5.7.1 Liability constituting causation

The German Federal Court of Justice ruled in several cases that causation between the publication and distribution of the misleading prospectus and the investment decision can be assumed, if the false or incomplete information is at least a contributing factor or concurrent cause to the investment decision.1 The effect of this lenient assumption is similar to the rule of refutable presumptive evidence (Anscheinsbeweis) applicable to the prospectus liability onder section 44 of the Stock Exchange Act.

Liability constituting causation is not established when the losses would have been incurred as well, if the defendant behaved according to his duty of care.2 If the claimant claims that he would not have made his investment, if the prospectus had not been false or misleading, the burden of proof tule brings about that the defendant has to claim, and upon challenge, prove that this particular claimant would have made the same investment decision, if the information had not been false or misleading.3 The burden of proof tule will be elaborated upon in section 5.8 below. The liability constituting causation element cannot be established, if the investor made his investment decision independent from the prospectus; he made his investment decision without any reliance on the prospectus.4

In the Comroad cases, where investors claimed damages from the Comroad company's directors for losses incurred as a result of the intentional publication of false information in the prospectus and in ad hoc announcements on the basis of section 826 GCC, the Federal Court of Justice rejected the application of the fraud on the market theory allowing investors to prove causation between the investment decision and the misinformation on the basis of the infringement of the investment community's trust in the integrity of the securities price.5 Even in a repeated and extremely serious corporate misinformation case, the Federal Court of Justice requires that damage claims are based on actual causation between the misinformation and the claimant's investment decision. The fact that the investor bought his securities at an unjustified higher price is not sufficient evidence. 6