Management of Another’s Affairs without a Mandate (Negotiorum Gestio) and Mandatory Disclosure (Securities Markets): Difference between pages

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by ''[[Nils Jansen]]''
by ''[[Alexander Hellgardt]]''


== 1. Functions of negotiorum gestio; terminology ==
== 1. Introduction; terminology ==


The civil law institution of ''negotiorum gestio'' (''gestion d’affaires d’autrui'') or management of another’s affairs without a mandate (''Geschäftsführung ohne Auftrag'') is a specific creation of [[Roman Law|Roman law]]; and consequently such an institution has only been recognized in legal systems that can be traced back to that origin. The basic idea supporting this institution includes the assumption that a bilateral quasi-contractual legal relationship between a person (''gestor'')'' ''acting on behalf of a principal (''dominus'') may come into existence even absent a contractual agreement. Typically this relationship is characterized by a twofold doctrinal function. On the one hand, the ''negotiorum gestio'' gives rise to obligations correcting a disturbed distribution of goods; thus, it functionally corresponds to the law of restitution ([[Unjustified Enrichment|unjustified enrichment]]). On the other hand, however, the specific relationship of a ''negotiorum gestio'' imposes specific duties and especially duties of care; in this respect it parallels [[Service Contracts|service contracts]].
Mandatory disclosure encompasses the duty to publish a prospectus when raising capital as well as the duty to inform investors of such companies whose securities are already admitted to trading on a regulated market. The duty to publish a prospectus and a corresponding liability date back to the 19th century ([[Prospectus Liability|prospectus liability]]). Mandatory disclosure in the narrower sense, ie the duty of stock-listed companies (''issuers'') to provide information exceeding the requirements of financial [[Accounting|accounting]] to investors on an ongoing basis, however, was only introduced in most European jurisdictions in the course of European harmonization in the 1970s and 1980s. These disclosure duties serve the ongoing trading in securities on the ''secondary market'', which is the circulating market for securities that have been issued previously on the ''primary market''.


Historically, the institution first concerned the principal’s claims to recover whatever the ''gestor'' had acquired in the course of his administration of the principal’s affairs and for [[Damages|damages]] in case of mismanagement; in addition, the ''gestor'' was obliged to render account. Later, the ''gestor'' was given a reciprocal claim for expenses incurred and a right to be released from the obligations concluded on behalf of the principal. The questions of remuneration for the ''gestor'' and of a claim for damages suffered by him have only been discussed in the context of ''negotiorum gestio'' since the early modern period, and especially since the 19th century.  
The price of a security is significantly determined by the future profits the market participants expect, and which—in case of common stock as dividends—are distributed to the investors. Since the future profitability is naturally uncertain and dependent on a multitude of factors, market participants are reliant on trustworthy and ongoing information from the issuers to be able to price securities continuously and appropriately. Furthermore, it is more efficient to assign disclosure duties to the issuer, who is the ‘producer’ of intra-company circumstances, than to force single investors to wastefully engage in parallel investigations into the business situation of stock-listed companies. Mandatory disclosure thus serves the interests of single investors and, at the same time, the economy as a whole (''investor protection and market protection'') (securities law).


The field of cases and problems that have been discussed in the framework of ''negotiorum gestio'' or later derivative institutions, such as the German ''Geschäftsführung ohne Auftrag'' or the French ''gestion d’affaires'', is extremely wide. One central group concerns the recourse available after paying another’s debts, on the one hand, and the restitution for services that have been performed without a mandate, on the other. Examples are measures taken to secure a dilapidated house, where the owner was absent, or the taking of legal action without a mandate. Yet, cases discussed in the context of ''negotiorum gestio'' also relate to the question whether the possessor of an estate is under a duty of rendering account, the resale of goods which have not been accepted by the first buyer, the purchase without a mandate of a stamp for a collector of stamps, and even the ‘self-sacrifice’ in cases of rescue operations, or a driver trying to avoid hitting a cyclist or a pedestrian. In actual legal practice, most cases concern questions of recourse, examples being a public authority claiming a reward for extinguishing a fire, where doing so was part of its public duties, or the performance of services under a void contract. In such cases, many legal systems apply the ''negotiorum gestio'' rather than the law of unjustified enrichment.
When raising capital, the gains from false or misleading information accrue with the issuer directly in the form of higher proceeds from the issuance. Thus, the existence of prospectus liability is immediately plausible. The economic advantage for issuers providing misleading information to the secondary market, where they do not trade themselves, is less obvious. This is a major reason why many European jurisdictions traditionally viewed with scepticism the liability for ''pure economic loss'' caused by misleading information to the capital market. England, for instance, has acknowledged prospectus liability since the 19th century but only introduced a liability for misstatements on the secondary market in 2006 in the course of implementing the Transparency Directive (Dir 2004/109).


The comparative picture is remarkably diverse. The modern [[Common Law|common law]] does not acknowledge such a broad and unstructured institution at all and grants equivalent remedies only in highly specific circumstances. Similarly, the Austrian [[Allgemeines Bürgerliches Gesetzbuch (ABGB)|''Allgemeines Bürgerliches Gesetzbuch'' (ABGB)]] proceeds from the principle that an intervention into another person’s affairs is normally contrary to the law. Although writers have nevertheless accepted the ''negotiorum gestio'', there is general agreement that it must be kept in narrow confines. In addition, civilian legal systems codifying the ''negotiorum gestio'' describe its function and its preconditions in highly divergent ways; and even within those legal systems, most questions concerning the institutions’ functions and range of application are disputed. Thus, the field of application of the German ''Geschäftsführung ohne Auftrag'' is extremely wide, and the institution offers rather far-reaching claims, such as damages for personal injury and remuneration. In contrast, claims for remuneration are not acknowledged in Scots and French law, and in Scotland the institution cannot even be used for bringing a claim for [[Damages|damages]]. Indeed, the rules applied in modern Scots law are basically those of the classical [[Roman Law|Roman law]]; hence, the principal may have a claim under this institute not only in cases where the ''gestor'' was entitled to act on his behalf but also in cases of an unjustified intervention; the same is true in Germany. In contrast, the prevailing opinion in France has for a long time limited the institution’s field of application to cases of justified interventions. However, the present ''avant-projet'' for a reform of the French law of obligations is apparently returning to the classical approach in also embracing cases of illegal intervention under the heading of ''gestion d’affaires''.
== 2. Mandatory disclosure in securities law ==


