Peekay Intermark Ltd. & Anor v Australia and New Zealand Banking Group Ltd.

This is an appeal against the order of Mr. Richard Siberry Q.C. sitting as a Deputy Judge of the Commercial Court giving judgment for the first claimant, Peekay Intermark Limited (“Peekay”) against the defendant, Australia and New Zealand Banking Group Limited (“ANZ” or “the bank”), on its claim for damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967.

Peekay is a company incorporated in the Isle of Man which has a branch in Umm Al Qiwain in the United Arab Emirates and trades from an address in Dubai. It is used as an investment vehicle by its shareholders who include the second claimant, Mr. Pawani. The company trades in a variety of investments including bonds, bills, emerging market instruments and derivatives, as well as bullion and currencies. Investment decisions are taken by Mr. Pawani and his fellow directors. The judge found that Mr. Pawani is a man of substantial means who has considerable investment experience. He began investing in emerging market instruments with ANZ in 1996.

ANZ is the ultimate parent of the various subsidiary companies which make up the group. At the time of the events with which this appeal is concerned it operated an investment banking division under the name ‘ANZ Investment Bank’ from offices in the City of London. ANZ Investment Bank was itself made up of a number of separate departments, each of which was treated for administrative purposes as having a separate account within the bank.

ANZ itself and other companies within the group carried on a private banking business under the name ‘Grindlays Private Banking’ (“GBP”). One of those companies, ANZ Grindlays Bank Ltd (“ANZ-GBL”), had a branch in Dubai. Mrs. Ranjita Balasubramaniam was a Regional Manager of GPB employed by ANZ-GBL. She was based in Dubai but reported to GBP in London. Mr. Pawani began making investments on behalf of Peekay through ANZ sometime in 1995. About a year later he met Mrs. Balasubramaniam and thereafter regularly invested in emerging market instruments with ANZ through her, or occasionally through a Mr. Wood who was employed in the General Sales Team of ANZ Investment Bank dealing with emerging markets. Russia was one of the emerging markets in which Mr. Pawani invested during that period.

Throughout 1997 and the early part of 1998 the Russian government issued a series of bonds known as Gosudarstvenniye Kratkosrochniye Beskuponniye Obligatsio (“GKO”). These were short-term non-interest-bearing bonds denominated in roubles which were quoted at a discount to face value. The right to hold GKOs was limited to 21 Russian banks and one western bank, Credit Suisse First Boston (“Credit Suisse”). During the latter part of 1997 and the early part of 1998 GKOs were traded at a substantial discount to their face value and therefore represented an interesting investment opportunity, albeit one which carried a substantial level of risk. In response to an initiative on the part of Credit Suisse in the latter part of 1997 the Structured Products Group within ANZ Investment Bank developed an investment product described as a ‘structured US Dollar hedged Russian Treasury bill deposit’. The product was structured as a dollar deposit with ANZ with repayment linked to the performance of a reference obligation in the form of a GKO with a specified maturity date. The risk of depreciation of the rouble was to be hedged by ANZ by means of a forward contract with a major Russian bank for the purchase of US dollars. The rate of return to the investor would be represented by the discount to face value at which the GKO was traded at the time of the investment less the cost of the hedge. The main risks to which the investor would be exposed were a default on the part of the Russian Central Bank in making payment of the GKO at maturity and a default on the part of the bank with which the hedge contract had been placed. ANZ also produced a proposal for a similar tradable form of this investment structured as a note, the main details of which were set out in an Indicative Term Sheet produced by GPB for the purposes of generating interest among potential investors.

At some time in January 1998 Mr. Aggarwal of GPB in London told Mrs. Balasubramaniam that an opportunity had arisen for the bank’s clients to invest in GKOs with a US dollar hedge. He sent her a copy of the Indicative Term Sheet which described the product as “a high yield note linked to Russian bonds hedged into US dollars offering a return equivalent to 16-17% per annum”. The term sheet drew attention to the fact that the investor took various risks in relation to the GKO and the currency contract, including sovereign default by the Russian government, in which case the principal could be at risk. In the light of what she had been told by Mr. Aggarwal Mrs. Balasubramaniam spoke by telephone to Mr. Pawani on at least two occasions on 1^st and 2^nd February 1998 to see if he would be interested in investing in the proposed GKO-linked deposit. At some point during their discussions she also sent him a copy of the Indicative Term Sheet describing the proposed GKO-linked note. However, the judge found that she did not tell him that the product he was being offered was a structured deposit linked to a GKO or that in the event of sovereign default investors would have no control over the manner in which the investment was liquidated because that was not how she understood the position.

As a result of their discussions Mr. Pawani acting on behalf of Peekay told Mrs. Balasubramaniam that he wished to invest US$250,000 in the product she had described to him, that is, the GKO-linked deposit. However, no binding contract came into existence at that stage since Mr. Pawani had not received any detailed terms of the proposed investment and did not therefore have sufficient information to enable him to place an order of any kind. A document containing what were described as final terms and conditions (“FTCs”) relating to a hedged Russian Treasury bill was sent to Mrs. Balasubramaniam from London on 2^nd February as an attachment to an e-mail. They described the investment as a deposit and set out various terms relating to it, including the maturity date and the projected rate of return. In the ordinary way she would have opened the e-mail when she came into the office the next day, but because she was occupied with other matters she did not do so until 4^th February. The judge found that, having opened the e-mail, Mrs. Balasubramaniam printed off the documents attached to the e-mail but did not read them in any detail because she assumed that if there had been any significant difference between the investment to which they related and the product that had previously been described to her, that would have been drawn to her attention.

