Causation in Securities and Financial Product Disclosure Cases: An Analysis and Critique

Abstract

This article critically examines the approach adopted by the courts to causation in securities and financial product disclosure cases, where a plaintiff alleges loss as a result of defective disclosure by a product issuer. The article argues that the reliance approach should be rejected as the sole approach to causation in securities and financial product disclosure cases. The article gives two principal arguments in support of this claim. Firstly, the reliance approach, by insisting that causation may only be established by proving reliance on the disclosure document, implicitly assumes a ‘rational choice’ approach to investor decision-making which, as demonstrated by a significant body of behavioural research, does not accurately reflect the reality of investor decision-making. Secondly, the reliance approach sits at odds with other developments in securities cases and misleading and deceptive conduct jurisprudence. I argue that the courts should recognise that causation may potentially be demonstrated in a variety of ways other than reliance on the disclosure document, including reliance on sources such as communications from financial advisers, newspapers, online sources, briefings, investor roadshows, social media and other marketing practices.