In view of all these observations, it would be misleading to speak about a uniform European institution of ''negotiorum gestio''. Rather, there are a number of mutually related, though different institutions in civilian legal systems. All those institutions can be traced back to the Roman ''negotiorum gestio'', but they should not be confounded.
Mandatory disclosure duties regarding the secondary market can be divided into periodic disclosure, episodic or ad hoc disclosure and disclosure on major holdings. Additionally, there are special disclosure duties in case of a public takeover ([[Takeover Law|takeover law]]). Periodic disclosure pertains to information provided to investors at regular intervals in the form of annual reports and interim reports. These enable the investors to gain a basic impression about a certain company. In contrast, ad hoc disclosure is meant to bring unexpected circumstances, which occur in the intervals between the periodic reports, to the attention of investors as soon as possible. On the one hand this establishes market transparency as the basis for a correct pricing and, on the other hand, it prevents the exploitation of informational advantages in the form of [[Insider Dealing|insider dealing]]. Disclosures on major holdings complete the informing of investors by requiring a notification when the number of voting rights in a stock-listed company held by a shareholder reaches, exceeds or falls below certain thresholds. The composition of shareholdings and changes in the controlling shareholders in public companies are important criteria for the investment decisions of institutional investors especially.


== 2. General developments ==
In the course of implementing the ''Financial Services Action Plan'' of 1999, the European framework on mandatory disclosure was completely reformed by enacting a new generation of securities law directives.


It is impossible to understand the Roman ''negotiorum gestio'' fully without seeing it as an expression of highly specific features of Roman public morality on the one hand, and without taking the narrow confines of the Roman law of contracts into account, on the other hand. Originally, the institution was based on social duties among people closely associated with each other or among masters and their clients. Such duties were not binding in law, but they could nevertheless give rise to secondary claims for damages and expenses incurred. Cases where the ''negotiorum gestio ''was applied might include help in situations of necessity, but the focus of the institution was always on cases where one person had acted in another person’s financial interests. Core cases include the management of another’s property, the taking of legal action for another man, or the reparation of a dilapidated house. ‘Self-sacrifice’ in cases of rescue operations was not discussed in the context of this institution.
=== a) Periodic disclosure ===


Apart from that, the Romans had used the ''negotiorum gestio'' also for granting restitutionary claims for which no other action was available. This restitutionary function of the ''negotiorum gestio ''was of particular significance as there was no general action for unjustified enrichment in Roman law. In the [[Ius Commune|''ius commune'']], this function of the ''negotiorum gestio ''gained even greater importance because the original rationales of the Roman institution (the peculiar Roman public morality and the comparatively narrow law of contracts) were no longer present and because the complete disgorgement of unjustified enrichments was seen as a basic principle of justice. As a consequence, the ''negotiorum gestio'' was transformed into a highly flexible, yet at the same time unstructured, means of restitution. Modern functional parallels are the law of unjustified enrichment or instances of subrogation, as found, for example, in insurance and labour law. The ''negotiorum gestio ''was now also used for granting a claim for an enrichment resulting from an unjustified management of another’s affairs; according to an influential opinion, it was even applied in cases where the principal had protested against the intervention. Up until today, many European courts regard the fair distribution of burdens as the core restitutionary function of the ''negotiorum gestio''. If such an approach is taken, a subjective intention of managing another’s affairs or even an altruistic motive is simply irrelevant.  
The duty of making periodic disclosures is laid down in the Transparency Directive and its implementation measures, which have been enacted in the Lamfalussy process, such as the Transparency Implementation Directive (Dir 2007/14). These directives apply to issuers whose securities are already admitted to trading on a regulated market. Pursuant to Art 4 of the Transparency Directive issuers have to make public their annual financial reports, which consist of the audited financial statements (where the issuer falls under the scope of the Consolidated Accounts Directive (Dir 83/349) these are financial statements in accordance with IAS/ IFRS pursuant to the IAS Regulation (Reg 1606/ 2002), otherwise these are financial statements pursuant to the national accounting laws) and the management report. These are accompanied by a responsibility statement in which the persons responsible within the issuer certify ‘to the best of their knowledge’ that the financial statements give a true and fair view and that the management report includes a fair review of the development and performance of the business and the position of the issuer. Furthermore, Art 5 mandates the publication of half-yearly financial reports, which consist of a condensed set of financial statements (interim financial report pursuant to IAS/IFRS for companies that draw up consolidated accounts, otherwise the financial statements are governed by Art 3 of the Transparency Implementation Directive), an interim management report and, again, a responsibility statement. Finally, Art 6 of the Transparency Directive obliges issuers to make public interim management statements during the first six-month period of the financial year and during the second six-month period of the financial year, enabling the public to obtain a more or less detailed report on the situation of the issuer and its financial performance on a quarterly basis. Furthermore, issuers are obliged pursuant to Arts 16, 17 and 18 of the Transparency Directive to provide shareholders or debtholders with additional information concerning their rights and the details of shareholder or debtholder meetings.