The FTCs themselves were accompanied by a document described as an ‘Emerging Markets Risk Disclosure Statement’ which was to be signed by the client and returned to the bank together with its instructions to proceed with the investment. On 4^th February Mrs. Balasubramaniam sent copies of all the documents by fax to Mr. Pawani for signature on behalf of Peekay and a draft letter of instruction to the bank to transfer the funds needed to make the investment. Mr. Pawani knew from his previous dealings with ANZ that it would be necessary to sign a document of this kind, but apparently he regarded it as a mere formality. The judge found that he looked over the documents briefly but did not read them, assuming that they reflected what Mrs. Balasubramaniam had told him about the investment. He did notice that the FTCs were headed “USD Hedged Russian Treasury Bill”, but he regarded that as consistent with the description of the product that she had given him. Together with one of Peekay’s employees he initialled each page of the documents and signed the Risk Disclosure Statement which he returned to the bank under cover of a letter dated 7^th February 1998 to which I shall refer in a moment.

Although the FTCs were sent to Mr. Pawani apparently to confirm the terms of the investment that Peekay was being invited to make, they did not in fact set out the terms of a contract between the investor and the bank. Instead they described a deposit of US$2 million by “ANZ Private Bank” with “ANZ Bank” in relation to a structured US Dollar Hedged Russian Treasury Bill with a trade date of 2^nd February 1998, an effective date of 9^th February 1998 and a maturity date of 16^th October 1998. They also referred to a “Reference Obligation” which was identified as GKO No. 21110 maturing on 14^th October 1998, to International Moscow Bank as “Reference Forward Counterparty” and to a deposit rate of 21.50% “subject to the provisions in Appendix 1”.

Appendix 1 contained a number of provisions relating to Non Payment Events. They included the following:

Appendix 2, which contained Settlement Procedures provided as follows:

“Market Value” was explained in a footnote in the following terms:

The final page of the FTCs contained what was described in the heading as an ‘Important Notice’ in the following terms:

The Risk Disclosure Statement ran to over five pages. It contained detailed warnings to investors of the risks associated with various kinds of investments in emerging markets including derivatives in the form of structured notes and other debt instruments. The penultimate page contained the following warning in capital letters:

Immediately above the space provided for the client’s signature there appeared the following:

Mr. Pawani returned the FTCs and the Risk Disclosure Statement signed on behalf of Peekay under cover of a letter dated 7^th February 2005 which, apart from the instructions to transfer various amounts from other accounts to that of Peekay, followed quite closely the draft provided by Mrs. Balasubramaniam, save that he added at the end of the last line the words “as per the attached document.” As a result the letter read as follows:

Meanwhile, ANZ had also sent Peekay an undated document described as a ‘Contract Note’ purporting to advise it that it had purchased on Peekay’s behalf 250,000 units of stock in a US dollar GKO maturing on 14^th October 1998 at a price of US$1 in respect of which its account had been debited in the sum of US$250,000 with a bargain date of 3^rd February and a settlement date of 9^th February. It also referred to an exchange rate between sterling and US dollars, although the investment was denominated in dollars and was to be made from a dollar account. As a record of the transaction which Mr. Pawani had been discussing with Mrs. Balasubramaniam this document was about as inaccurate as it was possible to be. Nonetheless, Mr. Pawani said in evidence that he regarded it as “entirely consistent with a contract that had already been entered into for the purchase of a holding of GKOs”. The judge held that that was a reasonable interpretation of the document, but that is not a view with which I find it easy to agree.

For reasons that are unclear and probably do not matter, Mr. Pawani was sent a second set of documents in exactly the same terms which he and a different employee of the company signed on behalf of Peekay and returned to the bank. However, it is not suggested that they affected the position and it is therefore unnecessary to refer to them any further. Some months later Mr. Pawani received a Safe Custody Statement which purported to confirm a holding of “250,000 Oct. USD GKO 03/02/98 Maturity 14.10.98”, reflecting the terms of the erroneous Contract Note. The document does not form the basis of any claim by Peekay against ANZ, however, and can therefore also be disregarded.

In August 1998 the Russian government announced a moratorium on certain of its debt obligations, including those arising under GKOs, and as a result GKO No. 21110 to which Peekay’s deposit was linked was not paid on its maturity date. The obligation was virtually worthless. ANZ implemented the default procedure set out in Appendix 2 of the FTCs and as a result the amount recovered by Peekay on the maturity of its investment was US$5,918.06. It is not suggested that the default procedure was operated in any way improperly. The loss in that way of substantially the whole of its investment gave rise to a dispute between Peekay and ANZ which culminated in these proceedings.

