No representation and no duty of care disclaimers upheld

The November 2006 Judgment of Mr Justice Toulson (as he then was) in IFE Fund S.A. v Goldman Sachs International provided clarification on the extent to which financial institutions who arrange and syndicate credit facilities on behalf of their clients make implied representations and/or owe duties of care to the banks and financial institutions who are invited to participate in the credit facility. Mr Justice Toulson's Judgment was the subject of an earlier litigation e-bulletin.

IFE appealed against Mr Justice Toulson's Judgment. The appeal was heard during July 2007 by Lord Justices Waller, Gage and Lawrence Collins. On 31 July 2007 the Court of Appeal handed down their Judgment dismissing IFE's appeal. Herbert Smith acted for Goldman Sachs International ("GSI") throughout.

Factual Background

In 2000 GSI acted as arranger and underwriter of syndicated debt facilities for Autodis S.A. to fund its acquisition of Finelist plc. GSI, as arranger, had circulated an Information Memorandum in March 2000 to potential investors, including IFE. The Information Memorandum contained an explicit statement (headed "Important Notice") that GSI was not making any representation, warranty or undertaking, express or implied, in respect of the information contained in the Information Memorandum and did not accept any responsibility for the accuracy or completeness of the information. The Important Notice also made clear that GSI was not accepting any responsibility for updating the information contained in the Information Memorandum or for advising any potential or actual participant of any information which subsequently came to its attention. These types of disclaimers were (and are) standard ones in the market place.

At the end of May 2000 IFE purchased €20 million of Autodis bonds from GSI. In autumn 2000 Finelist went into receivership following the discovery of accounting irregularities. IFE alleged that by providing to it the Information Memorandum and accountants due diligence reports on Finelist, GSI had impliedly represented that it was not aware of facts which showed that statements about Finelist's financial performance contained in the Information Memorandum or in the accountants' due diligence reports were or might be incorrect in any material way. IFE claimed that the implied representations were continuing ones which it was entitled to and did regard as remaining true until the date on which it purchased the bonds from GSI. IFE alleged that these representations were rendered incorrect following the receipt of further financial information by GSI after the date it had circulated the Information Memorandum to IFE but before IFE had acquired the bonds. IFE also alleged that GSI owed it a duty of care to inform IFE prior to it purchasing the bonds if it became aware of any facts or matters which might cast doubt on the information contained in the Information Memorandum and the accountants' reports.

Mr Justice Toulson, at first instance, held that no implied representations of the type pleaded by IFE had been made. He did consider however that there was an implied representation by GSI that in supplying the Information Memorandum it was acting in good faith and that this was a continuing representation. This did not assist IFE's case as it had not (rightly) sought to allege bad faith. As for IFE's allegations that GSI owed them a duty in tort to take reasonable care to inform IFE in the event that they became aware of information that cast doubt on the information contained in the Information Memorandum, Mr Justice Toulson could see no basis on which it would be fair to impose on GSI the duty of care contended for by IFE in circumstances where GSI was not acting as IFE's adviser or purporting to carry out any professional service for IFE.

The main issues on appeal for consideration by the Court of Appeal, therefore, were whether Mr Justice Toulson had been correct in concluding that GSI had not made the alleged implied representations and whether GSI had a freestanding duty of care in negligence to IFE.1

Court of Appeal's Judgment on IFE's negligence claims

Waller LJ's judgment (with which Gage LJ and Lawrence Collins LJ agreed) dealt with IFE's negligence claim. Waller LJ considered that IFE's argument was "hopeless" in circumstances where it was clear from the Information Memorandum language that GSI was not assuming any responsibility towards IFE or the other proposed participants in the facilities and applied the House of Lords judgment in the well known case of Hedley Byrne v Heller & Partners [1964] A.C. 465. Waller LJ stated:

"The foundation for liability for negligent misstatements demonstrates that where the terms on which someone is prepared to give advice or make a statement negatives any assumption of responsibility no duty of care will be owed. Although there might be cases where the law would impose a duty by virtue of a particular state of facts despite an attempt not "to assume responsibility" the relationship between GSI either as arranger or as vendor would not be one of them." Court of Appeal's Judgment on IFE's misrepresentation claims

Insofar as IFE's case that by providing the Information Memorandum GSI had impliedly made representations that they were not aware of any matters which showed that the facts or opinions in the Information Memorandum or accountants' reports "were or might be untrue" were concerned, Lord Justice Waller considered that these were:

"…simply impossible to spell out of the supply of the [Information Memorandum] since GSI make it clear by the "Important Notice" that they have no obligation to check. As the judge said, an implied representation of the scope contended for ... would potentially require GSI to do an evaluation contrary to the express terms of the [Information Memorandum]".

Waller LJ in his Judgment did not specifically state whether he agreed with Mr Justice Toulson's comments concerning the existence of an implied representation of good faith.

Lord Justice Gage considered that the question of what representation, if any, was made by GSI must be considered by reference to the terms of the Important Notice in the Information Memorandum. Lord Justice Gage held that:

"The only implied representation made by GSI arising out of the [Information Memorandum] was as the judge found one of good faith. There was, in my judgment, no implied representation that the information provided in the Arthur Andersen reports annexed to the [Information Memorandum] was accurate. There was an express statement that GSI would not review or check the information contained in the [Information Memorandum]. In my view it follows that it is only if GSI actually knew that it had in its possession information which made the information in the [Information Memorandum] misleading that it could be liable for breach of the representation of good faith, provided the necessary intention was proved".

As mentioned above IFE had never sought to put their case on this basis.


The Court of Appeal's Judgment will provide comfort to financial institutions who act as arrangers of credit facilities that the boilerplate language commonly contained in their Information Memoranda will be given due regard in the event that the court has to consider what legal obligations they might owe to actual or potential investors. In circumstances where, in the event of litigation, such language will be subject to close scrutiny it makes sense for it to be reviewed on a regular basis to ensure that it provides the desired protection and is appropriate for the transaction in question.

It is also important to ensure that those involved in transactions act in a manner that is consistent with the protection which the arranger seeks to derive from the boilerplate language. For example, it is of little benefit to have no representation language included in an Information Memorandum if those involved in the transaction subsequently make representations to potential participants as the court will look to the substance of the transaction and not just the form.

It is apparent that the courts, both at first instance and on appeal, had little enthusiasm in seeking to impose a duty of care in negligence on arrangers to disclose information to potential and actual participants in a transaction where the arranger adequately disclaims responsibility. Accordingly, if investors wish to get specific assurances from arrangers they should ensure that they obtain this expressly.