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Misleading advertising and the "average consumer"

March 2013

The Antwerp Court of Appeal has handed down an important decision on the alleged mis-selling of "excess value mortgages". This highly publicised case was brought after more than 500 customers complained about the sales methods used by an independent insurance broker.

The Antwerp Court of Appeal dismissed all criminal charges, including those against both the broker and the insurance company. The court's guidance on what is meant by the "average consumer" when assessing whether advertising is considered to be misleading in an investment context arguably makes it more difficult for claimants to bring this type of claim.

The case concerned the sale of "excess value mortgages" by a broker who was active as both an insurance and a mortgage intermediary. An excess value mortgage is a product composed of a "Branch 23" insurance and a mortgage loan.

A "Branch 23" insurance is a legally permitted and regulated life insurance coupled to an investment fund. The investment fund may be composed of stocks, bonds, cash or a mix of these. The Branch 23 insurance in question was characterised by a single payment by the investor/insurance taker at the start of the investment, in return for monthly fixed payments to the insurance taker (calculated as a fixed percentage of the invested funds) and payment of the balance at the end of the insurance contract. The aim was to provide the investor/insurance taker with a fixed monthly amount of money. However, as is the case with all Branch 23 insurances (as opposed to Branch 21 insurance), the insurance contract did not guarantee a fixed return on investment, nor any interest.

In the case of an "excess value mortgage", the unusual feature is that the Branch 23 insurance is not financed with own funds, but with funds obtained from a mortgage loan. Moreover, the insurance contract is pledged in favour of the credit institution providing the loan.

The recession in the early 2000s led to a decrease in the value of the investment and return. More than 500 customers claimed to have been misled about the fact that neither their investment nor their return was guaranteed.

A criminal case was brought against the insurance/mortgage broker, the insurance company, the credit institution, the notary and the (former) management of the insurance broker and the credit institution. The insurance company was charged as an accomplice in (i) the offering/selling of mortgage loans by a credit institution without being registered in accordance with the Consumer Credit Act and (ii) the broker's misleading advertising in breach of the Market Practices and Consumer Protection Act. In this article we focus on the Court of Appeal's ruling on thealleged misleading advertising.

First instance: misleading advertising

At first instance, the criminal court ruled that the consumers had been misled by the broker's advertising. The consumers were led to believe that the products sold were risk-free and had a guaranteed return of 8%. The criminal court's assessment was based on the promotional

material containing words such as "savings", "relax, you are insured" and "an 8% interest plan" in combination with an aggressive and unfair sales pitch. The criminal court held that the broker had "set up a sales system with the sole objective of persuading as many consumers as possible, using as little accurate and correct information as possible".

The insurance company was found to be criminally liable as an accomplice. According to the criminal court, the insurance company "had provided indispensable assistance by ignoring signals it had already received, the total lack of control over [the broker] and a lack of control or lack of correct information provided to the clients prior to the conclusion of the contract".

Appeal: no misleading advertising

The Antwerp Court of Appeal overturned the first instance decision by acquitting all of the defendants of the charges relating to the sale of the "excess value mortgages" by the broker. The Antwerp Court of Appeal mainly based its decision on the fact that the claimants were neither provided with information in an identical or similar way nor advised by the same representatives of the broker. This made it impossible for the claimants to establish

(i) that the advertising was, as a whole, misleading towards the consumers and

(ii) which person(s) should be held responsible for the advertising.

It is interesting to note that, whereas the criminal court had held that the insurance company was liable for not controlling the broker, the Antwerp Court of Appeal emphasised that the broker was an independent intermediary who also distributed products from other insurance companies, and that the insurance company's role was limited to providing the Branch 23 insurance.

Misleading advertising

The Antwerp Court of Appeal confirmed the principles regarding misleading advertising pursuant to the Market Practices and Consumer Protection Act. To be considered as misleading, the advertising must result in a misrepresentation or at least pose a risk of misrepresentation. It must also have actually influenced the economic behaviour of the consumer. Finally, the advertising must be considered as a whole in order to determine whether it is misleading.

The "average consumer"

The Antwerp Court of Appeal also confirmed that, in order to assess whether advertising is misleading, one must consider as a reference point the "average consumer" as set out in European Directive (EG) 84/450 and European Directive 2005/29 (which was the basis of the Belgian Market Practices and Consumer Protection Act).

The use of the standard "average consumer", implies that the consumer must have a certain degree of knowledge and awareness. According to the Antwerp Court of Appeal, a consumer has a duty to consider advertising in a critical manner before making a decision, and an obligation to consult additional information. The extent of this obligation depends on the nature, importance and financial implications of the product offered by the advertising. In light of the above, the Antwerp Court of Appeal found that in order to establish the offence of misleading advertising the following elements have to be present:

  • a consumer with a minimal amount of background knowledge;
  • who acted in a prudent and observant way;
  • who took the decision to purchase the product solely on the basis of the advertising; and
  • would not have taken this decision if he or she had been better informed.

Application of the principles to "excess value mortgages"

In the context of "excess value" mortgages, the "average consumer":

  • knows that an investment product with a higher interest rate than is available on a classic savings account, term account or savings bond comes with risks, and that it may also result in a loss;
  • must realise that a transaction, such as the one offered in this case, is not without risks when the loan is linked to a mortgage and investment in stock;
  • may not isolate the advertising and the possible return indicated in it, but must consider it in its context, which is the context of an investment in stock, knowing that stock market results are never certain, but, on the contrary, are essentially unpredictable and subject to possible speculation; and
  • must request additional information on an investment product before committing definitively and for a long time, if he or she is of the opinion that insufficient information was provided on the risk and the extent of the risk. This is especially applicable when significant amounts of money are involved.

Final acquittal and fate of the civil claims

Since the public prosecutor did not file a Supreme Court challenge, the acquittal for criminal charges is final. The acquittal also puts a stop to any civil claims based on the criminal offences. The only option left for the civil claimants is to pursue their claims before the civil courts. However each civil claimant would have to show that it had been individually harmed by the behaviour of the broker and/or the insurance company, given that there is no class action procedure under Belgian law.


At first instance, the insurance company was held criminally liable "by omission", ie for not having controlled the broker and the information provided to customers. The Antwerp Court of Appeal's overturning of this ruling places a greater responsibility on customers in the context of the advertising of investment products. Although the findings concerning the "average consumer" are in line with Belgian case law, the application of this standard in the context of investment products arguably makes it more difficult for the public prosecutor and consumers successfully to bring a claim based on miss-selling. A consumer appears to have a higher burden of proof to fulfil. He/she must show he/she is a consumer with a minimal amount of background knowledge, who acted in a prudent and observant way, took the decision to purchase the product solely on the basis of the advertising and would not have taken this decision if he or she had been better informed. The customer must establish that he/she acted critically before buying the product and did not blindly respond to any advertising. This decision also suggests that if a product is complex with greater financial risk, then a consumer is expected to take more responsibility for obtaining information about the nature of the risks involved.

Northern Europe