The essential grounds of Peekay’s claim are to be found in paragraphs 9, 17 and 18 of its amended particulars of claim which read as follows:

This was intended to reflect Mr. Pawani’s case that he had been led to expect that Peekay would obtain an interest in the GKO itself and that he would not have made the investment on its behalf if he had realised that it would obtain no interest in the underlying GKO because that would give it no room for manoeuvre if there were a default by the Russian government. However, I find it difficult to see how Mr. Pawani could reasonably have drawn the conclusion that Peekay would obtain an interest in the GKO itself from the representations pleaded in paragraph 9 and the Indicative Term Sheet.

The judge found that in the course of her various conversations with Mr. Pawani on 1^st and 2^nd February Mrs. Balasubramaniam had misrepresented the nature of the investment that ANZ was offering its clients by giving him the impression that Peekay would obtain a proprietary interest of some kind in a GKO and that he had been induced by that misrepresentation to make the investment on its behalf. He therefore awarded Peekay damages in the amount of its loss under section 2(1) of the Misrepresentation Act 1967. It is against that decision that ANZ now appeals.

The starting point when considering any claim for misrepresentation must be to determine whether the defendant did in fact make the statement on which the claimant relies. In the present case the judge summarised at some length the parties’ submissions and referred extensively to the evidence given by the principal witnesses, but in the end his findings on this point were quite limited. In paragraph 84 of his judgment he said this:

It is apparent from that paragraph, and from the fact that the relevant conversations between Mr. Pawani and Mrs. Balasubramaniam all took place before the FTCs were sent to Peekay on 4^th February, that her statement that Peekay “would have a GKO with a USD hedge, and that in the event of a sovereign default, [it] would end up holding roubles” was more in the nature of a description of the investment than a representation of fact of the kind that one normally associates with a claim for damages for misrepresentation. In paragraph 86 the judge went on to find that the product Mr. Pawani was actually offered was very different from that which Mrs. Balasubramaniam had described, being a financial derivative in the form of a structured deposit which gave the depositor no interest in the underlying GKO and no say in how the investment was to be liquidated in the event of a sovereign default.

Despite the rather rough and ready way in which Mrs. Balasubramaniam had described the investment product, the judge found that Mr. Pawani reasonably understood from what she had told him that Peekay would be acquiring an interest in a GKO. The judge’s finding that Mr. Pawani did in fact obtain that understanding in the light of his conversations with Mrs. Balasubramaniam is one with which in my view this court should be very slow to interfere since it reflects the judge’s conclusion after hearing his evidence on the point. I do not think, however, that we need feel quite so constrained when it comes to the finding that Mr. Pawani’s understanding was reasonable. I say that because he was acknowledged to be an experienced investor and had been sent a copy of the Indicative Term Sheet relating to the proposed GKO-linked Note in order to give him some understanding of the nature of the product that ANZ was intending to offer. If he had read that document, he would have seen that the investment was described as a note linked to GKO bonds, rather than a share in the bonds themselves. That ought at least to have raised in the mind of an experienced investor the question whether the investment he was being offered was a derivative, and, if it was not, why ANZ had bothered to send him the document at all. Moreover, the terms in which Mrs. Balasubramaniam had described the investment to him, as found by the judge, were scarcely such as to enable him to obtain a very clear understanding of the precise nature of the investment.

Two days later, however, Mr. Pawani received by e-mail from Mrs. Balasubramaniam the FTCs and accompanying Risk Disclosure Statement. In paragraph 88 the judge made the following findings about what he did next:

The judge made no findings about what Mr. Pawani would have learnt from the FTCs if he had taken the trouble to read them, even cursorily, but in my view it is possible to conclude simply from the form of the document that a number of things would have been obvious to him. First, he would have seen that the investment to which it related, and in which Peekay was being invited to participate, was a deposit of some kind and, moreover, one described as a “Structured USD Hedged Russian Treasury Bill” Deposit. Next he would have seen the amount of the total deposit (USD2,000,000). He could hardly fail to notice the use of the expression “Reference Credit”, if only because that is the one place where there is a direct reference to a specific GKO. In my view these features would have been enough to alert him as an experienced investor to the fact that the documents related to an investment in a derivative and therefore something that was in his mind fundamentally different from what he had been expecting. If he had read on as far as Appendix 2 in order to see what would happen in the event of a default (a matter in which he had professed a particular interest), he would have seen that the investor would obtain only the market value of the Reference Obligation at the time of default.

By the end of the trial it was common ground that a contract between Peekay and ANZ did not come into existence until the documents had been returned to the bank at the earliest, and probably not until the bank acted on the instructions contained in Peekay’s letter of 7^th February. In those circumstances Mr. Pymont Q.C. for ANZ submitted that whatever Mrs. Balasubramaniam had said about the investment in the course of her earlier conversations with Mr. Pawani, any misrepresentation as to the nature of the investment product was dispelled by the terms of the FTCs of which Mr. Pawani, having signed the disclosure statement, must be taken to have been aware, whether he had actually read them or not. Accordingly, Peekay could no longer say that it had been induced to enter into the contract by any representations made in the course of the earlier conversations.

