Taberna Europe CDO II Plc v Selskabet AF 1.September 2008 in Bankruptcy

This is an appeal against the order of Eder J. giving judgment for the respondent, Taberna Europe CDO II Plc (“Taberna”), for €26,421,585 on its claim against the appellant for damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967. The appellant was formerly known as Roskilde Bank A/S and, although its name has changed following its entry into bankruptcy, it is convenient for present purposes to refer to it as “Roskilde”.

Before the worldwide financial crisis of 2008 Roskilde was a successful Danish regional bank. Taberna is an investment vehicle incorporated in Ireland which holds a portfolio of financial assets, including securities issued by banks and other financial institutions. In December 2006 as part of a programme to raise additional capital Roskilde decided to issue Fixed/Floating Rate Dated Subordinated Callable Step Up Notes Due 2014 with a face value of €80 million. The notes were originally issued to Merrill Lynch and subsequently marketed to potential investors. Some were acquired by Deutsche Bank, which in February 2008 sold notes with a face value of about €27 million to Taberna for the sum of €26,421,585. In July 2008 Roskilde’s financial position deteriorated and it became unable to meet the capital requirements of the Danish regulators. On 25^th August 2008 most of its assets and liabilities were transferred to a new bank (“New Roskilde”), apart from certain specified liabilities, including subordinated loan capital. In February 2009 steps were taken to put Roskilde into bankruptcy.

Taberna recognised that it was likely to recover little, if anything, by proving in Roskilde’s bankruptcy. It therefore decided to pursue a claim for damages for misrepresentation on the basis that it had been induced to buy the notes in part by a representation by Roskilde that the amount of its non-performing loans was DKK57 million (about 0.14% of its total loan and guarantee book), whereas the true amount was approximately DKK3.5 billion. Taberna contends that any liability which Roskilde had incurred to third parties for torts such as fraudulent or negligent misrepresentation were included in the liabilities transferred to New Roskilde. Whether that is correct or not is in dispute, but is not a matter with which we are concerned.

As pleaded, Taberna’s case against Roskilde was wide-ranging. Some aspects of it were abandoned in the course of the trial; others were dismissed by the judge and are not pursued on appeal. Before us the dispute has been further reduced and now falls within a relatively narrow compass. The main issues are (a) whether Roskilde misrepresented to Taberna in a document referred to as an “Investor Presentation” the amount of its non-performing loans, (b) whether, if it did so, Taberna is entitled to recover from Roskilde under section 2(1) of the Misrepresentation Act 1967 damages in the amount it paid Deutsche Bank for the notes and (c) whether, if so, the loss is to be apportioned under section 1 of the Law Reform (Contributory Negligence) Act 1945 on the grounds that Taberna was itself partly responsible for it.

In October 2007 Roskilde produced a document described as an “Investor Presentation” for use in conjunction with a “road show” aimed at potential investors in a new issue of securities. The document appears to consist of a series of slides and was no doubt intended to accompany an oral presentation. One slide entitled “Credit Risk” purported to show in graph form coverage for non-performing loans. The amount of non-performing loans at the end of the third quarter of 2007 was shown as DKK57 million with a coverage ratio of a little over 5. Another slide headed “Credit Risks” also showed the amount of non-performing loans at the end of the third quarter of 2007 as DKK57 million, which was said to represent 0.14% of the total loan book. The final page of the document contained a section headed “Disclaimer”, which contained the following passages:

“This presentation has been produced by [Roskilde] . . . solely for use by investors met during the non-deal roadshow made in connection with the release of the bank’s Q3 2007 figures and may not be reproduced or redistributed to any other person without permission. This presentation is only directed at persons who have professional experience in matters relating to investments.

This presentation may contain certain forecasts made in statements relating to the business, financial performance and results of the bank and/or the industry in which it operates. Any such statements contained in this presentation, including assumptions, opinions and views of the Bank or cited from third party sources, are solely opinions and forecasts which are uncertain and subject to risks. A number of factors can cause actual events to differ significantly from any implied or anticipated development. Neither the Bank nor any officers or employees can guarantee that the assumptions underlying such statements are without errors nor does either accept any responsibility for the future accuracy of any opinions given in this presentation or the actual occurrence of any forecasted developments. No representation or warranty (expressed or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein, and, accordingly, neither the Bank nor any officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this presentation for any purpose . . .

