Liability for Misrepresentation – European Lessons on Causation from the Netherlands

Listed companies may be liable to investors for misrepresentation. A causal connection between the investor's alleged harm and the misstatement or omission will need to be established for a successful damage claim. This article addresses causation, specifically the causal connection between the misstatement (or omission) and the investment decision. Proving this causal connection is often problematic, which raises the question how investors can be effectively protected without inviting excessive litigation. Recently, the Dutch Supreme Court has accepted an indirect causal connection as sufficient and has adopted a presumption on behalf of investors on favorable terms in a prospectus liability case. A showing of a material misstatement by investors activates the presumption. The Dutch Supreme Court justifies this by reference to the Prospectus Directive, which it interprets as requiring an effective protection of (potential) investors. The influence of the Prospectus Directive on the law of causation can be relevant for other European jurisdictions as well. The approach to adopt a presumption based on European disclosure directives could extend beyond prospectus liability cases to all lawsuits alleging misrepresentation on the secondary market. These developments are discussed and a comparison is made between the law of the Netherlands, the US and Germany.