Volume 14, Issue 2 - Special Issue: Prospectus Liability / Guest Editors: Danny Busch and Matthias Lehmann

In this contribution, we make the case for the introduction of uniform rules on liability for incorrect or incomplete prospectuses relating to financial instruments offered in the European Union (EU). We set out the reasons for such uniformisation, in particular the need to complete the Capital Markets Union, the insoluble conflict-of-laws problems created by prospectus liability, and the discriminatory treatment of investors resulting from the application of different national laws to the issue. We show that uniform rules are possible, drawing a parallel to the recently adopted Markets in Crypto-Assets Regulation (MiCAR) and other EU texts. We also demonstrate that the EU has the competence to adopt such rules, and that concerns about subsidiarity and proportionality are unfounded.

This article addresses prospectus liability in the United States. The key statutes and Securities and Exchange Commission (SEC) rules and regulations are examined in conjunction with analysis of the causes of action and defenses that are applicable. While the US prospectus framework is thorough, substantial gaps exist that should be remedied. The article accordingly focuses on principal aspects of US prospectus liability exposure and proffers recommendations for improving the overall framework.

This article focuses on the relevant breach of duties under art 11 of the Prospectus Regulation (EU) 1129/2017, which provides only few elements of the private enforcement model, leaving the specific choices of the civil liability regime to the Member States. The main purpose of this paper is to underline the contradiction that exists between (i) a rigid formalism in the Prospectus Regulation and the extensive administrative rulebook and related soft law, which imposes binding formats and contents of prospectuses in order to enhance maximum harmonised investor protection and reduce issuers’ costs in Europe, and (ii) the existing different prospectus liability regimes among the European Member States, which undermine the effectiveness of Union law on prospectuses. In order to highlight this contradiction, the contribution analyses the different legal bases of prospectus liability provided in a sample of Member States, focusing on the different (and sometimes conflicting) methods of defining, from the defendant’s side, the persons responsible and liable for the incompleteness or the incorrectness of the prospectus, and, from the plaintiff’s side, the persons who can sue for damages. In this scenario, the Court of Justice of the European Union (CJEU) has recently brought some clarity as regards the potential scope of prospectus liability claims, thus revealing how important it is to solve the above-mentioned contradiction soon.

When establishing causation for claims involving prospectus liability, it is the factual basis of the claim and the corresponding line of argumentation that determines the perspective that should be taken as a starting point. There are basically two factual bases that can be distinguished. For the first factual basis of causation, the reliance of the investor on the prospectus is irrelevant. For the second factual basis, reliance is, however, relevant. In its World Online decision, the Dutch Supreme Court adopted a presumption of reliance for both factual bases of causation. This presumption of reliance is based on art 11(2) of the Prospectus Regulation. In my opinion, this provision does not provide a convincing basis for the adoption of such a presumption. Article 11a(1) of the Unfair Commercial Practices (UCP) Directive provides a much more convincing basis.