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Causes of action
Which causes of action can be asserted by claimants in relation to the offer and trade of securities and which are most commonly asserted?
Commonly asserted causes of action before the Luxembourg courts include:
- enforcement measures;
- interim measures;
- internal investigations carried out by boards of managers or directors, or audit committees;
- ut singuli actions; and
- actions for non-compliance with the obligation to provide information or a duty to warn.
In addition, the Luxembourg Financial Services Authority (CSSF) is competent to:
- receive complaints from customers of credit institutions or finance professionals which are subject to the CSSF’s supervision; and
- act as an intermediary in order to seek amicable settlements for such complaints.
The CSSF acts in its capacity as a dispute resolution body, pursuant to EU legislation relating to the out-of-court resolution of consumer disputes, which was transposed into Luxembourg national law and introduced into the Consumer Code in 2016.
Directors’ and officers’ liability
In what circumstances and to what extent can directors and officers be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?
In Luxembourg, a ‘director’ is a person (legal or physical) who manages, among other things, a Luxembourg public limited company, while a ‘manager’ is a person (legal or physical) who manages, among other things, a Luxembourg limited liability company. However, ‘director’ will be used here to refer to both parties, as Luxembourg law makes no distinction between the two in terms of liability.
Management errors and infringement of the law in relation to the offer and trade of securities will, in principle, fall under the general regime governing directors’ liability.
Directors’ liability is a matter of public order, irrespective of whether it concerns their liability to a company or third parties; therefore, it cannot be derogated, by contract or otherwise. However, this approach is divided in Luxembourg legislation (see “Can liability be limited in any way?”).
Under Luxembourg law, directors can bare civil liability for a company’s actions. In addition, criminal and fiscal provisions may be applicable in some situations. Finally, a director can hold special liability in case of insolvency of a company.
In terms of civil liability, a director may be liable towards:
- the company itself on the grounds of management negligence and errors;
- third parties or the company in the event that they have suffered a loss due to the director's infringement of either the law or the company’s articles of association; and
- the shareholders, provided that they have suffered specific damage, distinct from the damage suffered by the company.
Can liability be limited in any way?
In principle, directors' liability is a personal liability of public order which cannot be limited towards third parties or the company.
However, certain legislation states that – taking into consideration the contractual relation between a director and a company (a link based on a mandate) – a company may limit the responsibility of directors towards itself. Thus, it may be considered valid for a clause or contract to limit a director’s responsibility towards the company for mismanagement and errors. However, since there is no known case law in Luxembourg addressing this, it remains to be seen how the courts would consider a clause limiting the responsibility of a director during litigation proceedings.
Notwithstanding the above, a director’s responsibility for breach of law and a company’s articles of association cannot be limited under any circumstances, nor can instances of fault or grave and wilful misconduct.
Luxembourg law also expressly provides for the discharge to a director (or board of directors) by the annual general meeting (AGM) of shareholders on the occasion of approving annual accounts of a company. (This option is provided only for société anonyme.)
In practice, shareholders will often resolve to approve or ratify directors’ actions or decisions during the AGM, in order to limit the directors' responsibility. However, the validity of the discharge granted in circumstances other than approval of annual accounts by the AGM is less clear.
In what circumstances and to what extent can secondary actors (eg, attorneys, auditors and underwriters) be held liable for misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities?
Secondary actors can be held liable in the context of their duties and undertakings. They may be held liable to the extent that they have participated in misrepresentations, omissions or other fraudulent conduct in relation to the offer and trade of securities.
Can liability be limited in any way?
In Luxembourg, case law and Article 1150 of the Civil Code have confirmed the validity of limitation of liability clauses.
The purpose of such clauses is to reduce or eliminate the liability of a contractor for non-performance or improper performance of its obligations.
However, a limitation of liability clause is ineffective:
- in case of fault or grave or wilful misconduct; or
- if it limits the core obligation of the debtor.