Mr. Railton Q.C. accepted that the effect of a false statement can be nullified if a correction is effectively brought to the attention of the person to whom it was made before he enters into the contract, but he submitted that that is essentially a question of fact to be decided on the evidence in each case. Indeed, he went so far as to submit that for this purpose nothing short of actual knowledge will suffice and that even though Mr. Pawani’s ignorance of the true position resulted from his own failure to read the FTCs, he was still influenced by the original misrepresentation and was entitled to rely on it as having induced him to enter into the contract. In support of that submission he referred us to two decisions of this court, Assicurazioni Generali v Arab Insurance Group[2002] EWCA Civ 1642, [2003] 1 All E.R. (Comm) 140 and Flack v Pattinson[2002] EWCA Civ 1762 (unreported). He submitted that in the present case ANZ could not surmount the obstacle posed by the judge’s findings that Mr. Pawani did not have actual knowledge that what Mrs. Balasubramaniam had told him was wrong and that her misrepresentation had in fact induced him to enter into the contract on behalf of Peekay.

The starting point when considering this question is Redgrave v Hurd(1881) 20 Ch. D. 1. In that case the plaintiff, a solicitor who was on the verge of retirement, was looking for a partner to buy his house and eventually take over his practice. The defendant expressed interest and at a meeting with the plaintiff was told that the business brought in £300 a year. In response to a request from the defendant for some information about the amount of business done over the previous three years the plaintiff produced some summaries which indicated business of not quite £200 a year and showed the defendant some papers which he said related to other business not included in the summaries. The defendant did not examine the papers, which in fact showed only a small amount of additional business. The defendant signed an agreement to purchase the plaintiff’s house and paid a deposit, but on finding that the business was worth much less than he had been led to believe refused to complete and resisted a claim for specific performance on the grounds of misrepresentation. At first instance the plaintiff succeeded on the grounds that, since the defendant had had an opportunity of ascertaining the true position and had made a brief and careless examination of the papers, he must be taken not to have relied on the misrepresentation.

That decision was reversed on appeal, however, on the grounds that where a person induces another to enter into a contract by misrepresentation it is no answer to say that the person to whom it was made had the means of discovering the truth. Sir George Jessel M.R. said at page 13

Later at pages 21-22 he said:

The explanation given by Baggallay L.J. for the rule was that a person who makes a statement intending it to be relied on cannot complain if it is relied on. He said at page 23

In Assicurazioni Generali S.p.A. v Arab Insurance Group the defendant, (“ARIG”), sought to avoid a contract of reinsurance in the form of a retrocession on the grounds of misrepresentation as to the participation of a certain company, Munich Re, in the underlying reinsurance. The contract was part of a facility being arranged by the broker Alexander Howden which comprised an original insurance, reinsurance and retrocession. In the course of placing the retrocession the broker had sent a fax to ARIG inviting its participation attached to which was a series of documents including a draft slip setting out the terms of the original cover, section A of which related to property insurance and section B to liability insurance. ARIG’s underwriter spoke to the broker by telephone about a fortnight later to discuss the proposal and in the course of that conversation gained the impression that Munich Re had a 35% participation in both sections of the underlying reinsurance. On that basis he sent a fax a week later indicating ARIG’s willingness to participate in a retrocession from Generali.

Ten days later the broker sent ARIG the retrocession slips for signature together with copies of both the underlying reinsurance and direct placing slips. A careful examination of those documents would have revealed that Munich Re did not participate in section B of the reinsurance at all. However, ARIG’s underwriter did not notice that and in due course he signed the slips and copies of the reinsurance and direct placing slips all of which he returned by fax to the broker. ARIG subsequently sought to avoid the retrocession on the grounds that it had been induced to enter into the contract by the broker’s misrepresentation that Munich Re participated in both sections of the reinsurance. Generali argued that the position had been made clear by the reinsurance slip that had been sent to ARIG when it was sent the retrocession slip for signature.

Clarke L.J. summarised the law in relation to the correction of a misrepresentation in the following way:

Having found that in the course of his telephone conversation with ARIG’s underwriter the broker had misrepresented the participation of Munich Re in section B of the cover, Clarke L.J. then considered whether that false information had been effectively corrected by the documents attached to the fax sent to ARIG covering the transmission of the retrocession slips. He held that, having once made a misrepresentation, it was incumbent on Generali or its broker expressly to bring the true position to the attention of ARIG and that the mere inclusion of the reinsurance slip was insufficient for that purpose. Accordingly, since ARIG was not in fact aware of the true position, it was induced to enter into the contract by the original misrepresentation.

Flack v Pattinson concerned the sale of an historic racing car. The claimant, Mr. Flack, was a motor sport enthusiast who enjoyed competing in races for such cars. He became interested in buying a 2.5 litre Lotus 16 belonging to the defendant, Mr. Pattinson, which he was given to understand had been driven in Formula 1 competitions in the late 1950’s by a well-known racing driver of the time, Innes Ireland. Mr. Flack had seen the car when it was in a workshop where his own car was undergoing repairs and when he learnt that it might be for sale he expressed interest in it. He was shown its authentication documents, one of which showed that the car had raced in Formula 2 events, but did not look at them closely. Sometime afterwards another dealer in historic cars, whom Mr. Flack was visiting for the purposes of inspecting another car which he was interested in purchasing, warned him that the Lotus was well known to be a Formula 2 car.

