Trust, Information and Pre-contractual Liability

2.2.1 Sociology and Economics of Trust

The main characteristic of the long development of trust research in sociology seems to me to be that while, on the one hand, a rationalisation function of trust is emphasised as central, on the other hand, trust is understood as fundamentally different from rational calculation – the thinking of homo oeconomicus. Bosshardt even speaks of homo confidens in a treatise that leads from economic to sociological research on trust.^[21] Max Weber – along with Simmel – had already taken the pioneering step of contrasting the two major categories of personalised trust and trust in a system (system trust). Of course, instead of system trust, he spoke of modern society as a ‘community of consent’, and with this juxtaposition, he made the comparison between these two alternative forms of trust, the comparabilities and the differences, a central object of his research.^[22] The fact that hybrid forms such as so-called organisational trust – trust in organisations such as stock corporations (fn 16) – were also developed later, adds nothing categorically new to this. For Weber already had the idea that both main forms are basically types, with distinguishing features, but also central commonalities. In other words: from pure system trust without any personal element – as perhaps with algorithms – to purely personalised trust – as perhaps in a love relationship of absolute outsiders in society – there is a whole range of mixed forms. Weber had already emphasised that the division of labour and increasing (technically conceived) rationalisation led to a transition from a dominance of personalised trust to an increasingly important position of systemic trust. Without personalised trust being completely displaced, systemic trust increasingly takes the central position in markets and economic processes – whereby, however, the individual mix in each relationship must always be explored more closely. Just as the division of labour and the (exponentially increasing importance of) the market were mutually dependent in Adam Smith’s view, Weber now notes the resulting change in the phenomenon of trust. For he characterises the market in general as the ‘most impersonal practical life relationship into which people can enter with each other.’ (Introduction to Chapter VI – The Socialisation of the Market) – which at the same time implies that system trust is particularly prominent here. This is certainly even more true for capital markets. At the same time, the emergence of system trust and the search for the elements on which it is based have thus moved to the centre of research interest. It is precisely this key question on which important, perhaps the central contributions followed in the second half of the century.

Weber’s contemporaries, namely Durkheim and Simmel, admittedly emphasised other aspects. Durkheim, above all, highlighted that the formation of trust (with its value-forming power) also in markets depends centrally on a feeling of moral obligation. The will not to disappoint trust is therefore not to be justified solely (and perhaps not even primarily) with self-interest, but with social commitment (dependent therefore on the degree of social commitment).^[23] Conversely, Simmel with the characterisation of personalised trust as a phenomenon of ‘mystical faith’, focused on that of system trust clearly and more openly, thereby generalising it as a phenomenon of social trust.^[24] In addition to system trust, there is thus more generalised social trust alongside personalised trust. Although capital markets and capital market law certainly belong more to the category of ‘system’ – i.e. system trust in the true sense is at the centre here – Simmel’s generalisation is not meaningless in the context of capital market financing either. This is the idea that trust in the community as such – whether systemically entrenched or not – also forms an important factor, for example, for the willingness to invest.^[25]