. . .

The Bank is under no obligation to update or revise the information contained herein and will not publicly release any amendments it may make that may result from circumstances arising after the date of this presentation. The Bank accepts no responsibility for the accuracy of its sources.”

The judge made no specific finding about how the information in the Investor Presentation came to the notice of Taberna, but he was satisfied on the balance of probabilities that it had done so and, since he also found that Roskilde had published the document on its web site, it seems likely that Taberna obtained it from that source. The first question for consideration is whether the information it contained about non-performing loans can be treated as having been directed to Taberna.

The courts have long recognised the danger of allowing third parties to rely on documents produced for a purpose other than that to which they have been put or directed at an audience of which they are not themselves members. In Peek v Gurney (1873) L.R. 6 H.L. 377 a prospectus inviting people to subscribe for shares in a company contained a number of false statements about the company’s affairs. It subsequently came into the hands of a third party who, in reliance on the truth of those statements, bought shares in the market from one of the original allottees. When the company failed, he sued the directors for misrepresentation. The House of Lords held that his claim could not succeed. The prospectus was directed to those who might become original allottees of shares and not to those who might purchase them in the secondary market. Lord Cairns put the matter in this way at page 411:

“Now, my Lords, I ask the question, How can the directors of a company be liable, after the full original allotment of shares, for all the subsequent dealings which may take place with regard to those shares upon the Stock Exchange? If the argument of the Appellant is right, they must be liable ad infinitum, for I know no means of pointing out any time at which the liability would, in point of fact, cease. . . . My Lords, I ask, is there any authority for this proposition? I am aware of none.”

The principle that a document such as the accounts of a public company can be relied upon as against the directors and auditors only by those to whom it is addressed was reaffirmed more recently in a similar context in Caparo Industries Plc v Dickman [1990] 2 A.C. 605. Lord Bridge said at page 621B-G:

“The situation is entirely different where a statement is put into more or less general circulation and may foreseeably be relied on by strangers to the maker of the statement for any one of a variety of different purposes which the maker of the statement has no specific reason to anticipate. To hold the maker of the statement to be under a duty of care in respect of the accuracy of the statement to all and sundry for any purpose for which they may choose to rely on it is not only to subject him, in the classic words of Cardozo C.J. to ‘liability in an indeterminate amount for an indeterminate time to an indeterminate class:’ see Ultramares Corporation v. Touche (1931) 174 N.E. 441, 444; it is also to confer on the world at large a quite unwarranted entitlement to appropriate for their own purposes the benefit of the expert knowledge or professional expertise attributed to the maker of the statement. Hence, looking only at the circumstances of these decided cases where a duty of care in respect of negligent statements has been held to exist, I should expect to find that the ‘limit or control mechanism . . . imposed upon the liability of a wrongdoer towards those who have suffered economic damage in consequence of his negligence’ rested in the necessity to prove, in this category of the tort of negligence, as an essential ingredient of the ‘proximity’ between the plaintiff and the defendant, that the defendant knew that his statement would be communicated to the plaintiff, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind (e.g. in a prospectus inviting investment) and that the plaintiff would be very likely to rely on it for the purpose of deciding whether or not to enter upon that transaction or upon a transaction of that kind.”

In the present case the Investor Presentation was originally directed, as the disclaimer states, only to those who attended “road shows” designed to encourage investors to take up a new issue of debt that Roskilde was then planning to offer. Mr. Béar naturally submitted, therefore, as he had to the judge, that since Taberna had not been part of the audience to which the document had been directed, it could not rely on any misrepresentation that it might contain. This argument would have had more force, however, if Roskilde had not placed the document on its web site, thereby inviting anyone who might be interested in the information it contained to examine it.

