I was recently contacted by a client who lost several million US dollars due to negligent investment advice. Because the firm is based overseas, the client did not know what to do. Unfortunately, this scenario has become all too common in the wake of the global financial crisis.
Whether your claim is against an institution based in the U.S., the EU or elsewhere, you have a number of options. I will very generally touch on them below.
Many wealthy investors rely on foreign investment advisers who are typically employed by international financial institutions.
Unfortunately, as a result of the global financial crisis many investments advisers understated the risks involved with – for example in structured products linked to stock market indices.
Almost all legal systems have a concept of negligence, which would make a financial adviser potentially liable if the quality of their advice fell below that to be reasonably expected, causing loss to a client.
Your adviser is also very likely to be subject to local financial regulation and supervision that might include compensation schemes. But where these options are not available locally, or have proved unsatisfactory, your only option might be to sue.
Where should the lawsuit be filed?
Do not assume you have to sue in the courts of the country where the adviser is located: there is often a choice, including the courts where you are domiciled or the courts of some other country. Exercising that choice is critical tactical decision that you must discuss with your attorney.
Do I have a choice of where to file a lawsuit?
Every court has its own laws about its jurisdiction. While the general rule is that you can sue where the defendant is domiciled, there might also be the option of proceeding in the place of the relevant branch or agency involved, or where the service was provided. Procedural rules in the U.S. and in the EU, for example, provide the circumstances in which courts have jurisdiction, and that often provides a choice.
The choice of where to sue may also be the subject of a private agreement. The contract with the investment adviser has many small-print terms and conditions. The small print typically specifies the court (or arbitral tribunal) that will have jurisdiction in the event of dispute.
Does that mean I have no choice?
The courts will generally respect such “jurisdiction agreements”, which prevent you from suing elsewhere, but this might not be binding in your case. There may be technical arguments that the terms and conditions were not incorporated into the contract or that insufficient effort was made to ensure you were aware of them.
Also, “consumers” can often avoid the unfair and onerous effects of terms and conditions. It is generally regarded as unfair for such individuals to have to bring proceedings overseas, and therefore their local court usually has jurisdiction.
In Standard Bank London v Apostolakis (2001), for example, the bank tried unsuccessfully to enforce an English jurisdiction agreement against a couple in Greece who had been trading substantial “forward purchases of foreign exchange in precious metal trading”.
But the contract says it is governed by overseas law..
The “choice-of-law clause” can be a factor but mostly has no bearing on the choice of court. A court can apply foreign laws, although it might need expert evidence.
If I have a choice, what factors should I take into account?
- Judgment Recognition
It is important that any judgment obtained in one court is “recognized” by the courts of the place where you might want to enforce the judgment – which will be where the defendant has any assets. In the U.S., many states have enacted variations of the Uniform Enforcement of Foreign Judgments Act.
If your judgment was the subject of an arbitration, the judgment is enforceable in any country that has signed on to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (over 142 countries are parties to the Convention).
Time is also an important consideration, as some courts – in Italy and Germany, for example – are notoriously slow. There have been cases of potential defendants filing their own proceedings in Italy for the express purpose of delay.
- Quality of Courts
The quality of courts and local lawyers is also important. There are courts, even within the EU, that have the reputation of being susceptible to corruption and most developing-world courts are best avoided. In the U.S, the integrity and quality of the courts are generally first rate.
From a practical standpoint, it’s also worth considering where the defendant would not want to be sued, as that should influence their decision to settle the dispute.
Of course, there many other important considerations that must be discussed with an attorney. I have merely presented a broad overview of the process.