Volume 4, Issue 2

This article provides a short introduction to the present special issue of the Journal of European Tort Law, which aims to tackle the relationship of tort law and the financial crisis from a comprehensive, three-fold perspective by focusing on all the ‘main players’: banking institutions, the rating agencies and the supervisory authorities.

This article outlines what roles the banks have played in the subprime crisis and whether liability for damages sustained may be incurred. Apart from the conventional responsibility of banks towards their clients within the framework of wealth management or advisory services, the particular issue of possible liability for the creation and placement of investment products on the market is explored. Many questions which remain unanswered or are barely discussed are raised in the article. Independently of prospectus liability arising under specific legislative provision, is there a general tortious responsibility for providing incorrect information in connection with the issuing of securities? Is strict liability for the creation of dangerous products a realistic alternative – or supplement – to liability based on fault? Can individuals or institutions who were only indirectly involved as secondary victims claim compensation? In addition to the grounds of liability, other delicate legal questions are addressed, particularly relating to causation. For instance, it may not be clear whether an error in information or rather general market euphoria was the decisive factor in the investment decision. If, moreover, one wanted to extend liability to a large number of persons involved, the causal contributions of the individual banks may barely be determinable and could well be minimal. This leads to the question of whether procedural law is capable of dealing with such cases of loss.

The article deals with the liability of Credit Rating Agencies (CRAs) for inaccurate ratings towards issuers, clients and any other third party in a comparative perspective. The author focuses on the remedies granted, in particular, to clients of banks who have suffered a loss due to the CRA’s faulty rating, highlighting the substantive differences existing in the jurisdictions considered. It pleads for the introduction of a ‘cap’ to CRA’s liability, as a means to reconcile the statement of liability of CRAs whilst preventing the ‘opening the floodgates’ to compensation which would result in a crushing liability on CRAs.

In the wake of the global financial crisis, this article considers the tort liability of financial supervisory authorities to depositors and other investors following the failure of a bank or other financial institution. The analysis is comparative, with the primary focus being on the member states of the European Union. Consideration is given to the five liability categories or standards which are employed by EU member states in such cases. These are (1) a public law illegality standard; (2) a standard of ordinary fault/negligence; (3) a standard of gross fault/negligence; (4) a requirement of bad faith; and (5) complete immunity from liability. It is also shown that on the application of general tort principles claims by depositors against financial supervisors face a range of obstacles, including difficulties in establishing fault and causation, and conceptual difficulties based on the nature of the damage (the pure economic loss issue), liability for omissions and for the deliberate acts of third parties, liability for the exercise of judicial or ‘quasi-judicial’ functions, and the ‘protective purpose of the norm’ principle. Finally, consideration is given to alternative means of redress which may be available to depositors in such cases.

We are on the eve of the materialisation of a series of major global risks. They pose unprecedented challenges, also for lawyers. If society at large does not change course radically, many people will be adversely affected. Traditionally, lawyers focus on ex post remedies. While that may be unavoidable in relation to the run-of-the-mill cases, it is not the most promising approach in relation to the colossal damage that will be caused by the looming global crises if we stick to business as usual. This contribution advocates a shift of paradigm. I doubt whether damages is a serious option. Instead, we should focus on preventive remedies.