Despite that warning, Mr. Flack decided to pursue the Lotus and to judge the matter for himself. He eventually bought it. The judge found that during the negotiations leading to the sale Mr. Pattinson had told him that the car was “Innes Ireland’s 2.5 [litre] Grand Prix car”. In fact the car had never been raced with a 2.5 litre engine; it was Innes Ireland’s 1.5 litre Grand Prix car and would probably not have qualified for historic Grand Prix events while fitted with a 2.5 litre engine. One of the issues between the parties was whether Mr. Pattinson had induced Mr. Flack to enter into the contract by misrepresenting the true history and background of the vehicle. The judge found that Mr. Flack did, as a matter of fact, rely on Mr. Pattinson’s statements, notwithstanding that he had been put on notice that they might not be correct, and his finding was upheld by this court.

It can certainly be said that these decisions support the conclusion that whether a person has been induced by misrepresentation to enter into a contract is a question of fact. As such is it always open to the defendant to show, if he can, that since the claimant was aware of the true facts, he was not induced by the misrepresentation to act as he did. For that purpose, however, it is not enough to show that the claimant could have discovered the truth, but that he did discover it. This seems to me to be the explanation of the decisions in all three of the cases to which I have referred. However, none of those cases concerned a misrepresentation which was “corrected” (if that is the right expression) by the express terms of the very contract to which the claimant put his signature. Mr. Railton submitted that that was the case in Assicurazioni Generali v Arab Insurance Group, but it is not clear that the contract in that case incorporated the terms of the underlying slips and the court clearly approached the question simply on the basis that they contained the correct information.

In this context it is necessary to mention the Irish case of Phelps v White(1881) 7 L.R.Ir. 160 on which Mr. Railton placed some reliance. The plaintiff brought an action for damages arising out of the purchase of an estate. Prior to the purchase the vendor had provided him with a rental which showed that the timber on a part of the estate covered by a fee-farm grant in favour of a third party was reserved to the vendor. The contract provided that any material error in the rental given to the purchaser should not annul the sale but that compensation should be made in respect of it. In fact, although the timber had originally been reserved to the vendor in perpetuity, it had subsequently been granted to the lessee under the lease which had later been converted into the fee-farm grant. The vendor therefore had no title to it. The abstract of title and the copies of the deeds delivered with it disclosed the grant of the timber, but it was not noticed by the purchaser or his advisers and was discovered only after he had paid the purchase money and taken possession. In an action against the vendor the purchaser was held entitled to recover compensation for the value of the timber, both under the terms of the contract and as damages for misrepresentation.

The vendor appears to have argued that, since the mistake could have been discovered from the documents provided to the purchaser before completion, by executing the conveyance the purchaser confirmed the accuracy of the rental which had been provided to him and therefore could not recover damages for misrepresentation. The court was satisfied that the mistake had been committed through inadvertence and without any intention to deceive. Nonetheless, since the statement in the rental was known by the vendor and those advising him to be false, it was regarded as fraudulent and in those circumstances it is hardly surprising that a claim for damages should have succeeded. In my view this case does not provide any additional assistance.

One of the factors that distinguishes the present case from those to which I have referred so far is that the true position appeared clearly from the terms of the very contract which the claimant says it was induced to enter into by the misrepresentation. Moreover, it was not buried in a mass of small print but appeared on the face of the documents as part of the description of the investment product to which the contract related. It was accepted that a person who signs a document knowing that it is intended to have legal effect is generally bound by its terms, whether he has actually read them or not. The classic example of this is to be found in L’Estrange v Graucob[1934] 2 K.B. 394. It is an important principle of English law which underpins the whole of commercial life; any erosion of it would have serious repercussions far beyond the business community. Nonetheless, it is a rule which is concerned with the content of the agreement rather than its validity. Accordingly, as both Scrutton L.J. and Maugham L.J. recognised in that case, the contract may be rescinded if one party has been induced to enter into it by fraud or misrepresentation.

From time to time one party to a contract misrepresents to the other the content or effect of the document which is intended to embody their agreement. In such cases it has been held that the party making the misrepresentation is prevented from enforcing the contract in accordance with its terms. An example is to be found in the well-known case of Curtis v The Chemical Cleaning and Dyeing Co Ltd[1951] 1 K.B. 805 in which the defendant was prevented from relying on a general exemption clause on the back of the cleaning ticket after its shop assistant had induced the customer to sign it by telling her that it excluded liability only for damage to beads or sequins. The principle was applied by Woolf L.J. in Lloyds Bank Plc v Waterhouse [1993] 2 F.L.R. 97 in which the defendant was induced to sign a guarantee of a loan to his son by the bank’s misrepresentation of its scope and content. He held that bank was unable to enforce the guarantee in accordance with its terms.

