect was also to allow the investor to sue the Bank where the investor was domiciled, this being ‘justified’ on the basis that they should have been expected to be sued wherever an investor might invest: see at [54]—[56].
- [2] C-12/15, EU:C:2016:449, [2016] QB 967. 2 At [30] the judgment refers to the share purchase agreement; at [32] to the settlement agreement; and both were concluded in the Czech Republic. 3 C-304/17, EU:C:2018:701. See further C-709/19 Vereniging van Effectenbezitters v BP Pic (pending). 4 So where the notes are purchased and paid for from Russia, this head of jurisdiction will be unavailable: Tsareva v Ananyev [2019] EWHC 2414 (Comm).