Beginning in the 18th century, the ''negotiorum gestio'' underwent a further step of functional transformation; now the understanding of this institution was influenced by an ideal of help in emergency situations. This development had been initiated by [[Natural Law|natural law]] ideas, according to which the ''negotiorum gestio'' had to be seen as an expression of contract law principles. From such a perspective, the institution was conceived of as a fictitious contract that was based on the ''gestor''’s intention of acting for the principal and a corresponding presumed consent on the principal’s side. The modern [[Economic Analysis of European Private Law|economic analysis of European private law]] has similarly interpreted the ''negotiorum gestio'' as a ‘hypothetical contract’ which is acknowledged by the law because of high transaction costs preventing the parties from concluding an efficient contract that would maximize their interests.  
Further important duties on periodic disclosure were introduced by Art 10 of the Takeover Bids Directive (Dir 2004/25, [[Takeover Law|takeover law]]). This provision requires companies whose securities are admitted to trading on a regulated market to include in the management statement a multitude of information concerning defensive structures and mechanisms that could work as strategic obstacles to a public takeover.


Such approaches have always limited the field of application for the ''negotiorum gestio'' to measures taken for preventing some harm: for, obviously, nobody needs to tolerate interventions into his own affairs that are not strictly necessary but merely useful. Hence, from the 19th century onwards, altruistic help in emergency situations became the new paradigm of ''negotiorum gestio'' also among doctrinal writers. At the same time, the question of remuneration for the ''gestor'' was perceived as increasingly urgent. Conversely, the restitutionary function of the ''negotiorum gestio'' was increasingly relegated to a secondary position, or even ignored.
In 2006, the Annual Accounts Directive (Dir 78/660) was amended by introducing Art 46a, and the Consolidated Accounts Directive was amended by introducing Art 36a, both provisions also being part of the secondary market periodic disclosure requirements as they apply only to companies whose securities are admitted to trading on a regulated market. Pursuant to these provisions the issuers have to include in the management statement additional information on their corporate governance.


Since the end of the 19th century, there has been a further functional transformation of the institute, at least in some legal systems. Thus, today the German ''Geschäftsführung ohne Auftrag'' is also applied in cases of self-sacrifice in the course of rescue operations. In this context its primary function is to provide the basis for a claim for damages. As a result, the risks of rescue-operations are assigned to the ‘principal’, ie the primary victim. This is a new principle, which was not connected with the ''negotiorum gestio'' before the 20th century.
=== b) Ad hoc disclosure ===


All in all, the ''negotiorum gestio'' proves to be a kind of legal chameleon; today its function consists in closing—alleged—gaps in the fields of [[Unjustified Enrichment|unjustified enrichment]], contract law or torts. The motives for lawyers to take recourse for such purpose to the ''negotiorum gestio'' are easy to see. There is no other institution in the law of obligations which is characterized by such an open texture as the Roman ''negotiorum gestio'', the ''Besorgen eines Geschäfts für einen anderen ohne Auftrag oder sonstige Berechtigung'' (§ 677 [[Bürgerliches Gesetzbuch (BGB)|''Bürgerliches Gesetzbuch'' (BGB)]]), ‘het zich willens en wetens en op redelijke grond inlaten met de behartiging van eens anders belang’ (Art 6:198 NBW), or the formulation of Art 1372 ''Code civil'': ‘Lorsque volontairement on gère l’affaire d’autrui, soit que le propriétaire connaisse la gestion, soit qu’il l’ignore’.
To prevent price distortions when new material events happen in the intervals between periodic disclosures that imply a different valuation of a financial instrument, issuers are required pursuant to Art 6(1) of the Market Abuse Directive (Dir 2003/6) to inform the public ‘as soon as possible’ about such circumstances which directly concern them. This duty applies as soon as it may reasonably be expected that a circumstance that is relevant for the valuation of a financial instrument will come into existence. The knowledge of such circumstances, at the same time, constitutes inside information, the use of which is prohibited by Art 2 and the disclosure of which is prohibited by Art 3 ([[Insider Dealing|insider dealing]]). Market transparency, however, is not set as an absolute goal. Thus Art 6(2) allows issuers to delay the public disclosure of inside information so as not to prejudice their legitimate interests. This only applies, though, provided that such omission would not be likely to mislead the public and provided that the issuer is able to ensure the confidentiality of that information. The responsibility for meeting this test lies with the issuers.


== 3. Doctrinal and systematic questions ==
When it comes to the details of the publication, Art 2(1)(I) of the Market Abuse Implementation Directive (Dir 2003/124) refers to the regime of Arts 20 and 21 of the Transparency Directive. This demonstrates how closely interconnected periodic and ad hoc disclosures are.


From the traditional point of view of a legal system recognizing a ''negotiorum gestio'', there are two main groups of doctrinal questions to be answered, namely the institution’s legal consequences and the adequate description of its requirements. It is evident that both questions must be seen as intellectually closely connected.
=== c) Disclosure on major holdings ===


With regard to the principal’s legal position the central questions have always concerned the claim for damages caused by the ''gestor'' and the requirements for such a claim on the one hand, and the claim for the benefits which the ''gestor'' had gained by managing the principal’s affairs on the other hand, ie the problem of [[Disgorgement of Profits|disgorgement of profits]]. Secondary questions relate to the ''gestor''’s duties of information and accounting. Finally, it has often been discussed whether the ''gestor'' is under an obligation to continue the management of the affairs. All these legal obligations may be seen as an adequate consequence of an intentional intervention into another’s legal sphere; perhaps, even gross negligence on the ''gestor''’s side may suffice for imposing such obligations. In any case, an altruistic motive or a legal justification for the intervention is irrelevant. This is so because the principal needs even more legal protection against selfishly motivated interveners than he does with regard to an altruistically motivated friend. This is the reason why most European legal systems have designed the ''negotiorum gestio'' as an asymmetrically structured institution. The requirements of the principal’s claims against the ''gestor'' were formulated more broadly than the requirements for the ''gestor''’s counter-claims. Only for these counter-claims is the ''gestor''’s right to intervene seen as relevant.
Mandatory disclosure on major holdings has a slightly different goal than periodic and ad hoc disclosures. Pursuant to Art 9 of the Transparency Directive a shareholder has to notify an issuer of the proportion of voting rights of that issuer held by the shareholder as a result of an acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5, 10, 15, 20, 25, 30, 50 and 75 per cent. Article 10 expands this notification requirement to cases in which the investor does not acquire the shares directly but is entitled to acquire, to dispose of, or to exercise voting rights due to contractual or other arrangements. Pursuant to Art 12(2) of the Transparency Directive (as explicated by Arts 8 and 9 of the Transparency Implementation Directive) the notification to the issuer shall be effected as soon as possible, but not later than four trading days. According to Art 12(6) the issuer shall make public all the information contained in that notification upon receipt, but no later than three trading days thereafter.