Despite the importance of these first developments, the next epochal steps occurred only decades later and would seem to be connected with the names of Luhmann and Giddens, emerging most clearly after the Second World War. Luhmann not only presented a central monograph in 1968, which he dedicated solely to the phenomenon of trust – with probably the most famous core sentence on trust ever, which outlines trust as key instrument for the ‘reduction of complexity’ in society. From a multitude of possibilities of the future (time dimension) or an unknown (factual dimension), trust is placed in a concrete one, i.e. this is taken as the decisive basis for the decision to be made (or for a decision not to be made – ‘letting it run’).^[26] This instrumental-functional character of trust in social systems, but especially in the economy as a core subsystem of society, was already present in Max Weber’s work – and is then central in economic theory, in Arrow’s and later work.^[27] In Luhmann’s work, however, it is framed more sharply and in terms of system theory, namely in relation to the concept of system trust. If trust means reducing complexity, it is also an advantage to be able to trust (albeit with the difficulty of having to offset losses from trust disappointment). Therefore, it makes sense in principle to promote this state. If systems are then seen – as in systems theory – as developing only auto-poetically (self-referentially) – out of their own laws of action and structures,^[28] an increased stability is also claimed and the lack of openness to outside influences can be seen as an advantage for the affinity of system arrangements to trust. Indeed, central to Luhmann’s understanding of trust is the so-called reflexivity (also ‘procedural self-reference’), the mutual reference to granted and expected trust of others^[29] – which, however, unlike in economics, does not assume that trust is only rewarded if it serves one’s own benefit, but because there is a general expectation of reflexivity and this is part of the system. This indirectly addresses the element of guaranteeing equal application and thus also equal treatment as the content of trust expectations, which appears to be absolutely central for philosophical trust theory (see Section 2.2.2) below), but largely irrelevant for economic trust theory. For Luhmann, the logic of trust lies in this kind of reflexivity expectation, and its stabiliser in the auto-poetic mechanisms of further development of systems. For all these reasons, Luhmann also emphasises the character of trust as – unprotected (or: only system-inherent) – advance performance.^[30] What sociological and economic theory have in common is the recognition of risk that needs to be managed. In economics, the main focus is on information and control to limit risk, in Luhmann’s case on (system-stabilised) trust (with an incomparably vaguer information base and poor control mechanisms in individual cases).

Giddens then focuses more on the preconditions for the emergence of trust. Two points from his rich work should be highlighted. For if, in the sense of an ‘overlapping consensus’ (Rawls), it makes sense to devote special attention to those aspects of trust (for example, in regulatory issues) that promote values that all (or the vast majority of) relevant disciplines consider worthy of support, two core insights of Giddens seem particularly important. Among these aspects with a particularly broad ‘overlapping consensus’ are two – which, at least in principle, have already been mentioned. The first is that trust should be promoted in the first place – for example, from the point of view of economics, because it allows creation of value; from the point of view of sociology, because it stabilises social contexts and relationships; and from the point of view of practical or moral philosophy, because it strengthens commitment to norms and ethics. On the other hand, trust should be prevented as far as possible from leading people astray. This is so, from the point of view of economics, because the informational basis of decisions would then be distorted (adverse selection), from the point of view of sociology, because of the disappointment that can then destabilise social contexts and relationships, and from a philosophical perspective, because the autonomy principle seems to argue vehemently for this. For Giddens, trust is arguably the litmus test for his image of modernity; and his understanding of modernity in particular established his position as the ‘sociologist of the century’ – at least for the Anglo-American world (and for New Labour). When he analyses modernity, he sees no other change on the way to modernity as so central to the texture of society as the changed understanding of trust, namely with the unequally increased importance of system trust (caused by ‘the spatio-temporal increase in distance that accompanies modernity’). More concretely and absolutely central in this respect, Giddens recognises how system trust is usually not exhausted in an abstract trust in the institutional structures and the rule basis of these systems – for example, the protection of deposits up to 100,000 Euro by the deposit guarantee system supported by the entire banking system – but needs to be complemented. The complement is in most cases personal trust in exponents of this system – for example, Angela Merkel’s dictum ‘Your deposits are safe’ – thus furthering overall trust in a significant way. Giddens thus recognises that system trust in most cases of real life reality is a hybrid trust – a conglomerate (with various degrees of the one and the other) of trust in rules, in an institutional practice, in exponents of the system. The weight of personal trust in the context of system trust, for example, which persons are trusted, why and to what extent, is becoming a central research question.^[31] Moreover, it is obvious that this is of central importance when it comes to identifying actions that shake system trust in a particular way. The second central insight in Giddens’ research – with perhaps some weak traces already in Luhmann – concerns the question of the relationship between trust on the one hand and information and decision-making on the other. In this respect, Giddens assumes that system trust is the normal case in modernity, which is learned as the usual case, the default solution, i.e. it is not conscious and primarily information-driven – blind system trust as an evolutionary advantage, as it were, because there is no longer any need to calculate.^[32] It is important to note, however, that unlike in the case of personalised trust, (‘blind’) trust can be shaken by the realisation of the flawed nature of theories or empirical theorems and by the behaviour of unknown or arbitrary exponents. The importance of this second central insight of Giddens’ is again obvious, for example when it comes to whether and in which cases trust can and should be promoted, influenced or channelled by information rules – for example, the system basis must also be made transparent.