The judge recognised that the Investor Presentation was a document of a kind that would ordinarily be subject to the rule in Peek v Gurney, but found that in this case Roskilde had intended to make it available for use by potential investors of the subordinated notes in the secondary market generally, including Taberna. He also held that there had been “more specific interactions” between Roskilde and Taberna that supported his conclusion, in particular, that another bank, Société Générale, had, with Roskilde’s encouragement, directed Taberna to the Investor Presentation on the web site in connection with a further issue of debt being planned towards the end of 2007. On the basis of that finding Mr. Lord Q.C. submitted that this was not simply a case of a member of the public making use of the company’s accounts when considering whether to buy shares; this was a case in which Roskilde had deliberately brought the Investor Presentation to the attention of anyone who might be considering buying its notes in the secondary market and in particular to the attention of Taberna, whom it saw as a potential investor.

In an age when most commercial documents exist primarily in electronic form and can be made available to a wide audience at the touch of a button it is important not to allow inroads to be made too easily into the principles enunciated in cases such as Peek v Gurney and Caparo v Dickman. However, if a company actively invites potential investors to make use of information originally produced for a different purpose, it can hardly complain if they do so. Most company accounts are public documents and many are no doubt placed on the company’s web site, but I do not think that that alone can be sufficient to create the degree of proximity required to give rise to a duty of care. To hold otherwise would be inconsistent with the decision in Caparo v Dickman. In order for a representation in a document to be actionable at the suit of the recipient there has to be a connection between the maker and the recipient of a kind that enables the court to be satisfied that the maker was intending the recipient to rely on the document in a particular way.

In the present case the judge found that Roskilde intended that potential investors should have access to and rely on the Investor Presentation for the purpose of deciding whether to invest in its subordinated securities generally and encouraged Société Générale to direct Taberna’s attention to its web site. Mr. Béar submitted that the Investor Presentation was intended only for use by those who were thinking of investing in the new issue of notes, but the judge’s findings do not support such a limited view. In those circumstances the judge was in my view entitled to hold that Roskilde had deliberately made the Investor Presentation available to Taberna with a view to its relying on it for investment purposes and that as a result any representations it contained were made by Roskilde to Taberna when considering whether to invest in its debt generally, including the subordinated loan notes.

I have set out the disclaimer in paragraph 5. The judge below identified the following six paragraphs:

(a)

“This presentation has been produced by [the Bank] solely for use by investors met during the non-deal roadshow made in . . . ”

(b)

“No representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information including projections, estimates, targets and opinions contained herein;”

(c)

“No liability whatsoever is accepted as to any errors, omissions or misstatements contained herein;”

(d)

“Neither the Bank nor any officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this presentation for any purpose;”

(e)

“Neither this presentation nor any part of it shall form the basis of, or be relied upon in connection with any offer, or act as an inducement to enter into any contract or commitment whatsoever;”

(f)

“The Bank is under no obligation to update or revise the information contained herein . . . .”

Paragraph (a) is directed to identifying the audience to which the document is addressed. I have already considered that question and reached the conclusion that, although Taberna was not originally a member of that audience, it became one as a result of Roskilde’s actions. Paragraphs (b) and (e) purport to restrict the scope of any apparent representation (so-called “duty-negating clauses”), whereas paragraphs (c) and (d) purport to exclude liability for any of the statements made in the document. The importance of this distinction was said to lie in the need for an exclusion of liability for misrepresentation to have contractual effect.

The judge held that in the particular circumstances of this case Roskilde was not entitled to rely on any of the paragraphs of the disclaimer. Paragraphs (b) and (e) were, in his view, ineffective, because they did not form part of the contract represented by the notes and were therefore no more than an attempt to exclude liability for misrepresentation otherwise than by contractual means. In his words “a mere declaration of non-liability by the representor cannot have the effect of preventing a representor from incurring liability for misrepresentation”. Although he was prepared to assume that paragraphs (c) and (d) were to be regarded as exclusion clauses on which Roskilde could rely, and that they satisfied the requirement of reasonableness, he held that they were to be construed contra proferentem and were insufficiently clear to exclude liability for damages for misrepresentation under section 2(1) of the Misrepresentation Act.

