A theme of recent authorities on misrepresentation and misstatement claims has been the (welcome) recognition that commercial parties are entitled to decide for themselves the terms on which they do business. Disclaimers work.
A Court of Appeal judgment (8 December 2016) arising out of the demise of the Danish bank, Roskilde1, has reiterated this point. The case also raises interesting issues on the Misrepresentation Act, and about the scope for contributory negligence arguments on such claims (in short, not very much).
The Investor Presentation claims
In 2006, Roskilde issued various fixed/floating subordinated notes, a number of which were acquired by Deutsche Bank. Deutsche sold the notes to an Irish investment vehicle called Taberna (the claimant) in February 2008 for over €26 million.
The basis of the claim was that Taberna alleged that it had been induced to buy the notes (from Deutsche) by false representations made by Roskilde in an “Investor Presentation” (on Roskilde’s website) relating to the amount of Roskilde’s non-performing loans.
Taberna’s Commercial Court claim was successful at first instance before Eder J but has now been overturned on appeal.
Was there a representation?
The first question was whether there was a representation on which Taberna could rely at all.
The Investor Presentation was clear on its face that it was directed at potential investors in a new issue of securities attending a “road show” in October 2007. Roskilde argued that Taberna (a purchaser in the secondary market) had not been part of the intended audience and so could not rely on any misrepresentation in the presentation.
That may have been an answer to the claim – except that Roskilde also published the Investor Presentation on its website. There was also evidence that Roskilde had been involved in directing Taberna specifically to the Investor Presentation.
Moore-Bick LJ was clear that simply placing, say, company accounts on a website with nothing more would be insufficient to give rise to a duty of care. The facts in this case, however, were enough to create the necessary connection.
“If a company actively invites potential investors to make use of information originally produced for a different purpose“, Moore-Bick LJ commented, “it can hardly complain if they do so.“ The Court of Appeal was unwilling therefore to overturn the judge’s finding that representations had been made by Roskilde to Taberna.
The Court then turned to the disclaimers in the Investor Presentation, which stated that no reliance should be placed on their contents, and that no liability was accepted by Roskilde. Eder J had found the disclaimers to be ineffective on the basis that: either that they did not form part of the contract represented by the notes; or they were insufficiently clear. Moore-Bick LJ disagreed on both counts.
It was not correct that duty-negating clauses could only take effect in contract. Here the disclaimers were set out in the very document on which Taberna relied. They were also not ambiguous. The contra proferentum rule (interpreting disclaimers or exclusions against the party relying on them) would only be useful to resolve cases of genuine ambiguity, which this case was not. The modern view, Moore-Bick LJ said, was that commercial parties were entitled to make their own bargains.
The Misrepresentation Act
The disclaimer point was enough to decide the appeal in Roskilde’s favour. But the Court of Appeal went on to consider whether (on the assumption that misrepresentations had been made) Taberna would in principle be entitled to recover damages under the Misrepresentation Act.
This raised an interesting argument – with surprisingly little prior authority on the point. Usually, a misrepresentation claim involves the representee claiming damages from having been induced to enter into a contract with the representor.
In this case, however, the misrepresentations had been made by Roskilde, but the contract giving rise to Taberna’s losses was not a contract with Roskilde, but the sale contract with Deutsche.
The Court of Appeal disagreed with Eder J, and ruled that the Misrepresentation Act was concerned only with the contract which the representee (Taberna) has been induced to enter with the representor (Roskilde), not with another contract with a third party (Deutsche). The losses claimed by Taberna did not therefore fall within the scope of the Misrepresentation Act.
Lastly, the Court considered Roskilde’s argument that any losses should be reduced for contributory negligence since Taberna had failed to make proper enquiries before purchasing the notes from Deutsche.
Moore-Bick LJ agreed that contributory negligence was available as a defence but, in practice, was not willing to interfere with Eder J’s decision that – on the facts – it would not have been equitable to reduce Taberna’s damages on these grounds.
The take away
This seems to us a well-reasoned decision. The key practical point for financial institutions and their advisers is the importance of disclaimers. Provided they are clearly expressed, and readily apparent from the document, courts will uphold them in commercial cases.
The second cautionary tale is the dangers of publishing, on a website, investor material which has been prepared for a more specific purpose or audience. The publication led here to protracted, and no doubt very expensive, litigation over the specific facts of this case.