None the less, during the 20th century the requirements of the principal’s and the ''gestor''’s claims have often been paralleled by German and French writers. Thus, the right of intervention became a requirement also for the principal’s claims against the intervener; at the same time, the ''negotiorum gestio'' was conceived of as a legal justification in the context of the [[Law of Torts/Delict, General and Lex Aquilia|law of torts]] (''Lehre von der berechtigten Geschäftsführung ohne Auftrag'': doctrine of justified ''negotiorum gestio''). This approach offered a rather simple, perhaps intuitively plausible, doctrinal reconstruction of the ''negotiorum gestio''. It fitted in well with the law of mutual contracts, and it offered a clear distinction of the ''negotiorum gestio'' from the [[Law of Torts/Delict, General and Lex Aquilia|law of torts]]. Nevertheless, it has not been accepted anywhere, the reason being that this approach leads to unacceptable gaps of legal protection in cases of unjustified intervention.
Besides the notification requirements for shareholders (and the issuer’s duty to make these notifications public) there is also a unique disclosure duty of the issuer pertaining to the acquisition of its own shares. Pursuant to Art 14(1) of the Transparency Directive an issuer who acquires or disposes of its own shares has to make public the proportion of its own shares as soon as possible, but not later than four trading days following such acquisition or disposal, where that proportion reaches, exceeds or falls below the thresholds of 5 or 10 per cent of the voting rights.


On the ''gestor''’s side, it must be decided whether the traditional claim for reimbursement of expenses incurred should be complemented with a claim for damages and with a remuneration of the services rendered by the ''gestor''<nowiki>; furthermore, it has been asked whether the </nowiki>''gestor'' should be vested with the authority of representing the principal. All these questions are difficult to decide; they have remained controversial until today. With regard to a claim for remuneration, there is on the one hand the basic principle of contract law that contractual claims for performance necessarily presuppose a corresponding consensus; cf Art&nbsp;9 Dir&nbsp;97/7 in respect of distance contracts. On the other hand, however, there is the basic moral intuition that some services cannot be accepted without incurring a duty to pay some remuneration; this is especially true for professional help in emergency situations. In the 20th&nbsp;century, this latter consideration was apparently the reason for many European courts to overcome the traditionally gratuitous character of the ''negotiorum gestio'' by awarding professional ''gestors'' some remuneration. During the last decades, though, French and German judges have become more restrictive again, mainly because the previous generous approach led to unacceptable results in cases of unwanted medical services and in cases of people searching for deceased persons’ heirs without a mandate.
Mandatory disclosure on major holdings is closely interconnected with [[Takeover Law|takeover law]] as it ensures the transparency of major shareholdings already in the forefront of a possible change of control or the takeover’s defeat by the target company. Also, control transactions are major occasions in corporate life and early knowledge about them is similar to inside information. Very often a change of control will actually constitute inside information under the Market Abuse Directive.


If the ''gestor'' were granted a claim for [[Damages|damages]] with regard to personal injury suffered in the course of emergency help as well, this would amount to a strict liability on the principal’s side for the risks of rescue. In this respect, the [[Common Law|common law]] insists on the basic tort-law principle that liability can only be justified if the primary victim is responsible for his or her dangerous situation and has thus ‘invited’ the rescue. Indeed, it is often the case that the primary victim is to be ‘blamed’ even less for the dangerous rescue operation than the ''gestor'', as the ''gestor'' typically acts voluntarily and is usually in a position to estimate the risks of his rescue operation. Thus, if it is regarded as politically desirable to insure rescuers against the risks resulting from their rescue operations, this should not be effected by a private law claim against the victim (or the victim’s heirs), but rather by a public-law solution such as a social-insurance claim. Since the 20th&nbsp;century, this approach has been increasingly accepted by European legislatures.
== 3. The capital market liability regime ==


Likewise, the ''gestor''’s power of representation is a historically young problem in the context of ''negotiorum gestio'', even though a comparable authority for captains of ships has long been good law in the [[Common Law|common law]] tradition. Since the 19th&nbsp;century, however, a similar authority has also been recognized in the context of a justified ''negotiorum gestio'' in some legal systems in the French tradition. If the ''gestor''’s acting on the principal’s behalf involves legal transactions ([[Juridical Act|juridical act]]), such power may indeed be important, especially with respect to unilateral juristic acts such as the [[Termination of a Contract|termination of a contract]] on behalf of an absent principal. What is more, where the ''gestor'' concludes a contract on behalf of the principal, such authority is necessary for avoiding an unnecessary and unsatisfactory trilateral recourse between the third contract partner, the ''gestor'', and the principal.
=== a) The European framework ===