The clause cannot in its substance permit the debtor to not execute its contractual obligations.
Under Luxembourg consumer law, the limitation of liability clause may be considered unfair if it creates a significant contractual imbalance between the professional and the consumer.
Who may file securities claims? Are there any restrictions on foreign claimants? Who are the most common claimants (eg, pension funds, institutional investors)?
As a general rule, claims holders are eligible to file claims. Complications can arise from claims held by a financial institution or via a commissioner agreement in the name of a third party. In such cases, a financial institution may be the eligible party to file the claim.
There are no particular restrictions on foreign claimants; however, non-EU claimants can be requested to post a deposit as a security for potential damages following an unsuccessful legal action .
There is no identified category of most common claimants.
Pleading and evidentiary standards
What pleading and evidentiary standards apply to securities claims, including with regard to:
(a) Proof of reliance on the relevant misrepresentation, omission or other fraudulent conduct?
Proof of reliance on the relevant misrepresentation, omission or other fraudulent conduct must be brought by the claimant. The claimant must also prove that the relevant misrepresentation, omission or other fraudulent conduct was decisive.
(b) Proof of loss causation?
The party which has suffered the loss bears the burden of proof of loss causation. This party must prove the causal relationship between the fraudulent conduct or misconduct and the suffered damage.
The damage must result directly from the misconduct.
(c) Materiality requirements?
(d) Scienter requirements?
Fraudulent intent is generally relevant only in cases of criminal offence.
In order for an action to constitute fraudulent intent, two conditions must be cumulatively met. The party must:
- have known or have been aware that it was violating an applicable regulation; and
- have acted intentionally.
(e) Any other requirements, standards or considerations?
What pre-trial disclosure/discovery mechanisms are available to support claims, if any?
Luxembourg does not follow discovery processes. Parties bear the burden of supporting their own claims.
Proceedings in Luxembourg are governed by the adversarial principle, which the judge must observe and enforce under any circumstances (Article 65 of the Civil Procedure Code).
Before the trial and during the proceedings, lawyers must disclose to their opponents all of the evidence that they intend to rely on.
A party may request the judge to order the other party to disclose a specific and determined document if, in the opinion of the requesting party, it is decisive for the dispute. The judge may accept or refuse such a request depending on the circumstances.
What rules and standards govern non-disclosure of documents on the grounds of professional privilege or other confidentiality considerations?
The violation of professional secrecy is a criminal offence under Article 458 of the Criminal Code, which provides the general regime for professional secrecy.
Banking secrecy, as a type of professional secrecy, is further governed by Article 41 of the Law of 5 April 1993 on the financial sector, as amended. Article 41 provides the scope of banking secrecy by stating that directors, members of the governing and supervisory boards, managers, employees and other persons employed by credit institutions and other financial sector professions are required to maintain secrecy regarding the information entrusted to them in the course of their professional business.
Article 41 was substantially amended by the new law voted in by the Luxembourg Chamber of Deputies on 6 February 2018. The aim of the amended law is to facilitate outsourcing by providing, subject to certain conditions, an explicit exception to the professional secrecy obligations for all intragroup outsourcing arrangements.
Lawyers also benefit from professional secrecy and any communications between lawyers or between lawyers and their clients are by default protected by professional secrecy.
What interim measures are available to claimants in securities cases?
There are no specific provisions governing interim measures issued by the courts in cases relating to securities disputes.
However, under the Civil Procedure Code, interim measures are available:
- in case of emergency and if there is no serious challenge;
- to prevent imminent damage; and
- to stop a manifestly unlawful act.
A judge sitting in interim proceedings cannot review the merits of the case and is entitled to issue an immediately enforceable order.
Statute of limitations
What is the statute of limitations for filing claims?
The standard time limit is set forth in Article 2262 of the Civil Code, which enacts a 30-year general law prescription.
A shorter time limit of 10 years is applicable in commercial matters.
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