On April 1 2011 the Luxembourg District Court rendered seven decisions on the issue of admissibility of actions that were brought by investors in an investment fund (which was governed by the laws of the Cayman Islands) against the bank which acted as custodian and administrative agent.


The claimants alleged that:

  • they had subscribed for shares in the fund;
  • the fund used the subscription moneys for investments in the United States;
  • following revelations of fraud, the net asset value of the shares had been suspended; and
  • no reimbursement of the initial stakes could be expected.

The claimants asserted that the bank was liable because it had failed to supervise the fund's assets; moreover, it had failed to comply with its contractual obligations under the custodian agreement and the administration agreement into which the fund and the bank had entered under Luxembourg law. The claimants brought actions directly against the bank for damages in the amount of the lost value of their investment.


The court dismissed the actions and declared them inadmissible on the grounds of lack of standing.

Although the claimants pleaded only under Luxembourg law (ie, the law of the court), the bank invoked the application of foreign law - namely, the law of the Cayman Islands. The bank argued that the case law of the Grand Court of the Cayman Islands demonstrates that the recovery of so-called 'reflective losses' is prohibited. According to such case law, individual shareholders cannot claim for a fall in value of their investment as a result of loss or damage inflicted on the company. Rather, the loss is the company's and may be claimed only by the company. The bank argued that a similar rule would apply under Luxembourg law:

"The application of a foreign law must occur through the application of the case law of the state in question. In view of the fact that both the case law invoked by the defendant and the lex fori reject the corporate action exercised by a shareholder, it is appropriate to state that the claimant's application should be declared inadmissible for lack of standing to sue."


The court has confirmed that a party which invokes the application of a foreign law must prove its content, "especially where there is a dispute as to the existence of the right invoked". The Luxembourg Court of Appeal has traditionally considered foreign law as a matter of fact,(1) and has held that the rules of conflict of laws are not mandatory. Thus, parties that want the court to rule under foreign law should establish the content thereof.(2) Since foreign law is characterised as a fact, proof thereof may be adduced by providing the court with sources of the foreign law (eg, statute or case law) or an opinion by foreign legal counsel.(3) Where the specific content of the applicable foreign law is not proven, the law of the jurisdiction in which the action is brought should be applied in the alternative. Nevertheless, the Luxembourg courts may apply the European Convention of June 7 1968 on Information on Foreign Law (where applicable) if the parties fail to provide all necessary information on the content of the foreign law in question. They may also apply foreign law ex officio in certain circumstances, particular where the status or legal capacity of natural persons is concerned.

On the claims in question, the court held that the law of the fund also governed the rights of its shareholders:

"By entering into a company contract, future shareholders are governed by their own free will under the jurisdiction of the law of the registered office and accept the competence thereof with respect to any possible difficulties. In this case, the law of the Cayman Islands defines the rights and status of the subscribers."

The judgments remain subject to appeal.

For further information on this topic please contact François Kremer or Clara Mara-Marhuenda at Arendt & Medernach by telephone (+352 40 787 81), fax (+352 40 780 4) or email ([email protected] or [email protected]).


(1) Schockweiler and Wiwinius, Le droit international privé au Grand-Duché de Luxembourg, 157, p52; Court of Appeal, December 22 1916, Pas Lux 10, page 14.

(2) Court of Appeal, June 7 1969, Pas Lux 22, page 39.

(3) Schockweiler and Wiwinius, ibid, 164, page 54.