Dutch-Belgian banking and insurance group Fortis was one of the first European financial institutions of substantial size to be hit by the global financial crisis. An accumulation of events, including the purchase of ABN Amro bank in 2007, the financial crisis and the collapse of Lehman Brothers significantly affected the financial standing of Fortis. Clients lost confidence in the bank and started to withdraw their deposits, threatening Fortis’ continued existence. To prevent Fortis’ immediate demise, on Sunday 28 September 2008 the governments of Belgium, Luxemburg and the Netherlands announced their financial support of the failing group. The Dutch government guaranteed a capital injection of EUR 4.0 billion. However, five days later, on 3 October 2008, nationalisation turned out to be inevitable and as a consequence, Fortis investors saw the value of their investments evaporate: The share price plunged from EUR 5.60 to EUR 1.93.
A group of investors started a collective action. They claimed both Fortis and the State of the Netherlands had made misleading statements about Fortis’ financial situation, which allegedly triggered these investors to buy shares in Fortis. The Amsterdam Court of Appeal held that the statements made by Fortis were misleading, but that the statements made by the State, primarily through the former Minister of Finance, had not misled investors in the run-up to the nationalisation. On 30 September 2016, the Dutch Supreme Court upheld this decision.
What role did the financial crisis play in court? The context of the crisis proved a crucial factor in the decision that the statements made by the State were not misleading. It could, however, be argued that the crisis should have played another role – that of a justification – particularly where it concerns statements, which were almost undeniably misleading. I will illustrate these two distinct roles hereinafter. For that purpose, I will use the Court of Appeal’s distinction between statements made in two periods: i. the period between announcing the first rescue operation (28 September) and the day the Minister knew that more serious measures were necessary (30 September), and ii. the period between the day the Minister knew that more serious measures were necessary (30 September) and the nationalisation (3 October).
An example of a statement by the State in the first period, made immediately after announcing the first rescue operation, was the Finance Minister saying: “Fortis is gered.” (Fortis is saved.) Was this statement misleading, especially considering the nationalisation that took place a few days later? The courts say no. The ‘reasonable investor’ (maatman-belegger) would (or should) have interpreted these words in the light of their context: a global financial crisis, an almost-insolvent Fortis and a dilemma. The phrase “Fortis is saved” did not mean “Fortis is a safe investment”, but “Fortis is saved. For now.” In addition, the Minister had no other option but to brim with confidence to give his rescue plan a chance. This strategy legitimately trumps warning the public that more serious measures may be necessary. The reasonable investor should have considered the Minister’s dilemma in its decision-making. Hence, in the context of the financial crisis this statement was not misleading.
In regard to statements made by the Minister in the second period, the above reasoning does not seem justified. To illustrate this: On 2 October 2008 the Minister informed Parliament about the first rescue operation, withholding that the operation had failed, more serious measures were necessary and that negotiations had started. Would the context of the financial crisis also in this case support the conclusion that these incomplete statements were not misleading? The Court of Appeal answered in the affirmative. The Advocate General of the Supreme Court disagrees. He argues that the information withheld was of such crucial importance to investors, that even within the context of the financial crisis these statements must qualify as misleading. Did the State then disseminate misleading information? Arguably, yes. Would it mean the State should compensate the investors? Probably not, as the financial crisis should have been attributed another role, viz. a justification of the misleading statements. The conclusion therefore should have been that these statements were indeed incomplete and misleading, but that withholding information was justified considering the major interests of the financial system and the public at large.
Both roles will ultimately lead to the same result: the State not having to compensate the investors. Moreover, the investors and Fortis’ successor, Ageas, have agreed on a settlement. So all in all, a satisfactory outcome. The courts acknowledged the turmoil, unprecedentedness and dilemmas characteristic of the financial crisis. However, they neglected to fully exploit the flexibility of our legal system, culminating in a result that failed to set a practically and dogmatically correct precedent for any future crisis.