6.5.3 Tort of negligence:• duty of care owed by the lead manager and/or sponsoring banks

Investors who acquired securities on the basis of false or misleading information in the prospectus can claim for damages in tort for deceit and for negligence. In the most likely circumstances, the persons who prepare the prospectus did not make false or misleading statements intentionally. In that case, the claimant has to base his claim for damages on the tort of negligence. He has to prove that the defendant owes him a duty of care. For a duty of care to arise it is necessary that there is a special relationship, i.e. proximity between the claimant and the defendant. The issuer and its directors have, or should have, the average reasonably circumspect investor in mind when they draw up the prospectus. As a consequence, the issuer and its directors owe a duty of care towards this average investor. Regarding the liability of the lead manager Y pk, the other sponsoring banks, the auditors and accountants for the misinformation in the prospectus, it is even more difficult to establish a breach of a duty of care. The claimant has to prove gross negligence in the performance of their respective obligations to make due and careful inquiries into the contents of the prospectus.

Even though there is no relevant judicial authority, the responsibility of the lead manager and/or sponsoring banks for tort of negligence in relation to the publication and distribution of a prospectus can reasonably be assumed. From the sponsor's duty to make a due and careful inquiry as to the correctness of the information provided in the prospectus, it may be assumed that the lead manager and/or other sponsoring banks owes a duty of care towards the investing public. The purpose of the due and careful inquiry is to reasonably ensure that the financial market participants are provided with correct information. The lead manager Y plc and/or the other sponsoring banks should have the investing public in mind when they make their inquiries and assist the issuer in its application for admission to listing. Therefore, there is sufficient proximity between Y plc and/or sponsoring banks and the investors relying on the prospectus when making their investment decision to subscribe for the securities on offer. The requirement that the imposition of a duty of care is für, just and reasonable necessitates that a distinction is made between the lead manager Y plc and the other sponsoring banks. In the normal circumstances of an IPO, the laffer will not exercise much control over the information in the prospectus. Therefore, the liability of the other sponsoring banks can be either denied or limited.

The duty of care owed by the lead manager to the investors is breached when the claimant proves that Y plc, as lead manager, violated his obligation to make due and careful inquiries;1 gross negligence on part of the lead manager is required. In practice, it will be difficult for the claimants to provide evidence to substantiate this claim. Therefore, in English law, it is almost impossible to make a successful claim based on the tort of negligence against the lead manager.