In the course of her discussions with Mr. Pawani Mrs. Balasubramaniam had innocently described the investment being offered by ANZ in a way that was inconsistent with its true nature, but she did not discuss the FTCs with him and said nothing to him about their meaning or effect or about the investment they actually described. In those circumstances it is necessary to consider whether what she said amounted to a misrepresentation of any kind; if it did, whether the FTCs described the investment in sufficiently clear terms to make Mr. Pawani aware of the true nature of what Peekay was being offered, had he troubled to read them; and, if they did, whether he was induced to enter into the contract by what Mrs. Balasubramaniam had previously said to him.

Peekay’s pleaded case was that Mrs. Balasubramaniam had told Mr. Pawani that the instrument sold to Peekay was a note of the kind described in the Indicative Term Sheet: see paragraph 17 of the amended particulars of claim quoted earlier. However, it is obvious that all she can have given him at the time was a description of the investment that the bank was proposing to offer him. The judge found that Mrs. Balasubramaniam gave Mr. Pawani to understand that if Peekay participated in the investment it would obtain an interest in a GKO. That is not the same thing by any means, but it is at least nearer the mark. An assurance of that kind about the consequences of a particular course of action might well give rise to a collateral contract, but it is not on the face of it a representation of the kind that will support a claim under section 2(1) of the Misrepresentation Act which must normally be a representation of fact: see Chitty on Contracts, 29^th ed. paragraphs 6-004. Nonetheless, even if it was not said expressly, I would accept that Mrs. Balasubramaniam’s description carried with it the implicit representation that the GKO-related investment developed by ANZ was one which was structured in a way that gave the investor a proprietary interest of some kind in the GKO, albeit an indirect one. So although the case was not pleaded in quite that way, I would accept that she did make a representation of a kind which was capable of supporting a claim under the Act.

In my view, however, the terms of the FTCs were sufficient to make it clear to Mr. Pawani, if he had read them, that the nature of the investment was fundamentally different from that which he had been given to understand. It is almost as if Mrs. Balasubramaniam had told him that ANZ was able to offer its customers apples but the offer document, when it later came, described the goods in a way that made it clear that it was really offering oranges. It is not said, however, that Mrs. Balasubramaniam or anyone else on behalf of the bank told Mr. Pawani that he need not bother to read the documents; nor did she or anyone else seek to explain their effect to him. For all he knew, the wrong documents had been sent to him by mistake. In these circumstances it is necessary to ask what really induced Mr. Pawani to take up the investment they described.

The judge dealt with the issue of inducement in paragraph 92 of his judgment where he said this:

Mr. Railton submitted that the judge’s finding that Mr. Pawani was in fact induced to make the investment by Mrs. Balasubramaniam’s misrepresentation is one with which this court should be very slow to interfere, as with any finding of fact made by a trial judge on the basis of the witness evidence. In Assicurazioni Generali v Arab Insurance Group this court considered, not for the first time, the approach which it ought to adopt to findings of fact made by the trial judge. As Clarke L.J. pointed out, these may be based on evidence given by witnesses, whether orally or in documentary form, or on documents, or on a combination of the two. The weight to be given to any particular finding made by the judge will depend on the extent to which he had an advantage over the appellate court, which will itself depend to a considerable extent on the nature of the evidence on which that finding was based.

Before considering the basis of the judge’s finding that Mr. Pawani was induced to invest in the GKO-linked deposit on behalf of Peekay by a misrepresentation on the part of Mrs. Balasubramaniam it is necessary to consider some of his other findings. These can be summarised as follows. Mr. Pawani was told that Peekay would be offered the chance, if it so wished, to participate in an investment that would give it an interest in a GKO with the benefit of a currency hedge. He therefore expected to receive documents relating to an investment of that kind. What he was actually sent were documents inviting him to participate on behalf of Peekay in a fundamentally different kind of investment. He signed them without bothering to read them, not because he had received any assurance from Mrs. Balasubramaniam or anyone else that they were the correct documents or that they described an investment of the kind he had been led to expect - that has never been part of Peekay’s case - but simply because he assumed that to be the case. He then returned them to ANZ under cover of a letter which indicated that it was Peekay’s wish to participate in the investment described in them.

In that context it can be seen that the judge’s finding that Mr. Pawani was induced to enter into the contract by the statements previously made by Mrs. Balasubramaniam is in fact a conclusion based partly on his finding of what she had told him about the investment product and partly on his finding that Mr. Pawani did not read the documents that were sent to him a few days later and so did not realise that the nature of the investment he was being offered was different from that which he expected. Those are all findings of primary fact based on the evidence of the witnesses and as such are findings with which this court should not in my view interfere, but the conclusion that Mr. Pawani was induced to sign the documents by what Mrs. Balasubramaniam had previously told him is a secondary finding reached by drawing an inference from the primary facts and as such I think we have greater freedom to review it.