The question whether the ''gestor'' was justified in acting for the principal is decisive for the ''gestor''’s counter-claims against the principal. Traditionally, this question has been determined according to objective criteria. Thus, civilian lawyers asked whether the ''gestor'' had acted usefully (''utiliter''), reasonably (''vernünftig''), well (''bien''), or whether the intervention conformed to the principal’s will and best interest (''interesse- und willensgemäß''). As far as a reimbursement of expenses and even remuneration for services are concerned, this approach by and large corresponds with parallel restitutionary claims for an [[Unjustified Enrichment|unjustified enrichment]]. Differences exist, however, if the justification is determined according to the ''gestor''’s subjective evaluation of the principal’s interests. According to this view, which has often been defended by proponents of the theory of justified ''negotiorum gestio'', the ''gestor'' would be entitled to reimbursements and remuneration if he was not negligent in having made an incorrect evaluation of the principal’s situation. But while such considerations may be plausible in the context of the law of torts, they have never been accepted in the context of ''negotiorum gestio'', and, indeed, they lead to highly implausible results.
The rules on civil liability in case of breach of one of the aforementioned duties are far less detailed. Article&nbsp;7 of the Transparency Directive only obliges the Member States to ensure that responsibility for the information to be drawn up and made public in the annual financial report, the half-yearly financial report, the interim management statement, and in accordance with Art&nbsp;16 lies at least with the issuer or its administrative, management or supervisory bodies. Furthermore, the Member States have to ensure that their laws, regulations and administrative provisions on liability apply to these persons. As regards the sanctions for breach of disclosure duties on major holdings, the directive is silent. The Market Abuse Directive contains no explicit liability rules at all when it comes to infringements of the duty to make ad hoc disclosures. In these cases, a duty of the Member States to introduce civil liability can only be derived from general ''effet utile'' principles. In this vein, in 2002 Germany introduced a special civil liability provision for the breach of the duty to make ad hoc disclosures, thereby forestalling proceedings to establish infringements of the EC Treaty on account of numerous ad hoc disclosure violations by issuers.


In view of all these findings and controversial discussions, the fundamental question concerning the ''negotiorum gestio'' must, today, be whether it still makes sense to treat all these different problems and claims within the conceptual framework of a single unifying institution. It had already been an analogous application of the institution which was originally the basis for the ''gestor''’s far-reaching claims for restitution and recourse; and the institution and the basic concepts of ''negotium utiliter gestum'' or ‘useful management of another’s affairs’ were even less fittingly designed for claims for remuneration and damages. It is difficult to see why all those functionally and normatively divergent claims should be the consequences of the same set of conditions. Remarkably, however, until the present day this question has not been explicitly discussed. Rather than proceeding from the idea of a single, unifying ''negotiorum gestio'', these individual problems should be discussed more specifically in their relevant legal contexts, ie in the fields of [[Contract|contract]] law, [[Unjustified Enrichment|unjustified enrichment]] and the [[Law of Torts/Delict, General and Lex Aquilia|law of torts]]. Such discussion may then help to decide whether the institution still has a place in modern law.
=== b) The laws of the Member States ===


== 4. Legal unification ==
Given the scarce European requirements and due to diverse national tort law traditions, the laws of the Member States on capital market liability are still quite heterogeneous ([[Prospectus Liability|prospectus liability]]). Nonetheless, there have been some changes in the course of implementing Art&nbsp;7 of the Transparency Directive. While Germany considered the remedies under its general civil law sufficient, which forces German courts in the future to establish an effective liability scheme derived from an interpretation of general tort law that is in conformance with the European requirements, other countries took the chance to completely revise their capital market liability regime. England, in particular, enacted the Financial Services and Markets Act 2010 (Liability of Issuers) Regulations 2010 (amending the Financial Services and Markets Act 2000). Following the ''Davies Review of Issuer Liability'', these new provisions substantially reform the statutory regime for issuer liability, covering not only periodic disclosures but also ad hoc and voluntary disclosures. Before the implementation of the Transparency Directive, civil liability for disclosure violations on the secondary market was widely rejected under English law.


Until recently, there have been no harmonization attempts concerning ''negotiorum gestio'' on a European (or global) level as there is no practical need for such a development. Likewise, not much comparative work has been done with regard to this institution. None the less, the [[Study Group on a European Civil Code]] did include ''negotiorum gestio'' in their codification project; in 2006, the Group presented a first set of rules for this institution (''Principles of European Law'':'' Benevolent Intervention in Another’s Affairs''). However, those Principles are based on the ''Lehre von der berechtigten Geschäftsführung ohne Auftrag ''(doctrine of justified ''negotiorum gestio''—see 3. above); paradigmatically they relate to rescue operations. Hence, those rules do not offer a fair comparative picture of the present state of European law; nor are they convincing as a proposal for a future law.
France and other countries apply the general clause of Art&nbsp;1382 ''Code civil''. Often liability claims are decided by courts in criminal matters within adhesion procedures which allow victims of a crime to bring their restitution claims before the criminal court.
 
== 4. Private international law ==
 
The connecting factors for the disclosure duties are in the meantime explicitly governed by the directives. As regards those duties which are implemented by the Transparency Directive, issuers are subject to the laws of their ‘home Member State’. Article&nbsp;2(1)(i) defines the home Member State; for issuers of shares this is the Member State in which the issuing company has its registered office. The duty to make ad hoc disclosures is governed according to Art&nbsp;2(1)(I) of the Market Abuse Implementation Directive (in connection with the transitional provision in Art&nbsp;32 last subpara&nbsp;of the Transparency Directive) by the regime of Arts&nbsp;20 and 21 of the Transparency Directive, which leads again to the home Member State pursuant to the Transparency Directive.
 
The connecting factor for capital market liability claims, however, is not explicitly regulated. For the purpose of private international law, capital market liability claims are to be characterized as a matter of tort law. Thus, they fall within the scope of the Rome&nbsp;II Regulation (Reg&nbsp;864/2007); they are not excluded by Art&nbsp;1(2)(c) and (d) of the Rome&nbsp;II Regulation. To date, scholars have mostly argued in favour of the law of the country where the securities are traded (market place). However, after the enactment of the home Member State concept by the Transparency Directive, it is more convincing to apply the laws of the Member State that also governs the duty which might have been infringed. This is especially true since the Member States are widely allowed to engage in ‘gold plating’ when implementing the mandatory disclosure duties, especially in the field of periodic disclosures. If one were to apply the laws of the market place instead, these peculiarities would have to be incorporated into the elements of the claim. Against this background it is more convincing to assume a manifestly closer connection pursuant to Art&nbsp;4(3) of the Rome&nbsp;II Regulation with the home Member State.
 
