On September 11 1997, the Supreme Court of Justice (Oberster Gerichtshof) ruled on basic issues of liability extending to statements or omissions made in issuing prospectuses under general rules of Austrian contract and tort law (6 Ob 2100/96h). Because the transaction in question had taken place in 1978, the Capital Markets Act of 1991 (Kapitalmarktgesetz) and the Stock Exchange Act of 1989 (Börsegesetz), which provide for specific rules regarding liability for material misrepresentations or omissions in prospectuses, were not applicable. The 1989 and 1991 acts do not provide a complete set of liability rules and are supplemented by the liability rules of the Austrian Civil Code. The decision will also have a significant impact on future prospectus liability cases falling outside the scope of the acts, ie where prospectuses are not issued in the course of a public offer.
In the decision, the following principles were established by the Supreme Court of Justice:
- under the general rules of Austrian civil law, prospectus liability is based on breaches of pre-contractual duties committed by the persons bearing responsibility for the prospectus. Thus, statutory duties to avoid mis-statements during investment transactions and obligations to provide information form the basis of prospectus liability;
- prospectuses giving rise to liability need not be issued in a particular form. For the purposes of liability under general contract and tort law, documents are considered prospectuses if they are used to promote the sale of an investment, and are capable of influencing the investment decision of potential investors with regard to a particular investment by purporting to provide sufficient and objective investment information. For instance, press articles cannot be considered prospectuses in as much as they are short and, therefore, obviously incomplete. On the other hand, the Supreme Court of Justice held that the Articles of Association of an issuer, combined with standard business conditions and an accompanying letter of a broker, constitute a prospectus;
- prospectus liability may arise from incorrect, incomplete or misleading prospectuses. Under tort law, statements contained in a prospectus must be viewed as a whole, assessing the overall view created by the prospectus of the earnings, financial and liquidity position of the issuer;
- incorrect, incomplete or misleading statements in a prospectus must be 'material' before persons bearing responsibility for the prospectus will be found liable. Statements are material if they are capable of influencing the average investor's choice among various investment proposals in favour of the investment in question. Whether or not the particular investor (plaintiff) is an expert in the field of the respective investment is irrelevant;
- material incorrect, incomplete or misleading statements contained in the prospectus must have caused the investor to decide in favour of a particular investment;
- the burden of proof of causation rests with the plaintiff. Prima facie evidence is not sufficient.
Peter Huber and Kurt Retter