In my view the judge’s conclusion cannot be sustained. In paragraph 89 of his judgment he recognised that Mr. Pawani was taking the risk that the FTCs contained subsidiary or ancillary terms that were not to his liking, but he went on to hold in paragraph 90 that his signature of the documents did not nullify Mrs. Balasubramaniam’ earlier misrepresentation because he had no reason to think that they would relate to a fundamentally different product. In my view that is where he went wrong. By finding that Mr. Pawani had acted on the assumption that his attention would have been drawn to any material discrepancy between the FTC’s and the investment previously described to him the judge put his finger on the real explanation for what occurred. Unfortunately, he did not follow the reasoning through to its logical conclusion. No doubt Mr. Pawani had been led to expect documents relating to an investment of a certain kind, but he was aware that the FTCs contained the only formal description he would receive of the investment in which Peekay was being invited to participate. The description he had been given by Mrs. Balasubramaniam was at best informal and, as the judge found, “rough and ready”. The FTCs were the first and only opportunity he was given to satisfy himself that the nature of the investment and the terms relating to it were consistent with the broad description she had given him and that it was satisfactory to him in all other respects. He may not have been expecting the documents to contain any nasty surprises, but only by reading them could he satisfy himself that the product was what he had been led to expect. In those circumstances the only conclusion open to the judge in my view was that Mr. Pawani was induced to sign the documents and enter into the contract not by what Mrs. Balasubramaniam had told him, but by his own assumption that the investment product to which they related corresponded to the description he had previously been given.

For these reasons I have reached the conclusion that the appeal should be allowed.

In the course of the hearing of the appeal Mr. Pymont applied for permission to amend ANZ’s notice of appeal to raise an alternative argument to the effect that Peekay was estopped by its signature of the Risk Disclosure Statement from alleging that it had been induced to enter into the contract by misrepresentation on the part of Mrs. Balasubramaniam. In view of the conclusion to which I have come on the primary ground of appeal it is unnecessary to decide this question, but since it was fully argued I propose to express my views on it as briefly as I can.

The argument was based on the following two passages in the Risk Disclosure Statement:

There is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not. For example, it may be desirable to settle a disagreement as to an existing state of affairs in order to establish a clear basis for the contract itself and its subsequent performance. Where parties express an agreement of that kind in a contractual document neither can subsequently deny the existence of the facts and matters upon which they have agreed, at least so far as concerns those aspects of their relationship to which the agreement was directed. The contract itself gives rise to an estoppel: see Colchester Borough Council v Smith[1991] Ch. 448, affirmed on appeal [1992] Ch. 421.

It is common to include in certain kinds of contracts an express acknowledgment by each of the parties that they have not been induced to enter the contract by any representations other than those contained in the contract itself. The effectiveness of a clause of that kind may be challenged on the grounds that the contract as a whole, including the clause in question, can be avoided if in fact one or other party was induced to enter into it by misrepresentation. However, I can see no reason in principle why it should not be possible for parties to an agreement to give up any right to assert that they were induced to enter into it by misrepresentation, provided that they make their intention clear, or why a clause of that kind, if properly drafted, should not give rise to a contractual estoppel of the kind recognised in Colchester Borough Council v Smith. However, that particular question does not arise in this case. A clause of that kind may (depending on its terms) also be capable of giving rise to an estoppel by representation if the necessary elements can be established: see E.A. Grimstead & Son Ltd v McGarrigan (C.A.) (unreported, 27^th October 1999).

Insofar as the argument in this case turns on the true construction and effect of the contractual documents (including the Risk Disclosure Statement) and is one to which no further findings of fact might have been relevant, ANZ should, in my view, be allowed to advance it. I would therefore grant the bank permission to amend its notice of appeal to raise the issue of contractual estoppel, but I would not allow it at this stage to contend that there was an estoppel by representation since the judge was not asked to consider that question and did not make findings in relation to it. The question then is whether, in the light of Mr. Pawani’s signature of the declaration at the foot of the Risk Disclosure Statement Peekay, is precluded as a matter of contract from contending that it did not understand the true nature of the investment.

The judge held in paragraph 93 of his judgment that the advice to investors in the Risk Disclosure Statement provided no answer to the claim for misrepresentation. He did not explain in terms why he took that view, but I think he must have considered that because it was couched in general terms and did not provide any specific information about the investment being offered to Peekay, it could not dispel any misunderstanding Mr. Pawani had obtained from his conversations with Mrs. Balasubramaniam. However, it does not appear that he was asked to consider the contractual effect of the documents or the particular argument advanced before us. He also considered that Mr. Pawani’s letter giving instructions to the bank to make the investment on behalf of Peekay should have made it clear to the bank that he was still under a misapprehension as to its nature. That I find rather difficult to understand since, as far as I can see, there is nothing in that letter to indicate that Mr. Pawani’s understanding of the investment differed in any way from the description set out in the FTCs to which the letter itself referred.

The purpose of the Risk Disclosure Statement was both to draw to the attention of the investor the need for caution when investing in emerging markets and to make it clear that ANZ was only willing to enter into a contract with him on the assumption that he had satisfied himself that the transaction was suitable for him. By confirming that he had read and understood the statement and returning it with his instructions to make the investment Mr. Pawani offered to enter into a contract with ANZ on behalf of Peekay on those terms and that offer was accepted by the bank when it implemented his instructions. As a result it was part of the contract between them that Peekay was aware of the nature of the investment it was seeking to purchase and had satisfied that it was suitable for its needs. In those circumstances, and since it is not suggested that the bank misrepresented to Mr. Pawani the effect of the documents, I do not think that it is open to Peekay to say that it did not understand the nature of the transaction described in the FTCs; and if that is so, it cannot assert that it was induced to enter into the contract by a misunderstanding of the nature of the investment derived from what Mrs. Balasubramaniam had said about the product some days earlier.

