5.6.3 Degree of culpability

Prospectus liability on the basis of section 44 of the Stock Exchange Act requires gross negligence (grober Fahrlässigkeit) or an intentional act (Vorseitzlichkeit) on the part of the defendant.1 The standard of due care has to be violated to a serious degree.2 A simple negligent omission does not qualify as a serious breach. In German legal writing, there is debate about the desirability of this restriction to gross negligence or intention.3 Ehricke, in my opinion, correctly states that it would be unfair if the issuer would be liable for any slight degree of negligence; he would be exposed to an incalculable risk. In that case, the issuer would be responsible for market projections, valuations and developments outside his own business sphere. Such a responsibility would not be in line with the protective purpose of prospectus liability, i.e. liability for a breach of trust and confidence by publishing incorrect or incomplete information. Outside this scope, there is a risk to which the entire investment public is exposed and that market risk should be left for the individual investor's account.4

Prospectus liability in a broad sense as well as in a narrow sense is based on a slight degree of negligence (leichte Fahrllässigkeit). In those cases, every degree of negligence or intention qualifies for the acceptance of a presumption of culpability.5 The German Federal Court of Justice ruled that the defendant acts negligently if, by application of the required duty of care, he should have known that the misleading or false information was essential to the investor's decision.6 If culpability is presumed, there is a reversal of the burden of proof. To avoid liability, the person responsible for the prospectus has to prove that no blame can be attributed to him for the false or misleading information in the prospectus.7 He needs to prove that he acted with the care as required by generally accepted practice. The rules with respect to the reversal of the burden of proof will be elaborated upon in subsection 8.