Since it is common ground that there was no contract between Roskilde and Taberna which incorporated the disclaimer, it must be effective, if it is to be effective at all, simply as a notice to the reader of the document that Roskilde is unwilling to accept liability for its contents. Mr. Lord submitted that, since it was tucked away at the back of the document in fairly small print, the court could not be satisfied that the reasonable reader would have seen it and taken it in. I cannot accept that. The document was intended to be read by experienced professional investors, such as Taberna, who must be taken to be well aware that it is necessary to read a document of this kind in its entirety. Nor, for much the same reasons, can I accept that the disclaimer could reasonably be understood as relating only to those parts of the document which contained forecasts or estimates. In my view, read fairly as a whole, it contained a clear message: fraud apart, Roskilde was not willing to accept any liability for the accuracy of the document’s contents.

Mr. Béar submitted that the judge was wrong to think that duty-negating clauses such as (b) and (e) could take effect only in contract. He argued that a notice incorporated within a document may be sufficient to limit the scope of an apparent representation, relying on section 2 of the Unfair Contract Terms Act 1977, which provides as follows:

2.— Negligence liability.

(1)

A person cannot by reference to any contract term or to a notice given to persons generally or to particular persons exclude or restrict his liability for death or personal injury resulting from negligence.

(2)

In the case of other loss or damage, a person cannot so exclude or restrict his liability for negligence except in so far as the term or notice satisfies the requirement of reasonableness. (Emphasis added.)

An exclusion of liability for misrepresentation must no doubt have contractual effect if a party is thereby seeking to avoid liability for unqualified statements made in the course of previous negotiations, but it is clear from section 2 of the Unfair Contract Terms Act that in principle, subject to the requirement of reasonableness, a person can in general by a suitable notice effectively make it clear that he is not willing to accept liability for statements contained in a document of which it forms part. Nor was it disputed that in principle a person can, by a suitably worded provision, limit the scope of, or exclude altogether, what would otherwise amount to a representation upon which reliance might be placed. The language of section 2 of the Unfair Contract Terms Act shows that it is directed both to contractual terms and non-contractual notices which purport to exclude or restrict liability for negligence. Indeed, the words “a notice given to persons generally” in subsection (1) show that the section is directed in part to notices addressed to the public at large, with whom the author is unlikely to have any contractual connection. Subsection (2) also makes it clear that in relation to loss or damage other than death or personal injury a notice may be effective if it satisfies the requirement of reasonableness. Section 3 of the Misrepresentation Act (substituted for the original by section 8(1) of the Unfair Contract Terms Act) applies the same principle to contractual terms which exclude or restrict liability for misrepresentation.

In holding that paragraphs (b) and (e) of the disclaimer were ineffective because they did not form part of the contract represented by the notes the judge was approaching the question on the assumption that Taberna had been induced to enter into a contract with Roskilde by a misrepresentation that would in principle give rise to liability under the Act. In such a case it is no doubt right to say that liability can be excluded only by agreement, for example by a contractual estoppel of the type considered in JP Morgan v Springwell [2010] 2 C.L.C. 705, by which the parties agree that no misrepresentation was made, or by a conventional clause excluding liability. However, the position with which we are concerned in this case is different, because paragraphs (b) and (e) are to be found in the very document which is said to contain the misrepresentation on which Taberna relies.

Section 3 of the Misrepresentation Act deals only with the situation in which a contract contains a term which would exclude or restrict liability for any misrepresentation a party may have made before the contract was entered into. The section is silent on non-contractual notices, but that cannot in my view be taken as an indication that a notice purporting to exclude liability will be ineffective. Section 3 is concerned with attempts to exclude liability for misrepresentation after the event. It is not concerned with the question whether there has actually been a misrepresentation. If a non-contractual notice can be effective for the purposes of the Unfair Contract Terms Act 1977, I can see no reason in principle why a party should not be entitled to rely on a suitably worded disclaimer to limit the scope of its representations, or even exclude them altogether. As Toulson J. pointed out in IFE Fund S.A. v Goldman Sachs International [2007] 1 Lloyd’s Rep 264 at paragraph 65, to which Mr. Lord drew our attention, a mere declaration by a misrepresentor that he does not accept liability for the consequences which the law attaches to a misrepresentation is not effective, but, as he also recognised in paragraphs 67-68, the first question must be whether one party has made a misrepresentation on which the other was entitled to rely. In that case the judge accepted that the disclaimer went to the scope of the representations and could not be characterised as an attempt to exclude liability for misrepresentations that had in fact been made. In my view, read in the context of the disclaimer as a whole, paragraphs (b) and (e) are to be construed as limiting the nature and scope of the statements contained in the document in a way that made it clear that they could not be relied on as a basis for a decision of any kind.