For these reasons too I would allow the appeal.

I agree.

I agree that this appeal must be allowed for the reasons which Lord Justice Moore-Bick has given. It is only because we have reached a conclusion which differs from that reached by the Deputy Judge that I add a short judgment of my own.

Lord Justice Moore-Bick has set out the facts fully in his judgment. As he has pointed out (at paragraph 16) the investment instructions given by Mr Pawani on behalf of Peekay Intermark Limited are found in a letter dated 7 February 2005: “A total of US$250,000/- should be utilised to buy the Russian Hedged GKO Note as per the attached document”. The words which I have emphasised were added to the draft instruction letter prepared on behalf of ANZ by Mrs Balasubramaniam. The ‘attached document’, in that context was the ‘final terms and conditions’ (“FTCs”) and the ‘Emerging Markets Risk Disclosure Statement’, copies of which (signed by Mr Pawani on behalf of Peekay) were returned to Mrs Balasubramaniam with the investment instructions. In those circumstances it is beyond argument that the terms upon which Peekay intended to invest incorporated the FTCs and the Risk Disclosure Statement.

The Deputy Judge held, at paragraph 92 of his judgment, that Peekay was induced to invest ‘by Mrs B’s misrepresentation as to the nature of the product’. Although, at first sight, that might appear to be a finding of primary fact with which an appellate court should be reluctant to interfere, closer analysis shows that the finding turns upon an inference of secondary fact. This Court can properly be invited to consider whether, in the absence of direct evidence, that was an inference which the judge was entitled to draw.

It is important to keep in mind that Mrs Balasubramaniam made no representation as to the actual contents of the FTCs. She had not seen those documents at the time of her telephone conversations with Mr Pawani on 1 and 2 February 1998. The effect of those conversations, as the judge found, was that Mr Pawani was given a ‘rough and ready’ description of the product that he would be offered. But it could not be said that Mr Pawani - an experienced investor in emerging markets – was under any misapprehension, following the telephone conversations, as to the need for a definitive and detailed description of the financial instrument to be employed (the ‘product’); nor that he would have made an investment decision on behalf of Peekay if he had not received documents which he understood to contain the definitive and detailed description which he needed. And the judge made no finding to the contrary.

The judge found that Mr Pawani did no more than glance at the FTCs and the Risk Disclosure Statement. On the basis of that finding, the judge must be taken to have accepted that Peekay entered into the investment contract in the knowledge that the terms of that contract were to be found in those documents, but without knowing what those terms were. In holding that Peekay was induced to invest by Mrs Balasubramaniam’s misrepresentation as to the nature of the product the judge inferred that Mr Pawani was entitled to, and did, assume that the terms which (as Mr Pawani knew) were to be found in the documents would not differ materially from the ‘rough and ready’ description which Mrs Balasubramaniam had given him a few days earlier. As he put it at paragraph 88 of his judgment: “Mr Pawani . . . evidently had no prior cause to think that the FTCs would contain any nasty surprises”.

I am satisfied that that inference was not open to the judge. There are three reasons which lead me to that conclusion. First, given the importance which Mr Pawani professed to place on the potential for exerting influence, as an investor, on the means by which the underlying investment was liquidated or realised in the event of sovereign default in payment of the Note or of default by the counter-party to the currency hedge, it was necessary for him to give careful consideration to the FTCs. It was in those documents – and not in the ‘rough and ready’ description which he had been given by Mrs Balasubramaniam – that he would find the provisions that would apply in the event of default. He could not say that he was entitled to or did assume that the documents were a formality.

Second, it is clear that Mr Pawani, himself, regarded the documents which he had signed and returned as important. It was he who had added the words “as per the attached document” to Mrs Balasubramaniam’s draft letter of instructions. The judge made no finding as to why Mr Pawani thought it necessary to add those words if he attached no importance to the documents. But, as it seems to me, the reason is obvious. Mr Pawani was not content to rely upon Mrs Balasubramaniam’s ‘rough and ready’ description of the product. He was concerned to make it clear that Peekay was investing on the terms of the documents which he had signed.

Third, Peekay could not be heard to say (through Mr Pawani) that it had thought it unnecessary to read and understand the FTCs. The Risk Disclosure Statement was a contractual document – as Mr Pawani recognised when he returned it, signed, with the letter of 7 February 1998. ANZ accepted the investment instructions in that letter on the basis of the investor’s confirmation that it had read and understood the terms of the Statement. That confirmation, as it seems to me, operates as a contractual estoppel to prevent Peekay from asserting in litigation that it had not, in fact read and understood the Risk Disclosure Statement. And, if it had read and understood the Risk Disclosure Statement, it must be taken to have accepted that ANZ would assume that it fully understood the nature of the transaction into which it was entering, was aware of the risks, and had determined that the transaction was suitable for its purposes. Given that, Peekay could not be heard to say that Mr Pawani had assumed that the FTCs which he had signed on its behalf did not need to be read and understood.