== 5. Development trends ==
 
After the implementation of the Financial Services Action Plan, the European harmonization of mandatory capital market disclosure has come to a temporary halt. Current activities are restricted to fine tuning the existing rules at the Committee of European Securities Regulators (CESR). There is, however, substantial need for harmonization in the field of liability for misstatements. This subject is, however, not to be found on the schedule of the Commission. If there were to be a Europe-wide stock market scandal involving misstatements, this could change quickly.


==Literature==
==Literature==
Hans-Hermann Seiler, ''Der Tatbestand der negotiorum gestioim römischen Recht'' (1968); Christian Wollschläger, ''Die Geschäftsführung ohne Auftrag'' (1976); Samuel&nbsp;J Stoljar, ‘Negotiorum gestio’ in IECL X (1984) ch 17; Hein Kötz, ‘Geschäftsführung ohne Auftrag aus rechtsökonomischer Sicht’ in ''Festschrift Bernhard Großfeld'' (1999) 583; Jan Smits, ''The Good Samaritan in European Private Law'' (2000); Hanoch Dagan, ''The Law and Ethics of Restitution'' (2004) 86–163; Jeroen Kortmann, ''Altruism in Private Law'':'' Liability for Nonfeasance and Negotiorum Gestio ''(2005) 81–191; Heike Suderow, ''Die Geschäftsführung ohne Auftrag'':'' Ein Rechtsvergleich zwischen Deutschland'','' Frankreich und den Niederlanden'' (2005); Study Group on a European Civil Code, Christian von&nbsp;Bar, ''Principles of European Law'':'' Benevolent Intervention in Another’s Affairs'' (2005); Nils Jansen, ‘Negotiorum Gestio and Benevolent Intervention in Another’s Affairs: Principles of European Law?’ (2007) 15 ZEuP 958; Nils Jansen, ‘§§&nbsp;677–687&nbsp;I. Geschäftsführung ohne Auftrag’ in Mathias Schmoeckel, Joachim Rückert and Reinhard Zimmermann (eds), ''Historisch-kritischer Kommentar zum BGB'', ''vol&nbsp;III'' (forthcoming 2012).</div>
Klaus&nbsp;J Hopt, ‘Disclosure Rules as a Primary Tool for Fostering Party Autonomy—Observations from a Functional and Comparative Legal Perspective’ in Stefan Grundmann, Wolfgang Kerber and Stephen Weatherhill (eds), ''Party Autonomy and the Role of Information in the Internal Market'' (2001) 246; Eilís Ferran, ''Building an EU Securities Market'' (2004); Hervé Synvet (ed), ‘Dossier: Information Financière et Responsabilité’ [2004] Revue de Droit Bancaire et Financier 448;'' ''Klaus&nbsp;J Hopt and Hans-Christoph Voigt (eds), ''Prospekt- und Kapitalmarktinformationshaftung'' (2005); Paul Davies, ''Davies Review of Issuer Liability'':'' Final Report'' (2007) <www.hm-treasury.gov.uk>; Dorothee Fischer-Appelt, ‘Implementation of the Transparency Directive—Room for Variations across the EEA’ (2007) 2 Capital Market Law Journal 133; Didier&nbsp;R Martin, ‘Responsabilité et marchés fianciers—Propos introductifs’ [2007] Bulletin Joly Bourse 287; Paul L Davies, ''Gower and Davies’ Principles of Modern Company Law'' (8th&nbsp;edn, 2008) ch&nbsp;26; Niamh Moloney, ''EC Securities Regulation'' (2nd&nbsp;edn, 2008) chs II.7 and XII.7; Wolf-Georg Ringe and Alexander Hellgardt, ‘The International Dimension of Issuer Liability—Liability and Choice of Law from a Transatlantic Perspective’ (2011) 31&nbsp;Oxford J Legal Stud 23.</div>




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Latest revision as of 18:39, 5 June 2025

by Alexander Hellgardt

1. Introduction; terminology

Mandatory disclosure encompasses the duty to publish a prospectus when raising capital as well as the duty to inform investors of such companies whose securities are already admitted to trading on a regulated market. The duty to publish a prospectus and a corresponding liability date back to the 19th century (prospectus liability). Mandatory disclosure in the narrower sense, ie the duty of stock-listed companies (issuers) to provide information exceeding the requirements of financial accounting to investors on an ongoing basis, however, was only introduced in most European jurisdictions in the course of European harmonization in the 1970s and 1980s. These disclosure duties serve the ongoing trading in securities on the secondary market, which is the circulating market for securities that have been issued previously on the primary market.

The price of a security is significantly determined by the future profits the market participants expect, and which—in case of common stock as dividends—are distributed to the investors. Since the future profitability is naturally uncertain and dependent on a multitude of factors, market participants are reliant on trustworthy and ongoing information from the issuers to be able to price securities continuously and appropriately. Furthermore, it is more efficient to assign disclosure duties to the issuer, who is the ‘producer’ of intra-company circumstances, than to force single investors to wastefully engage in parallel investigations into the business situation of stock-listed companies. Mandatory disclosure thus serves the interests of single investors and, at the same time, the economy as a whole (investor protection and market protection) (securities law).

When raising capital, the gains from false or misleading information accrue with the issuer directly in the form of higher proceeds from the issuance. Thus, the existence of prospectus liability is immediately plausible. The economic advantage for issuers providing misleading information to the secondary market, where they do not trade themselves, is less obvious. This is a major reason why many European jurisdictions traditionally viewed with scepticism the liability for pure economic loss caused by misleading information to the capital market. England, for instance, has acknowledged prospectus liability since the 19th century but only introduced a liability for misstatements on the secondary market in 2006 in the course of implementing the Transparency Directive (Dir 2004/109).