Paragraphs (c) and (d) of the disclaimer differ from paragraphs (b) and (e) in that they purport to exclude liability for any misstatement rather than qualify the scope or nature of the statements which the document contains. In other words, they are liability-negating clauses rather than duty-negating clauses. The judge was content to proceed on the assumption that they could be effective, despite the fact that they too did not form part of any relevant contract between Roskilde and Taberna, and held that they satisfied the requirement of reasonableness. Nonetheless, he held that the words used were insufficiently clear to exclude liability for damages for misrepresentation.

In the light of Toulson J.’s observations in IFE Fund v Goldman Sachs International it might be said that since those paragraphs have not been incorporated into a contract between Roskilde and Taberna they have no effect. Notwithstanding those observations, however, I can see no reason in principle why a person should not be able to publish information of the kind contained in the Investor Presentation on the basis that he is not willing to take responsibility for it, at least where it is reasonable for him to do so (as the judge found it was in this case), provided, of course, that he makes the position clear. So in principle I agree with the judge that, subject to any rules of construction which cut down the scope of such clauses, Roskilde is entitled to rely on them.

In the past judges have tended to invoke the contra proferentem rule as a useful means of controlling unreasonable exclusion clauses. The modern view, however, is to recognise that commercial parties (which these were) are entitled to make their own bargains and that the task of the court is to interpret fairly the words they have used. The contra proferentem rule may still be useful to resolve cases of genuine ambiguity, but ought not to be taken as the starting point: see, for example, Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128 and Transocean Drilling UK Ltd v Providence Resources Plc [2016] EWCA Civ 372. In my view paragraphs (c) and (d) are couched in language that makes it quite clear that Roskilde accepts no responsibility for the information contained in the Investor Presentation. There is no ambiguity of the kind that can properly be resolved by invoking the contra proferentem rule.

Mr. Lord sought to rely, if necessary, on the principle enunciated in Canada Steamship Lines Ltd v The King [1952] A.C. 192 that a clause will not be construed as excluding liability for negligence unless it specifically purports to do so or there is no other basis of liability on which it could operate. However, as Mr. Béar submitted, the law has moved on since that decision. In HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6, [2003] 1 CLC 358 Lord Bingham observed at page 367:

“There can be no doubting the general authority of these principles, which have been applied in many cases, and the approach indicated is sound. The courts should not ordinarily infer that a contracting party has given up rights which the law confers upon him to an extent greater than the contract terms indicate he has chosen to do; and if the contract terms can take legal and practical effect without denying him the rights he would ordinarily enjoy if the other party is negligent, they will be read as not denying him those rights unless they are so expressed as to make clear that they do. But, as the insurers in argument fully recognised, Lord Morton was giving helpful guidance on the proper approach to interpretation and not laying down a code. The passage does not provide a litmus test which, applied to the terms of the contract, yields a certain and predictable result. The courts' task of ascertaining what the particular parties intended, in their particular commercial context, remains.” (Emphasis added.)

In paragraph 63 Lord Hoffmann, having adverted to the distinction drawn by Lord Fraser in Ailsa Craig Fishing Co Ltd v Malvern Fishing Co Ltd [1983] 1 W.L.R. 964 between exclusion clauses and limitation clauses, said this:

“ . . . Lord Fraser of Tullybelton said that the Canada Steamship guidelines were based upon the “inherent improbability that the other party to a contract including such a clause intended to release the proferens from a liability that would otherwise fall upon him.” For this reason, Lord Fraser said that the guidelines were not “applicable in their full rigour” to clauses which limited rather than excluded liability. I doubt, however, whether Lord Fraser intended to introduce one mechanistic rule (a distinction between limiting and excluding liability) to mitigate the rigour of another. The question, as it seems to me, is whether the language used by the parties, construed in the context of the whole instrument and against the admissible background, leads to the conclusion that they must have thought it went without saying that the words, although literally wide enough to cover negligence, did not do so. This in turn depends upon the precise language they have used and how inherently improbable it is in all the circumstances that they would have intended to exclude such liability.” (Emphasis added.)