Luhmann and Giddens are followed by Coleman and soon Beckert and Sztompka. While Coleman is of lesser importance for the considerations at hand,^[33] a word on Beckert and Sztompka is indispensable for what follows. Beckert is not only one of the great modern sociologists who examined most directly the market system, but also he focuses his reflections to a particular extent on the differences with the economic theory of trust, namely the assumption of rationality. He sees the cardinal contrast not so much in self-interested thinking, but rather in the recognition or a non-recognition of the fundamental insuperability of information problems – in the fact that in broad areas of decision-making based on surrendered trust, an informed calculation, even just a probability calculation, simply appears illusory as an alternative.^[34] Beckert is particularly radical in his rejection of an analytical framework in which calculation is set as the dominant premise in any form. Finally, central to Sztompka’s work is the view – also fed by the experience of decades of communist planned economies – that ubiquity of control entails a reduced capacity to trust.^[35] These two insights are also of considerable importance for the design of regulatory approaches.

The history of trust research in economics is much slimmer. While the information model and information economics have long since left the ‘slum dwelling’ in which they were seen at the starting point of information economics,^[36] trust as a phenomenon still remains there. This is so at least if one takes as a yardstick the disproportionately richer form it has taken in the wreath of many disciplines and as well the degree to which trust concepts are really anchored in capital market law. Arrow’s reflections from the 1970^s are widely seen as the starting point for considerations of the phenomenon of trust in economics, namely two contributions from 1972 to 1974.^[37] In them he states three things. This is, first, the economic value of trust in that it enables beneficial transactions that could not otherwise take place, or at least facilitates them (allows them to take place more cheaply), an idea he shares above all with Luhmann (fn 26). This is, second, the far-reaching impossibility of sufficiently ‘privatising’ the benefits of trust-building measures (and their costs), i.e. making them available to those who undertake them ([positive] ‘externalities’). Finally, third, all this results in the difficulty of designing markets for trust. These considerations – and the paradox of how to conceive a rational utility calculus in the case of ‘blind’ trust – are what an economic theory of trust is still struggling with today, already in the literature that emerged independently of the great financial crisis. Two main lines can be discerned.

On the one hand, it is emphasised that behaviour that establishes trust – for example, by sending out signals, for example, by making investments that would be useless if trust-damaging behaviour were to occur later – establishes reputation and thus creates the prerequisite for returns. In other words, there is a two-fold prerequisite. On the one hand, the potential addressees of trust refrain from trust-damaging (opportunistic) actions in order to be (over-)compensated by returns on trust, or invest in trust-building measures with the same goal. At the same time and on the other hand, the potential investors of trust must as well be in the position to predict and reward these elements with sufficient reliability by.^[38] In this line of reasoning, calculation (above all of future probabilities) continues to be assumed and the costs of trust-building measures (including the opportunity costs of not breaking trust) and the cost benefits of trust on the other side are entered as items in a virtual balance sheet.^[39]

The antipode to this reasoning can be seen in the central economic monograph in the German literature before the financial crisis – by Ripperger – and especially in her review.^[40] The work, which conceptualizes the central properties of trust consistently in terms of institutional economics, with many conceptual clarifications but no proposals for an operationalisation, arrives at a point where its ‘Achilles’ heel’ becomes obvious – whether non-calculating trust may not be a contradiction in terms. Accordingly, the review elaborates on how Ripperger also neither postulates the calculus of utility as an empirically proven mode of behaviour, nor wants it to be understood as a normative guiding principle, but only as a ‘methodological concept’. Rather the work shows (counter-intuitively) ‘how precisely with increasing differentiation of this [stringent calculus of utility] … the cognitive-emotional preconditions for the release of trust in practice are impaired.’ Indeed, the great paradox of an analytical method based on benefit calculation remains how it can be explained that the other side should actually place trust in a person who always seeks his own benefit for the future first.^[41] The other side can build up trust emotionally above all if the benefit calculation and incentive system behind it are systematically concealed from him. For in such a world, trust is comparably stabilised and reliable for the other side as, for example, in Luhmann’s system trust only in exceptional situations – for example, in the case of investments in reputation so high that they would be lost in the case of an ‘efficient breach of trust’. This realisation leads authors such as Bosshardt or Beckert, when they analyse construction and protection of trust, to include institutional economic approaches only after having filtered them in the light of sociological trust research, as far as this is possible.

