3.7.2.2 Second claim

In the second case, the investors claim that they relied directly or indirectly on the misleading prospectus. These investors will allege that they were indeed misled by the misleading prospectus. They would not have acquired their securities if the prospectus had not been misleading. They are dissatisfied with their investment as such and they would have invested the full amount of their investment in a different investment project, if they had known the correct information. There is another perspective with respect to causation (and therefore with respect to damages) applicable to these investors than to the investors claiming in the case discussed in the previous subparagraph. The difference between these bases for claims and the difference in perspective with respect to causation and damages will be clarified by two examples. It is emphasised that the examples are theoretical. In practice, the (procedural aspects of the) causation question involve(s) much more complexity.1

The examples are selected to illustrate the substantive questions with respect to causation.

Example 1. An investor acquired securities at EUR 100 at the moment of introduction to listing while the true value of the securities is EUR 70. The misleading prospectus artificially stimulated the introduction price by EUR 30. Sometime after the introduction the misleading nature is revealed and as a consequence the securities price falls from EUR 100 to EUR 50.2 Suppose one has established that the reduction in securities price loss of EUR 50 is caused for EUR 30 by the misleading prospectus and the remaining EUR 20 is caused by the general negative market sentiment.3 If subsequently the investor brings a claim against the publisher or distributor of the prospectus on the basis that he acquired the securities at a price that is too high, the losses incurred by him that are connected condicio sine qua non to the misleading prospectus are EUR 30.

If the investor brings a claim against the publisher or distributor of the prospectus on the basis that he was misled by the prospectus, then the amount of losses incurred that are connected condicio sine qua non to the misleading prospectus are more than EUR 30. The reason is that the letter claim is based on the fact that the investor would not have taken this investment decision if the prospectus had not been misleading. In other words he was brought in a less favourable financial position as a result of the misleading prospectus. On the assumption that the investor's financial position without the violation of the norm had been EUR 100,4 the losses connected condicio sine qua non to the misleading prospectus are EUR 50 (100 — 50). It is a different question whether it is reasonable to make the publisher or distributor of the prospectus accountable for the full EUR 50. However this question is not about the condicio sine qua non but about the attribution of the losses. It is up to the publisher or distributor to make this argument on the basis of Section 6:98 DCC. He could, amongst others, make the defence that it is unreasonable to make his liability, and subsequently the amount of damages payable, dependent on the unforeseeable market sentiments in the period under dispute. See graph 1 below for an illustration.

Example 2. Suppose that in the preceding example the true value of the securities is just EUR 50. The misleading prospectus artificially stimulated the introduction price by EUR 50 such that the fall in the securities price of EUR 50 is entirely explained by the misleading prospectus. Furthermore, suppose that it is established that the investor could have made a return of 10 per cent on an altemative investment project. If the investor claims for damages on the basis that he acquired the securities at a price that is too high, then he would have invested the true value of the securities, i.e. EUR 50, in an altemative investment project with a return of EUR 5. The losses that are connected condicio sine qua non to the misleading prospectus are calculated by comparing the actual financial position of the investor, EUR 50, with the hypothetical financial position that the investor would have been in, if he had not been misled by the prospectus, EUR 105. As a consequence, his losses are EUR 55 (105 — 50).

However, if the investor claims on the basis that he, in the absence of the misleading prospectus, would not have acquired the securities at all, then he would have invested EUR 100 in the altemative investment project with 10 per cent return. The return would have been EUR 10. By comparing the financial positions, the result is that the losses connected condicio sine qua non to the misleading prospectus are EUR 60 (110 — 50). See graph 2 below for an illustration.