4.7.3.3 Causation and the notion of loss of chance

It is difficult for an investor to provide evidence for his claim that he would not have acquired the securities if correct and complete information had been published in the prospectus. In that case, he needs to prove transactional causation, i.e. that he actually based his decision to acquire the securities on the information. The laffer is difficult to provide evidence for. If the investor claims that he acquired the securities on the basis of an incorrect price induced by the misinformation, it depends on the willingness of the court to confirm causation between the losses incurred by the investor and the publication of false or misleading information on the mere proof that the stock price was influenced by the misinformation. After all, the share price is influenced by many different factors and the influence of the misinformation on the share price diminishes over time.

However, the notion of loss of chance could facilitate the claimant's burden of proof1 The claimant could base his claim on the fact that he lost the opportunity to make an informed decision with respect to his investment in the defendant company's securities (atteinte à la liberté d 'arbitrer en connaissance de cause)2and that this misinformation deprived him from the opportunity to have invested differently.3 In that case, it could be sufficient to prove that the information was false and misleading and that an altemative investment opportunity would have been more profitable. However, the claimant will not receive full compensation; the court will take into account the inherent uncertainty of how the claimant would have decided if he had been informed correctly.4

In cases of corporate misinformation in a prospectus, investors claim that the misinformation deprived them of an opportunity to make a well-informed choice between an investment in the securities of the said company and an investment in other securities. If it is established that the information in the prospectus was false or misleading, it follows directly that the investors could not have made a well-informed investment decision. There is a causal relationship between the loss of a chance of making a well-informed decision and the publication of the false or misleading information even if it is not certain that the hypothetical decision based on correct information would have been different from the actual decision. In fact, the losses acclaimed for are not the losses incurred because of the acquisition of the securities of the issuer that published misinformation, but they are the losses incurred because of the lost opportunity, i.e. the possibility to make, on the basis of correct information, a different investment decision that would have been more profitable. For these reasons, there is a condicio sine qua non-connection between the publication of false or misleading information, the loss of a chance and the losses incurred. In the evaluation of the losses that can be attributed to the lost opportunity, the courts should, and do in fact, take account of the chance factor (aléa) in securities market investments. Therefore, the courts do award a partial compensation of the investor 's losses. However, as can be observed in the already mentioned case-law, French courts do not provide a rigorous analysis how they calculate the amount of damages awarded.

I will now discuss how the French courts circumvented the prescribed differential treatment of decisions to acquire or conserve the securities on the basis of misinformation. In its judgment of 26 September 2003 in the Flammarion case, the Paris Court of Appeal5 ruled in favour of compensation for losses incurred due to a loss of opportunity to sell the securities acquired before the publication of misleading information at a higher price. Even though this ruling seems contrary to the French Supreme Court's ruling in Société Générale de Fonderie on the required transactional causation between the tort committed and the losses incurred by the investor, the Paris Court of Appeal resolved this issue by application of the theory of lost opportunity. In this case, the Flammarion company published its half-year results in a financial daily magazine. Mr Soulier, shareholder of Flammarion S.A., decided to sell his shares immediately upon publication of these results. Five days later, the company announced the sale of a majority bloc of shares for a guaranteed price that was double the market price.

The court, first of all, established the tortious behaviour, i.e. publication of misinformation:

Furthermore, it rejected Flammarion's argument that Soulier's losses were due to his own fault:

Secondly, it ruled that the losses incurred by the shareholder who sold his shares at a lower price, and therefore was deprived of the opportunity to sell his shares at the higher price that was offered to Flammarion's shareholders by the group company RCS five days after his own sale, were caused by publication of the inexact information. Even though the court awarded partial compensation because of the lost opportunity, in light of the circumstances, a five-day period, the chance factor plays a minor role in diminishing the difference between the actual price for which the shares were sold and the guaranteed price.

In the Sidel case, the Paris Criminal Court6 ruled that the company Sidel for many years published inexact information concerning the company's financial position. By publication of this misinformation, Sidel made investors believe that the company's actual and future situation was better than they were in reality. With respect to the private claim (action civile) for damages filed by around 700 investors, the court ruled as follows:

In its evaluation of the losses caused by this misinformation, the court ruled that:

In contrast to the distinction established in the Société Générale de Fonderie case, this court established transactional causation in regard to the decision to acquire as well as in regard to the decision to keep shares in Sidel and the publication of misinformation. Secondly, the court applied the loss of a chance doctrine: the direct losses incurred by the decision to acquire or to keep securities taken on the basis of the misleading or false information are the losses incurred as a result of the loss of a chance of making a more profitable transactional decision. Furthermore, the Paris Criminal Court in the Sidel case took into account the speculative character and inherent risk of investing in securities in such a manner that only partial compensation was awarded. The computation of the losses was not elegant; the court awarded, without reference to any arguments, EUR 10 per share. This Paris Criminal Court's was later affirmed by the Paris Court of Appeal.7

In the recent Regina Rubens case8 on the publication of false financial information, the Paris Court of Appeal ruled that the losses incurred by these investors were 'the loss of a chance of investing their capital in another investment project that is more favourable, and the loss of a chance of withdrawing faster from the actual investment'.9 The Court awarded damages, equivalent to 10 per cent of their investment, for this loss of opportunity.