2.2.2 Philosophy, Political Science and Other Contributions to Trust

In addition to the contributions to a broad social-scientific theoretical panorama on trust outlined in cursory fashion so far, there are important other strands in philosophy and political science (fn 20), but also in psychology,^[42] pedagogy^[43] and anthropology or evolutionary biology.^[44] As important as each strand may be, sociological and economic trust theory are nevertheless in the foreground for capital market law and financial services contracts – at least in a first overview. At least in the context of an outline, the focus is therefore on them. This results from the fact that, on the one hand, no discipline understands trust as a core subject of the discipline as much as sociology – except perhaps psychology, though much less focused on social trust than in sociology. This also results from the fact that, on the other hand, in the interdisciplinary applications to capital markets and capital market law so far, the economic theory of trust has been in the foreground. In political science, trust research also primarily refers to a different object of trust, both the political decision-makers and the electorate as well as the constitutional legislator (pouvoir constituant),^[45] while sociology and economics focus their attention primarily on society and, since the beginning, especially on the economy, thus on market and transaction issues and the actors in these. This implies that the classic criterion of relevance also determines which disciplines are worthy of consideration first and foremost.

However, one aspect of trust research that is particularly emphasised in the philosophical discussion and which ultimately has a tradition of several millennia is taken up in trust research only in a new context. It is about the aspect that trust is sensitive to equality. In other words, the feeling of being entitled to equal treatment is so strong that trust is formed particularly intensively to the effect that the relevant systems also guarantee this.^[46] Trust in equal treatment in the system is particularly central, and its disappointment, conversely, is also particularly likely to impair or destroy trust in the institution as a whole. This is justified not least by the fact that the postulate of equality has been so centrally linked with the postulate of justice itself in ethics and the doctrine of justice. In other words, the postulate of equality occupies such a central position normatively that a society-wide trust in its observance in social systems is also formed to a particularly large extent and with particularly emphasised significance.^[47] This linking of normative postulate and actual spread of trust is not limited to this case. Rather it would seem that breach of trust relations is sanctioned more severely in several areas of the law, not least contract law, often typified as a breach of ‘good faith’.^[48] The equality aspect, in turn, is not only central to the philosophical discussion and, conversely, generally irrelevant to economics, but a decision on this is obviously relevant to capital market law. For it is precisely on the same side of the market – for example, on the investor side – that the interests of investor groups with different capabilities often clash – for example, in the questions of how to structure information obligations, such as prospectus obligations. In secondary markets – since the role can change from transaction to transaction – equal treatment aspects are also obvious between actors on both sides of the market, obviously for example in the case of insider bans (not dealt with in this paper).

3.2.1 Key Points of the Alternative Market

According to the above national exemption area, the national legislator decides on the structure of the segment of total annual issuance volumes up to 8 million Euro (in Germany in §§ 3–7 Wertpapierprospektgesetz) in terms of whether and to what extent it wants to permit an issuance without protective mechanisms. Alternatively, it can opt for more lenient protective mechanisms than those applicable to prospectuses, which (under Article 1 (3) EU Prospectus Regulation) then must be necessary and proportionate (proportionate with regard to the cost burden appropriate for the respective issue volume).^[54] However, EU law defines this market as national (‘local’), not part of the internal market,^[55] i.e. not guaranteeing cross-border recognition in other EU countries (which, however, autonomously may opt for individual openings of their markets).^[56] A securities information sheet and comparable foreign protection instruments thus do not guarantee EU-wide recognition. Accordingly, the German legislator was able to create this local market and has indeed done so in §§ 3–7 Wertpapierprospektgesetz.