2. Mandatory disclosure in securities law

Mandatory disclosure duties regarding the secondary market can be divided into periodic disclosure, episodic or ad hoc disclosure and disclosure on major holdings. Additionally, there are special disclosure duties in case of a public takeover (takeover law). Periodic disclosure pertains to information provided to investors at regular intervals in the form of annual reports and interim reports. These enable the investors to gain a basic impression about a certain company. In contrast, ad hoc disclosure is meant to bring unexpected circumstances, which occur in the intervals between the periodic reports, to the attention of investors as soon as possible. On the one hand this establishes market transparency as the basis for a correct pricing and, on the other hand, it prevents the exploitation of informational advantages in the form of insider dealing. Disclosures on major holdings complete the informing of investors by requiring a notification when the number of voting rights in a stock-listed company held by a shareholder reaches, exceeds or falls below certain thresholds. The composition of shareholdings and changes in the controlling shareholders in public companies are important criteria for the investment decisions of institutional investors especially.

In the course of implementing the Financial Services Action Plan of 1999, the European framework on mandatory disclosure was completely reformed by enacting a new generation of securities law directives.

a) Periodic disclosure

The duty of making periodic disclosures is laid down in the Transparency Directive and its implementation measures, which have been enacted in the Lamfalussy process, such as the Transparency Implementation Directive (Dir 2007/14). These directives apply to issuers whose securities are already admitted to trading on a regulated market. Pursuant to Art 4 of the Transparency Directive issuers have to make public their annual financial reports, which consist of the audited financial statements (where the issuer falls under the scope of the Consolidated Accounts Directive (Dir 83/349) these are financial statements in accordance with IAS/ IFRS pursuant to the IAS Regulation (Reg 1606/ 2002), otherwise these are financial statements pursuant to the national accounting laws) and the management report. These are accompanied by a responsibility statement in which the persons responsible within the issuer certify ‘to the best of their knowledge’ that the financial statements give a true and fair view and that the management report includes a fair review of the development and performance of the business and the position of the issuer. Furthermore, Art 5 mandates the publication of half-yearly financial reports, which consist of a condensed set of financial statements (interim financial report pursuant to IAS/IFRS for companies that draw up consolidated accounts, otherwise the financial statements are governed by Art 3 of the Transparency Implementation Directive), an interim management report and, again, a responsibility statement. Finally, Art 6 of the Transparency Directive obliges issuers to make public interim management statements during the first six-month period of the financial year and during the second six-month period of the financial year, enabling the public to obtain a more or less detailed report on the situation of the issuer and its financial performance on a quarterly basis. Furthermore, issuers are obliged pursuant to Arts 16, 17 and 18 of the Transparency Directive to provide shareholders or debtholders with additional information concerning their rights and the details of shareholder or debtholder meetings.

Further important duties on periodic disclosure were introduced by Art 10 of the Takeover Bids Directive (Dir 2004/25, takeover law). This provision requires companies whose securities are admitted to trading on a regulated market to include in the management statement a multitude of information concerning defensive structures and mechanisms that could work as strategic obstacles to a public takeover.

In 2006, the Annual Accounts Directive (Dir 78/660) was amended by introducing Art 46a, and the Consolidated Accounts Directive was amended by introducing Art 36a, both provisions also being part of the secondary market periodic disclosure requirements as they apply only to companies whose securities are admitted to trading on a regulated market. Pursuant to these provisions the issuers have to include in the management statement additional information on their corporate governance.

b) Ad hoc disclosure

To prevent price distortions when new material events happen in the intervals between periodic disclosures that imply a different valuation of a financial instrument, issuers are required pursuant to Art 6(1) of the Market Abuse Directive (Dir 2003/6) to inform the public ‘as soon as possible’ about such circumstances which directly concern them. This duty applies as soon as it may reasonably be expected that a circumstance that is relevant for the valuation of a financial instrument will come into existence. The knowledge of such circumstances, at the same time, constitutes inside information, the use of which is prohibited by Art 2 and the disclosure of which is prohibited by Art 3 (insider dealing). Market transparency, however, is not set as an absolute goal. Thus Art 6(2) allows issuers to delay the public disclosure of inside information so as not to prejudice their legitimate interests. This only applies, though, provided that such omission would not be likely to mislead the public and provided that the issuer is able to ensure the confidentiality of that information. The responsibility for meeting this test lies with the issuers.

When it comes to the details of the publication, Art 2(1)(I) of the Market Abuse Implementation Directive (Dir 2003/124) refers to the regime of Arts 20 and 21 of the Transparency Directive. This demonstrates how closely interconnected periodic and ad hoc disclosures are.

c) Disclosure on major holdings

Mandatory disclosure on major holdings has a slightly different goal than periodic and ad hoc disclosures. Pursuant to Art 9 of the Transparency Directive a shareholder has to notify an issuer of the proportion of voting rights of that issuer held by the shareholder as a result of an acquisition or disposal where that proportion reaches, exceeds or falls below the thresholds of 5, 10, 15, 20, 25, 30, 50 and 75 per cent. Article 10 expands this notification requirement to cases in which the investor does not acquire the shares directly but is entitled to acquire, to dispose of, or to exercise voting rights due to contractual or other arrangements. Pursuant to Art 12(2) of the Transparency Directive (as explicated by Arts 8 and 9 of the Transparency Implementation Directive) the notification to the issuer shall be effected as soon as possible, but not later than four trading days. According to Art 12(6) the issuer shall make public all the information contained in that notification upon receipt, but no later than three trading days thereafter.

Besides the notification requirements for shareholders (and the issuer’s duty to make these notifications public) there is also a unique disclosure duty of the issuer pertaining to the acquisition of its own shares. Pursuant to Art 14(1) of the Transparency Directive an issuer who acquires or disposes of its own shares has to make public the proportion of its own shares as soon as possible, but not later than four trading days following such acquisition or disposal, where that proportion reaches, exceeds or falls below the thresholds of 5 or 10 per cent of the voting rights.

