Extract taken from 'The Securities Ligation Review – edition 5'
Private enforcement
i Forms of action
Prospectus liability
Section 12(1) of the Capital Markets Act sets out the fundamental requirement that a prospectus must include the information necessary to enable investors to make an informed assessment of the issuer and the rights attached to the securities.
The cause of action available to an investor seeking damages for misleading or untrue statements in prospectuses has been established by the Danish courts on the basis of the general Danish rule of non-contractual liability (culpa liability).
According to Danish case law, in particular the Danish Supreme Court judgment in Hafnia and the Danish Supreme Court judgment in BankTrelleborg, persons responsible for a prospectus may incur liability for investor losses caused by defects in the prospectus that, overall, are of significant importance to an investor's assessment of the issuer. It is further required that the defects are attributable to those responsible for the prospectus, and that those responsible acted intentionally or negligently.
With regard to causal nexus between the material defects in the prospectus and the loss suffered, the Danish Supreme Court established in BankTrelleborg that when a prospectus suffers from material defects, there is a presumption that the share subscription process would not have taken place, had the information in the prospectus been correct and adequate. BankTrelleborg thus places the burden of proof as to causal nexus in cases about prospectus liability on the defendant.
The group of persons responsible for a prospectus naturally includes the issuer and the persons listed in the prospectus as being responsible. In addition, it is recognised in Danish case law and legal literature that it is not in itself decisive who is formally held to be responsible for the prospectus. The crucial question is whether that person has in fact taken part in the offering phase or in the drafting of the prospectus. Thus, it is recognised that the actual participation in the preparation of a prospectus may form the basis of prospectus liability.
As an example, in Hafnia, two investors commenced proceedings against the bankruptcy estate and the company's auditors as well as against the bank acting as the financial adviser. Interestingly, in the judgment of 2 September 1999 of the Maritime and Commercial High Court, all defendants were held liable for the losses suffered as a result of an inadequate prospectus. However, on appeal, the Supreme Court did not find the prospectus to suffer from material defects, and, therefore, the Supreme Court reversed the judgment. Consequently, based on an assessment of the circumstances in each individual case, the person who takes part in the offering phase as an investment bank, auditor, lawyer, adviser, originator business, etc., may incur liability. Naturally, the tasks and roles in the offering phase of the individual persons are likely to differ significantly and may also prove to be different from one case to another.
Liability for other published information
The MAR, which entered into force in Denmark on 3 July 2016, and the Capital Markets Act (formerly the Securities Trading Act) provide the causes of action for investors seeking recovery of losses suffered as a result of reliance on published information (other than a prospectus), or where published information has been delayed without justification.
Pursuant to MAR Article 17(1), an issuer of securities must inform the public as soon as possible of inside information that directly concerns that issuer. Article 7 defines inside information as:
information of a precise nature;that has not been made public;that directly or indirectly concerns the issuer; andthat if it were made public would be likely to have a significant effect on the prices of the financial instruments.
An intermediate step in a protracted process is deemed to be inside information; see MAR Article 7(3).
MAR Article 17(1) introduced a significant change in Danish law, as it replaced the 'reality principle' set out in the then applicable Section 27 of the Securities Trading Act, according to which an issuer was only required to disclose information upon the coming into existence of the relevant circumstance or the occurrence of the relevant event. Thus, under the former rule, inside information about, for example, ongoing negotiations in connection with an acquisition was only to be disclosed when the negotiations led to an actual result. Under the MAR, an issuer may, in such cases, instead make use of the possibility of delaying disclosure in MAR Article 17(4).
Pursuant to MAR Article 17(4), an issuer may, on its own responsibility, delay disclosure of inside information, if:
immediate disclosure is likely to prejudice the legitimate interests of the issuer or emission allowance market participant;delay of disclosure is not likely to mislead the public; andthe issuer or emission allowance market participant is able to ensure the confidentiality of that information.
The DFSA must be informed immediately after the disclosure of inside information when the disclosure has been delayed, and the issuer must give the DFSA a written explanation of how the requirements of delay were met. Therefore, when delaying disclosure of inside information, the issuer should make sure it is able to document its fulfilment of the requirements during the entire period in which the disclosure was delayed.
ii Procedure
In Denmark, the procedure in relation to securities actions is set out in the AJA, which governs all aspects of both civil (third book) and criminal (fourth book) proceedings.
Civil court proceedings in Denmark are divided into two stages: written pretrial preparation and trial hearing in court.
Proceedings are commenced by the filing of a writ of summons. Since 2 February 2018, all civil cases, including Supreme Court cases, are instituted and processed using a digital portal made available by the courts.
Subsequently, the defendant files a statement of defence before a date determined by the court. After having received the statement of defence, the court will arrange for a pretrial hearing, which will usually be held as a telephone conference. At this point, the parties will be expected to agree on a timeline for the remaining case preparation and, if possible, set a trial date. In complex cases, there will usually be a need for further exchange of pleadings and possibly expert reports before the trial hearing.
The pretrial process outlines the scope of the case. If a party wishes to expand the claim, to make new submissions or to produce new evidence after the pretrial process, this may only be done with the permission of the court. There is no general obligation of disclosure or discovery as known in common law jurisdictions. However, upon request from a party and in limited circumstances, the court may order a party or a third party to produce specific evidence, such as documents.
The trial hearing is conducted orally. As a general rule, depositions are not used under Danish law. A party intending to rely on a witness statement must, therefore, call the witness before the court.
The costs connected with a civil action in Denmark are:
court fees;litigation costs, including witness compensation and expenses for expert opinions and translations; andcosts for legal counsel.
Pursuant to the general rule in AJA Section 312, the unsuccessful party must compensate the prevailing party for the costs incurred as a result of the action. However, such reimbursement is determined by the court and generally only covers part of the actual costs incurred. Litigants must, therefore, typically be prepared to pay a significant part of their own legal costs, including when succeeding in their claim.
Since 2008, Danish procedural law has allowed group litigation, which is commonly used by investors seeking recovery of losses. The cases of Hafnia and BankTrelleborg are both relevant examples.
iii Settlements
As it is also known in other jurisdictions, parties to Danish court proceedings have a duty to examine the possibilities for a settlement. The parties can choose to settle at any point during the case proceedings by entering into a settlement agreement. The parties may decide to have the settlement confirmed by the court by way of a court settlement, which is entered in the court records and is enforceable without further formality.
iv Damages and remedies
Under the general law of damages in Denmark, an investor is entitled to be compensated in full so that the investor is restored to the position in which the investor would have been, had the purchase of shares not taken place.
Damages are calculated based on the following three fundamental principles:
a principle of restitution, meaning that the injured party is to be fully compensated for his or her loss;the injured party should obtain no enrichment from the damages; andthe injured party has a duty to mitigate his or her loss.
Danish law does not allow punitive damages or compensation without actual loss except for particular statutory provisions.