In this context, the scandals of the so-called grey capital markets in Germany (surrounding also investments in the Reunification process, for instance immovable property around Berlin) are certainly relevant to trust and confidence – in the German collective memory of investors.^[57] Conversely, however, positive developments also appear to be relevant to trust and confidence, and here certainly the high prestige that the German Mittelstand enjoys as such (‘personally’), but also a social tendency to ‘go local’,^[58] both count positively. The regulation in §§ 3–7 Wertpapierprospektgesetz is separated from the aforementioned – formerly – ‘grey capital market’ by its clearer focus on SMEs and the type of investment, the fungible security (securities), more generally: listed financial instruments.^[59] It is, of course, unclear, however, whether this is sufficient for the new SME capital market segment and, if applicable, for crowdfunding investment really to distinguish it clearly enough from the old public limited partnership – for example with its junk real estate funds – which also figure in the collective investor memory. Therefore, it is also unclear whether further efforts would have made sense, such as the formation of quality seals through protection of certification (as with the SME growth market) or as well consolidated actions to raise awareness involving the financial sector.

In any case, the design by the legislator itself is characterised by some cornerstones, two of which seem key. The emphasis on the securities information sheet as an alternative protection instrument in the literature distracts the attention from the fact that the German legislator actually introduced a three-tier protection regime in the segment of securities issues up to 8 million Euro. There is one tier of the segment without any alternative protection instrument at all. There is one tier with the obligation to provide a securities information sheet of three DIN-A4 pages (cf content in § 4 (3–7) Wertpapierprospektgesetz). Finally, there is one tier where the legislator returned to the prospectus obligation. What is decisive here – thinking in terms of trust-building – is on the one hand the view of the (trustworthiness of the) respective issuers as well as on the other hand the (horizons of expectation of the) respective investors. Besides these distinctions described with regard to the persons acting on both sides of the market, the exact prerequisites of the new protective instrument itself are also worth considering, including the securities information sheet, its scope, and its design.^[60]

3.2.2 Calibrating Protection to Actors, Contents of the Instruments of Protection and Trust

Issues with a total annual volume of up to 8 million Euro are permissible without any protective instruments for the particularly trustworthy issuers listed in § 3 no. 1 Wertpapierprospektgesetz. For them, neither § 4 Wertpapierprospektgesetz stipulates an obligation to provide a securities information sheet (para 1 p 1 e contrario), nor does it provide for a revival of the prospectus obligation in § 6 Wertpapierprospektgesetz (which only is the case if the investor engagement exceeds the thresholds mentioned there, i.e. is rather onerous, see below). These thresholds are characterised by the fact that below them even a total loss is regularly ‘annoying’ for the investor, but not existential (1000 Euro or at most 1/10 of the free assets or 2 net monthly salaries). Conversely for the ‘other’ (less trustworthy) issuers mentioned in § 3 no 2, for issues up to the identical limit of 8 million Euro total annual volume, the obligation to provide a securities information sheet applies at a first stage according to § 4 Wertpapierprospektgesetz (para 1 p 1). Moreover and a maiore also for these (less trustworthy) issuers, the duty to issue prospectuses revives under § 6 Wertpapierprospektgesetz whenever the threshold of merely annoying losses (and investments) is crossed.

