Two important Italian rulings on right to withdraw from securities transactions

Two recent rulings establish important principles relating to a retail investor’s right of withdrawal from a securities transaction. In both cases an investor was seeking nullity of a loss-making (for the investor) transaction, alleging that it had not been provided, at the time of signing, with necessary information regarding its right to withdraw from a transaction signed “off-premises”, as required by Italian law. Allen & Overy acted for the successful party in both cases. (Judgment No. 403 dated 21 March 2016, the Court of Bolzano, Judgment No. 201 dated 17 February 2016, Ancona Court of Appeal)

Ancona Court of Appeal rules that distributor’s office is not “off-premises”

Article 30, paras 6 and 7 of Legislative Decree No. 58/1998 (TUF) states that a placement and portfolio management agreement, if signed “off-premises” (ie at a place other than the “legal seat or the branch” of the placer) is null and void unless it contains a clause that informs the retail investor of its right of withdrawal.

A retail investor made an investment with an Italian bank (the Placer), which was responsible for placing, in Italy, securities (Securities) issued by a company (Issuer) owned by a European bank. The investor, after having signed a master agreement with the Placer, went to the office of a distributor of the Placer, where he signed a confirmation (confirmation) to buy some Securities.

When the issuer defaulted under the Securities, the investor sued the Placer and the Issuer, alleging that the confirmation be declared null and void because, inter alia,:

• the Securities had been purchased at the private office of a financial distributor of the Placer;
• this office was not the “seat” or “branch” of the Placer; therefore the subscription took place “off premises” within the scope of Article 30 TUF; and
• the confirmation did not, as required by Article 30 TUF, contain a clause on the right of withdrawal.

At first instance, the Court dismissed the investor’s claim and found that the placement of the Securities did not take place “off-premises”. The Ancona Court of Appeal agreed:

• the office of a financial distributor has to be considered as a “seat” or “branch” of a placer especially if there is clear evidence (eg the placer’s signs) at the office which shows an investor that the distributor’s office is “a local branch” of the placer; and
• the rationale of Article 30 TUF is to protect a client caught “by surprise”: this happens in cases where the offer takes place outside the premises of a financial intermediary, with the risk that the investor might make inadequately considered investment choices. This is not however the case when an investor consciously goes to a distributor’s office.

Court of Bolzano rules on right of withdrawal in master agreement

There was a similar fact pattern in this case. The investor alleged, inter alia, that the investment was made “off premises” and that the disclosure of the right of withdrawal was contained only in the master agreement which was not suitable in terms of meeting the requirements of Article 30 TUF. The investor further argued that Article 30 TUF requires that the disclosure in question should be repeated in each subsequent confirmation made by an investor to purchase securities.

The Court of Bolzano, despite finding that the investment in question had been made “off premises”, dismissed the investor’s claim. It ruled that, under Article 30 TUF it is sufficient that the right of withdrawal is contained only in the master agreement. It is not necessary for it to be also in each future investment confirmation, signed in accordance with the master agreement. However, this only applies if subsequent confirmations are signed very shortly after the date of signature of the master agreement, so there is in effect a “single investment transaction”. In this case three months was classed as “very shortly”.

Comment

Article 30 TUF does not prescribe specifically in what contractual document (ie the master agreement or each single confirmation) a right of withdrawal should be included. In 2013 in an obiter dictum the Joint Divisions of the Supreme Court¹ stated that the right of withdrawal should be communicated whenever a retail investor decides to make an investment “off-premises”. Despite the Bolzano court quoting this finding, it ruled in favour of the bank because the confirmation was signed only a few months after the master agreement (where the right of withdrawal was actually contained) and, as a consequence, the investor was considered duly informed pursuant to Article 30 TUF.

The Joint Divisions of the Supreme Court also ruled that, although Article 30 TUF only contemplates nullity of two types of investment services (ie placement and management of portfolios), the nullity has to be applied to additional investment services (such as dealing for its own account and the dealing for the client’s account) whenever these investment services are carried out off premises. The Supreme Court found that the rationale of Article 30 TUF (ie to protect retail investors from the risk of making ill-considered investment decisions) justified the extension of the scope of this provision.

Although these judgments have ruled in favour of the financial intermediaries and banks, they underline the importance of ensuring that financial intermediaries must comply with Article 30 TUF. Any perceived failure will encourage actions by retail investors aimed at obtaining the invalidity of the investment agreements and the return of the sums invested at the inception. We are increasingly seeing such actions, which are often brought in cases where the financial instruments have lost their value and the investor wishes to escape from the investment.

Footnotes

_{1. Judgment No. 13905 dated 3 June 2013.}