7.6.2 Causation between misinformation in prospectus and losses incurred

The second requirement with respect to causation is that the securities price must have been influenced by the misleading statements in the prospectus. In prospectus liability cases this means that the misleading statements must have inflated the issue price of the securities.1 When the misleading nature of the information is finally revealed, in the most likely circumstances, the securities market price will drop. In accordance with Dutch and English law, the investor claiming damages for the losses incurred as a result of his acquisition of the securities at an inflated price caused by the positive market sentiment due to the misleading prospectus, has to claim and, upon challenge, prove the causal connection between the price inflation and the misleading statements.

The inflated market price of the securities can be demonstrated by the fall in the securities price after the revelation of the misleading nature. De Jong states, with respect to Dutch law, that the investor merely has to give evidence of the fact that the securities price was affected by the misleading statements. The investor could bring forward an expert report that on the basis of an event study it can be demonstrated which part of the fall in the securities price after the revelation is related to the inflated price at the moment of acquisition of the securities. This expert report distinguishes between the reduction in the securities price as a result of the general fall in the securities market prices and the reduction as a result of the inflated price correction.2 The exact amount of inflation in the securities price is not a matter of causation and will be determined at a later stage in the proceedings when the extent of damages is determined by the court on the basis of section 6:97 DCC.3

In German law this requirement is known as liability completing causation. Unlike in Dutch law, the investor claiming restitution on the basis of section 44 of the Stock Exchange Act does not have to demonstrate that the securities price was influenced by the misleading information. The defendant has to claim and, upon challenge, prove that the facts about which false or incomplete information were provided in the prospectus did not contribute to the reduction in the market price of the securities.

French courts are quite lenient in their acceptance of the causation between the inflated price of the securities and publication of misleading information. There is a recent tendency in French case law to restrict the award of damages to losses incurred by the investors as a result of the loss of a chance of making an informed investment decision. These losses are regarded as directly, certainly and actually connected to tortious behaviour: the publication of false or misleading information. In their award of damages, French courts take into account that investors are subject to the risk of losses inherent to the speculative nature of investments in the securities market. Therefore, investors get awarded only a percentage of losses they incurred.