The Bottom Line
A recent ruling by The Hague Court of Appeal provides a stark reminder for businesses, particularly in the financial sector, about the risks of third-party distribution channels. The court held financial services firm Dexia 100% liable for a customer’s investment losses because it failed to prevent an unlicensed intermediary from giving advice.
- You are responsible for your partners’ actions: Companies that use intermediaries or third-party distributors to sell their products cannot claim ignorance about their sales practices. The court confirmed that the responsibility to ensure compliance rests with the product provider.
- “Turning a blind eye” is not a defense: The duty to know what your partners are doing is active, not passive. If an intermediary gives unlicensed advice, a company can be held fully liable if it “knew or should have known.” Failing to investigate is a risk that falls squarely on the company.
- Liability can be absolute: In cases of misselling via unlicensed advisors, Dutch courts can set aside the customer’s own responsibility. This means the company could be on the hook for 100% of the client’s losses, including all fees, interest, and principal payments, without any reduction for the customer’s own negligence.
The Details
This appeal case continues the long-running saga of “securities lease” products sold in the Netherlands in the late 1990s and early 2000s. The customers in this case entered into complex investment agreements with Dexia, introduced to them by intermediaries who were licensed to connect clients with financial institutions but not to provide personalized investment advice. The products resulted in significant losses, and the customers argued that Dexia should bear the full cost because it used unlicensed advisors to push its products. The lower court agreed, and Dexia appealed.
The Court of Appeal upheld the original decision, focusing on two key questions: Did the intermediary give personalized advice, and did Dexia know (or should it have known) about it? The customers provided a detailed account of how the intermediaries assessed their financial situation and goals, then specifically recommended Dexia’s products as being “suitable” for them. The Court confirmed that this goes far beyond a simple introduction and qualifies as a “personalized recommendation”—an activity requiring a specific license which the intermediaries lacked.
Dexia’s defense was that it was not present during the sales conversations and therefore could not know what was said. The Court firmly rejected this argument. It ruled that because Dexia chose to build its business model on a network of third-party distributors, it had an inherent duty to verify their practices and ensure they were compliant with financial regulations. By failing to conduct this due diligence at the time, Dexia assumed the risk. The Court reasoned that a company cannot benefit from a distribution channel while simultaneously disavowing responsibility for how that channel operates. This places a clear onus on companies to proactively monitor their sales partners rather than reacting after the fact.
Source
Source: The Hague Court of Appeal (Gerechtshof Den Haag)