The key point for the evaluation of this scheme is the demarcation line between issuers of ‘increased confidence’ and normal issuers. If, in the case of an issue with a total annual volume of up to 8 million Euro, it can be assumed that the prospectus costs may be ‘too oppressive’ (in relation to the capital acquisition), this aspect is nevertheless declared irrelevant in the following case. Pure trust – no information at all – is only a laudable strategy if a double condition is met: this is the qualification as an issuer of ‘increased confidence’ and that the risk of total loss is relatively light. In this market segment, in which trust constellations co-determine the design of the regulation, both the lack of any protective instrument (for the issuers of ‘high trust’) and the recourse to a significantly simpler protection instrument for issuers ‘without increased trust’ is thus already made dependent on a substantive element. This element is that the ‘unprotected advance performance’ (Luhmann) must remain so low that its loss is at most ‘annoying’ for the respective investor (individual protection), and moreover, that this loss will also not cause investor insolvencies that discredit the entire market (system protection). Conversely – even more interesting for the present topic – a genuine area of trust is indeed created for issuers of ‘increased trust’. In this case, reliance is placed solely on the establishment of a position of trust in the past (of course including a fulfilment of information obligations in the past, more generally speaking: regular compliance with market rules),^[61] but entirely without a duty to provide information for this specific issue. No securities information sheet is required, thereby waiving even the rudimentary information duties. The leap in trust reaches so far that the investor-related restriction is waived as well, i.e. even non-qualified (private) investors are not guaranteed protection by duties to provide information. In relation to persons – certain types of issuers –, an (alternative) regime of investor protection is established that is primarily based on trust. The decisive factor here (besides privileged treatment of credit institutions densely monitored, § 3 no 1 1st alternative Wertpapierprospektgesetz) is formalised good conduct on the part of the issuers in question (§ 3 no 1 2nd alternative Wertpapierprospektgesetz), formalised in that the issuer places itself under increased supervision under capital market law in the form of admission to a regulated market. In his case, a consolidated basis of trust (combined with information disclosure in the past) replaces information and control of information for the specific issue – at least for the maximum range for which the German legislator was allowed to provide this solution (up to a volume of 8 million Euro of total annual issue).

In the concert of national design proposals, this is a remarkable model.^[62] It should, however, be emphasized that this is a regionally limited model of a trust environment, tailored to the champions of the German SME sector, including (tested) start-ups, with experience in regulated capital markets – possibly a new model for success in the medium term, especially for the private investor segment. This is the specifically personalised trust element within the framework of general system trust – focused on the German Mittelstand. It is not a single market model though. Admittedly, it could – with bilateral recognition – also be a cross-border model in some cases. One disadvantage of the local restriction may be that it creates only a benchmark for competition, but not a competition between legislators with access to other markets. Therefore, promising company segments in member states with weak investor bases can be cut off from deeper investor markets.^[63] For example, a Greek SME developing dynamically after the financial crisis with possibly considerable trust potential might be cut off in practice from the deeper German (private) investor market.

3.5.1 Status Quo: Reimbursement of Equivalent Interest Solely in the Case of Gross Negligence

If in the following section, a concept of prospectus liability is outlined. This would apply to the core area, not only for alternative markets and instruments (above Sections 3.2 and 3.3) This concept proactively promotes trust. A duty to proactively design prospectuses in a (particularly) clear and comprehensible manner should also be kept in mind and should already be understood as a measure to build trust (above Section 4). If such a – confidence-building – concept of prospectus liability is then outlined, the main objection to an expected increase in liability will probably be that this liability would go too far and have a prohibitive effect.

Therefore, first a few words of clarification on the scope of prospectus liability in Germany (though it is similar in many other countries as well). By law, liability is limited to new shares only, i.e. to those shares that were sold on the basis of this prospectus (§ 9 para 1 sentence 1 Wertpapierprospektgesetz) – if the drafter of the prospectus fulfils his obligation to clarify and identifies shares as new or old (by virtue of serial number) (cf counter-exception § 9 para 1 sentence 3 Wertpapierprospektgesetz).^[76] In addition, only the capital inflow received is to be paid out (with the exception of acquisition costs) (§ 9 (1) sentence 1 Wertpapierprospektgesetz, as amended); consequential damages, such as lost profits, are not to be reimbursed because the investment would have been made differently if the statements in the prospectus had been correct.^[77] The summary is simple. In the event of prospectus errors, the issuer/offeror (if new shares are distinguished from old ones) has received the capital that she has to refund whenever liable for the prospectus – to exactly the same extent she has received funds, without consequential damages.^[78]

If one analyses the case law, the standard applied for liability under § 12 (1) Wertpapierprospektgesetz is best interpreted as including also breaches of duty based on slight negligence.^[79] Based on the above, the following comments are partly of a legal policy nature (de lege ferenda), insofar as they advocate guarantee liability, and partly concern interpretation (de lege lata), insofar as they welcome this case law practice (and not, as in the letter of the law, a liability only in case of gross negligence).