Mandatory disclosure on major holdings is closely interconnected with takeover law as it ensures the transparency of major shareholdings already in the forefront of a possible change of control or the takeover’s defeat by the target company. Also, control transactions are major occasions in corporate life and early knowledge about them is similar to inside information. Very often a change of control will actually constitute inside information under the Market Abuse Directive.

3. The capital market liability regime

a) The European framework

The rules on civil liability in case of breach of one of the aforementioned duties are far less detailed. Article 7 of the Transparency Directive only obliges the Member States to ensure that responsibility for the information to be drawn up and made public in the annual financial report, the half-yearly financial report, the interim management statement, and in accordance with Art 16 lies at least with the issuer or its administrative, management or supervisory bodies. Furthermore, the Member States have to ensure that their laws, regulations and administrative provisions on liability apply to these persons. As regards the sanctions for breach of disclosure duties on major holdings, the directive is silent. The Market Abuse Directive contains no explicit liability rules at all when it comes to infringements of the duty to make ad hoc disclosures. In these cases, a duty of the Member States to introduce civil liability can only be derived from general effet utile principles. In this vein, in 2002 Germany introduced a special civil liability provision for the breach of the duty to make ad hoc disclosures, thereby forestalling proceedings to establish infringements of the EC Treaty on account of numerous ad hoc disclosure violations by issuers.

b) The laws of the Member States

Given the scarce European requirements and due to diverse national tort law traditions, the laws of the Member States on capital market liability are still quite heterogeneous (prospectus liability). Nonetheless, there have been some changes in the course of implementing Art 7 of the Transparency Directive. While Germany considered the remedies under its general civil law sufficient, which forces German courts in the future to establish an effective liability scheme derived from an interpretation of general tort law that is in conformance with the European requirements, other countries took the chance to completely revise their capital market liability regime. England, in particular, enacted the Financial Services and Markets Act 2010 (Liability of Issuers) Regulations 2010 (amending the Financial Services and Markets Act 2000). Following the Davies Review of Issuer Liability, these new provisions substantially reform the statutory regime for issuer liability, covering not only periodic disclosures but also ad hoc and voluntary disclosures. Before the implementation of the Transparency Directive, civil liability for disclosure violations on the secondary market was widely rejected under English law.

France and other countries apply the general clause of Art 1382 Code civil. Often liability claims are decided by courts in criminal matters within adhesion procedures which allow victims of a crime to bring their restitution claims before the criminal court.

4. Private international law

The connecting factors for the disclosure duties are in the meantime explicitly governed by the directives. As regards those duties which are implemented by the Transparency Directive, issuers are subject to the laws of their ‘home Member State’. Article 2(1)(i) defines the home Member State; for issuers of shares this is the Member State in which the issuing company has its registered office. The duty to make ad hoc disclosures is governed according to Art 2(1)(I) of the Market Abuse Implementation Directive (in connection with the transitional provision in Art 32 last subpara of the Transparency Directive) by the regime of Arts 20 and 21 of the Transparency Directive, which leads again to the home Member State pursuant to the Transparency Directive.

The connecting factor for capital market liability claims, however, is not explicitly regulated. For the purpose of private international law, capital market liability claims are to be characterized as a matter of tort law. Thus, they fall within the scope of the Rome II Regulation (Reg 864/2007); they are not excluded by Art 1(2)(c) and (d) of the Rome II Regulation. To date, scholars have mostly argued in favour of the law of the country where the securities are traded (market place). However, after the enactment of the home Member State concept by the Transparency Directive, it is more convincing to apply the laws of the Member State that also governs the duty which might have been infringed. This is especially true since the Member States are widely allowed to engage in ‘gold plating’ when implementing the mandatory disclosure duties, especially in the field of periodic disclosures. If one were to apply the laws of the market place instead, these peculiarities would have to be incorporated into the elements of the claim. Against this background it is more convincing to assume a manifestly closer connection pursuant to Art 4(3) of the Rome II Regulation with the home Member State.

5. Development trends

After the implementation of the Financial Services Action Plan, the European harmonization of mandatory capital market disclosure has come to a temporary halt. Current activities are restricted to fine tuning the existing rules at the Committee of European Securities Regulators (CESR). There is, however, substantial need for harmonization in the field of liability for misstatements. This subject is, however, not to be found on the schedule of the Commission. If there were to be a Europe-wide stock market scandal involving misstatements, this could change quickly.

Literature

Klaus J Hopt, ‘Disclosure Rules as a Primary Tool for Fostering Party Autonomy—Observations from a Functional and Comparative Legal Perspective’ in Stefan Grundmann, Wolfgang Kerber and Stephen Weatherhill (eds), Party Autonomy and the Role of Information in the Internal Market (2001) 246; Eilís Ferran, Building an EU Securities Market (2004); Hervé Synvet (ed), ‘Dossier: Information Financière et Responsabilité’ [2004] Revue de Droit Bancaire et Financier 448; Klaus J Hopt and Hans-Christoph Voigt (eds), Prospekt- und Kapitalmarktinformationshaftung (2005); Paul Davies, Davies Review of Issuer Liability: Final Report (2007) <www.hm-treasury.gov.uk>; Dorothee Fischer-Appelt, ‘Implementation of the Transparency Directive—Room for Variations across the EEA’ (2007) 2 Capital Market Law Journal 133; Didier R Martin, ‘Responsabilité et marchés fianciers—Propos introductifs’ [2007] Bulletin Joly Bourse 287; Paul L Davies, Gower and Davies’ Principles of Modern Company Law (8th edn, 2008) ch 26; Niamh Moloney, EC Securities Regulation (2nd edn, 2008) chs II.7 and XII.7; Wolf-Georg Ringe and Alexander Hellgardt, ‘The International Dimension of Issuer Liability—Liability and Choice of Law from a Transatlantic Perspective’ (2011) 31 Oxford J Legal Stud 23.

Retrieved from Management of Another’s Affairs without a Mandate (Negotiorum Gestio) – Max-EuP 2012 on 26. July 2025.

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