5.4.2 Contractual liability

A duty may arise, depending on its contents, for each contractual party to take into account the rights, legal interests and other interests of the other party.1 This obligation to take into account the rights and (legal) interests of the other party does not arise when the contract is finally concluded. This duty of care arises from the moment that the parties start negotiating.2 Furthermore, section 311(3) GCC prescribes that this duty to take care of the rights and (legal) interests of the other party also arises in relation to persons who are not themselves intended to be parties to the contract. Such a duty arises, in particular, if this third party substantially influences the pre-contractual negotiations or the entering into of the contract by giving a particularly high degree of trust. If one of the parties breaches his duty of care, the other party can claim for damages for the losses caused thereby. Liability only arises, if the obligor is responsible for the breach of duty.3

The individual investor can bring a contractual claim on the basis of section 241(2) GCC in conjunction with section 311(2)(1) GCC against the issuer, the lead manager and/or the other sponsoring banks involved in the publication and distribution of the prospectus on the condition that the defendant qualifies as contractual counterparty to the securities sales contract. Which party qualifies as the contractual party depends on the structure of the issue.

In case of a guichet issue, the issuer is the contractual party and the sponsoring bank acts as an intermediary. The sponsoring bank has the option to guarantee the issue, but it does not become the counterparty of the investor. The investor can only bring a contractual claim against the issuer. However, in the usual circumstances, there are no negotiations between the issuer and the investors. For that reason, the investor cannot claim damages for a misleading prospectus on the basis of section 280(1) GCC in conjunction with section 311 (2)(1) GCC. In case of an underwritten IPO, the securities are issued to the banks. In the subsequent resale of the securities to the investors, the sponsoring banks are the contractual party to the securities sales contract. The investor can bring a claim for a misleading prospectus on the basis of section 280(1) GCC in conjunction with section 311(2)(1) GCC against the lead manager and/or sponsoring banks, if there were any negotiations with or investment advice given by that particular bank related to the conclusion of the securities sales contract.

It is noteworthy that, in practice, only professional investors subscribe in their own name and at their own expense. The professional investor qualifies as party to the securities sales contract and is entitled to bring a contractual claim against the issuer or the sponsoring bank depending on the IPO structure.4 Non-professional investors are, in the most likely circumstances, not a party to the securities sales contract, because a securities broker concludes the securities sales contract in its own name and at the investor's expense. Thus, the securities broker is the contractual counterparty entitled to bring a claim against the issuer or the sponsoring bank.