The UK Court of Appeal recently considered the liability of issuers to secondary market investors under the Misrepresentation Act 1967 (the “1967 Act”) in the case of Taberna Europe CDO II Plc v Selskabet (formerly Roskilde Bank A/S) (In bankruptcy)  EWCA Civ 1262. The Court found that primary and secondary investors could potentially be entitled to rely on online content, such as product presentations, which have been published in a deliberate manner, particularly if the issuer directs investors to the content. However, liability for misrepresentation in these documents could be limited, or even excluded, with an appropriate disclaimer or by limiting third-party access to the materials.
In this case, Taberna alleged that it relied on an investor presentation produced by Roskilde, as issuer, which misrepresented its holdings of non-performing loans. The presentation was available on Roskilde’s website and contained a series of disclaimers which sought to restrict or limit liability for any errors or misstatements. The core disagreements focused on the scope of potential liability of Roskilde, as the producers of information under the 1967 Act, and the use of disclaimers to restrict any subsequent liability.
Prior case law such as Peek v Gurney (1873) LR 6 HL 377 already clarified placing material on a website alone does not create a relationship necessary to give rise to liability. In this case, however, the Court found that Roskilde was liable to the secondary investors because it actively encouraged investors to rely on the information in the presentation. Nevertheless, the relationship was mitigated with appropriate disclaimers.
Liability for inducing a party into a contract by a misrepresentation may only be mitigated by an agreement. As there was no formal agreement in this case, the page long disclaimer in the presentation could only act as a notice that the bank would not accept liability for the statements in the presentation. The lower court found that absent an agreement, the disclaimer was insufficient to reject liability for misrepresentation. However the Court of Appeals looked to the Unfair Contract Terms Act 1977 to find that, absent fraud and given a reasonableness test, Roskilde was entitled to give notice in the disclaimer that it would not accept liability for the statements in the presentation, even without a contract between the parties.
This case highlighted some considerations and potential pitfalls for both issuers and secondary market investors. Issuers could look to reduce their liability to primary and secondary investors by placing clear and prominent disclaimers within the face of documents stating that any such issuer makes no representations and accepts no responsibility for the accuracy of the document’s contents. Issuers could also reduce their risk by password protecting presentations and documents, and then removing the content from its website after the issuance is made. This case has also clarified that investors must be cautious and carefully read the fine print when looking to rely upon information produced by an issuer. Further, investors without a contract with the issuer cannot be certain that information provided by the issuer is reliable, particularly when disclaimers are used.