3.5.2 A Compensation of Equivalence Interest Scheme Promoting Trust

Assuming that any capital raised is used efficiently and that this is the responsibility of the issuer, the first conclusion to be drawn is simple. Even in the case of prospectus errors – at least from a normative point of view – an issuer who has to reimburse capital raised should only be seen as if he had not received the (incorrectly raised) capital. This is because the issuer is not deprived of value in the case of such efficient use, but only has to replace the faulty fundraising with alternative fundraising – now in a lawful procedure. An argument to the effect that the damage often does not occur with the issuer, but with the provider – such as a financial intermediary – hardly supports a different assessment. The question of how damages are shared in case of a division of labour on the provider side should – according to all relevant regulatory and burden-sharing considerations in private and commercial law – be settled on the provider side. This is between professional and initiated actors – if necessary by means of a corresponding risk premium on the part of the financial intermediary vis-à-vis future issuers.

If, therefore, the core issue is the return of unlawfully received capital to the deceived investor – with proven causality and only to the amount of the capital directly raised on the basis of the prospectus – only one solution seems compatible with the ethical foundations of a sociological–philosophical concept of trust: the return of capital without a fault requirement. This, of course, is the solution, which, for sales law, was praised as the great progress made by CISG and the Sales Directive 1999/44/EC – as one of the most important legal–ethical advances of the reform. The reimbursement of what was received/retained in breach of duty must not be made dependent on subjective reproachability.^[80] Otherwise, the breach of duty or illegality is perpetuated in a certain section of cases and trust, insofar as it is based on a sense of justice and ethics, is shaken. Moreover, since the risk of litigation appears to be disproportionately greater if a fault requirement exists than if liability depends only on incorrect or missing information, any system even asking only for slight negligence appears to be one that makes claims considerably more difficult for investors and does not systematically sanction unlawful capital raising.

A prospectus liability regulation that makes even the simple distribution of unlawfully raised capital dependent on an accusation of gross or even slight negligence is thus a major case of shattering a sociological–philosophical concept of trust that is also founded in ethics. Of course, this also applies for a second reason, now oriented towards market competition. In a comparison of investment offers, a regulation that does not sanction every solicitation of capital based on a violation of prospectus law (requiring namely full and correct statement of the relevant facts), but only those that are (grossly/slightly) negligent, puts providers and offers that are designed in full compliance with prospectus law at a disadvantage. This is because the demand side can no longer compare promised qualities with each other if it sometimes receives compensation in the case of negative deviations, while other times it does not, depending on (possibly) subjective elements on the part of the provider.^[81]

These considerations are further reinforced by the fact that investment activity is inevitably – in Luhmann’s words – advance performance, i.e. advance performance in trust, thus creating a structural vulnerability, if at the same time the personal trust relationships are rather weak or not developed at all. In this case, such trust appears sustainable only if the counter-performance that is to follow is absolutely – not only relatively – guaranteed by the system. This implies that in any case the legal requirements should guarantee absolute enforcement. Through the comprehensive involvement of credit institutions or investment firms, this guarantee would also be secured in a comparable way to the deposit guarantee system: if the prospectus is faulty, the correlate is the absolute liability of a usually solvent debtor.

Conversely, a restriction – reminiscent of the insignificance exception in European Sales Law – seems convincing. The prospectus liability as guarantee liability advocated here could be limited to cases in which the overall impression of the prospectus is ‘misleading’ (cf Articles 7 para 2, 9 para 9 and 11 para 2 EU Prospectus Regulation). For only in these cases does the confidence-shattering argument have a central effect. This is different in the case of individual, selective omissions and errors – even those that are certainly relevant for investors. Then there would be a two-track regime: with limited liability only in cases of slight/gross negligence for simple omissions and errors and a guarantee liability if the overall impression appears misleading – and thus shakes confidence to a particular extent.