The issuer of subordinated notes was held liable for misrepresentation under Section 2(1) of the Misrepresentation Act 1967 despite the transaction in question being a secondary market sale by a third party. We have examined and commented on the practical implications of Taberna Europe CDO II v Selskabet AF1 (in bankruptcy) – 30 March 2015.


On 14 February 2008, Taberna Europe CDO II plc (‘T’) entered into a secondary market purchase of €26,421,585 worth of subordinated notes (the ‘Notes’) from Deutsche Bank (‘DB’). The Notes were originally issued on 1 December 2006 by Roskilde Bank A/S (“R”), a Danish bank. R began to experience financial difficulties and following an audit by the Danish FSA, it transferred its assets and liabilities (save for certain specified liabilities which included those under the Notes (‘Excluded Liabilities’), to a new bank (‘New R’). In practice, this made any contractual claim by T in R’s Danish bankruptcy proceedings utterly worthless. T however considered that, quite separately from the contractual claim, it also had a claim to damages for R’s misrepresentation, and that this liability of R was not an Excluded Liability i.e. New R might then be liable to T. T accordingly pursued an action against R under Section 2(1) of the Misrepresentation Act 1967 (‘s2(1)’). T argued that it had relied upon representations made by R in an investor presentation which was made available on R’s website and a report prepared by R (the ‘Documents’). The Documents both stated that non-performing loans (‘NPLs’) amounted to about 0.14% of R’s total loans and guarantees.


The court had to decide whether s2(1) even applied, as the contract for the sale of the Notes was entered into by T and DB and not R. Eder J sitting in the Commercial Court noted that the facts of this case were unusual as the effect of the acquisition of the Notes from DB was to bring T and R into a contractual relationship. On this basis Eder J allowed the claim to proceed under s2(1).

Eder J found that it was clear that the Documents were intended by R generally to be available for use by potential investors including those on the secondary market. Therefore, T was entitled to rely on them as T was part of the ‘target audience’. There was some dispute as to the meaning of NPL, as it had no generally accepted meaning and was not defined in the Documents. However, Eder J ruled that in relation to s2(1) it was sufficient that the meaning that T attributed to those expressions was one that it was reasonably entitled to adopt as an addressee of the representation. T had understood NPL to mean “loans 90 days or more past due, or loans on which you do not expect to collect all principal and interest” and this was a meaning that T was reasonably entitled to adopt (and equated to 10% of R’s total loans). R’s figure of 0.14% was, in fact, based upon a much narrower concept. Therefore, the representation was held to be false.

R sought to rely on contributory negligence to reduce T’s claim on the basis that T broke the chain of causation by carrying out inadequate due diligence. Eder J however considered that T’s actions were insufficient to do this. Eder J acknowledged that contributory negligence could be applicable in misrepresentation claims in a “very special case” where it would be just and equitable to do so having considered all relevant circumstances.

Nick Butler says:

This case emphasises the importance of issuers ensuring that the information contained in public documents which may be relied upon by third parties is correct and any ambiguous items are adequately defined. At the time of publication, an appeal is outstanding.