The authorities show that there has been an increasing willingness in recent years to recognise that parties to commercial contracts are entitled to determine for themselves the terms on which they will do business. In my view Roskilde was entitled to include in the Investor Presentation a disclaimer of liability for the statements contained in it. The disclaimer may, of course, be overridden by the dealings between the parties, but the judge’s findings do not go far enough for that to assist Taberna in this case. Taberna was in my view in no better position than the investors to whom the document was originally addressed and Roskilde is therefore entitled to rely on the disclaimer as an answer to its claim.

This makes it is unnecessary to decide whether the judge was right to hold that Roskilde misrepresented to Taberna the extent of its non-performing loans, but since the point was fully argued, I think it right to express my views on it.

Taberna’s complaint is that the Investor Presentation wrongly described the level of Roskilde’s non-performing loans (“NPLs”), which were said to amount to DKK57 million or 0.14% of the total. This aspect of the case was characterised by a number of difficulties with language. The judge found that although the expression “non-performing loans” was widely used in banking circles, it had no universal internationally accepted meaning. He noted that various possible meanings had been canvassed, including (i) loans on which there has been a default (e.g. non-payment) of any kind, (ii) loans where there has been a “significant” default e.g. a default which has continued for more than (say) 30 or 90 days and remains unrectified in whole or in part, and (iii) loans on which there has been a default (whether or not “significant”) or there is at least a risk of default and the lender has agreed with the borrower to adjust the terms of the loan e.g. by foregoing or reducing interest payments, either for a limited time or indefinitely. However, he did not regard those three possible meanings as exhaustive. The Danish text of Roskilde’s accounts, which was said to be the governing version, used the words “Rentenulstillede udlån”, which, translated literally, mean “Interest reset” or “Loans with reset interest”. He contrasted that with the words “Misligholdte fordringer”, which translate as “Loans in default”.

Roskilde’s case at trial was that the expression “NPL” was to be understood as referring only to loans on which it had decided to reduce the rate of interest. Mr. Béar had submitted that that was explicit in the Danish version of Roskilde’s accounts and in the absence of a clear definition anyone reading the English text who was unsure about the sense in which the expression was being used ought to have consulted those accounts. The judge, however, held that the question was to be determined by reference to the meaning that a reasonable person in the position of the reader of the English version would give it, which, on the basis of Mr. Frappier’s evidence, was loans that are currently in default and typically have been for 90 days and loans on which the lender does not expect to recover the full amount of principal and interest.

Before us Mr. Béar submitted that, because the expression “NPL” has no generally understood meaning, it was not open to the judge to find that a reasonable reader would have understood it in the way that Mr. Frappier understood it. Why, for example, should it be necessary for the loan to have been in default for 90 rather than 60 or 30 days? He also submitted that the Investor Presentation had to be read in the context of all the other financial information that Roskilde had published by the time Taberna decided to buy the notes. That included the Third Quarter Report for 2007 and the Annual Report Announcement (“the 2007 Announcement”), both of which had been reviewed by Taberna, and the full 2007 Annual Report, which the judge found that it had not read. The 2007 Announcement was a report to the stock market which contained Roskilde’s abbreviated accounts for 2007. In it the equivalent entry is described as “Loans at reduced interest rate”. That, in his submission, referred to a subset of non-performing loans and in any event should have been enough to put potential investors on enquiry and cause them to look at the Danish versions of the accounts. Even if the reader restricted himself to the Investor Presentation, since the meaning was not clear, he should have looked at the Danish version of the accounts, if necessary with the benefit of a Danish interpreter. Had he done so, he would have realised that NPLs referred only to loans in respect of which interest had been reset.

When pressed in cross-examination with the language of the 2007 Announcement, Mr. Frappier said that he had assumed that the use of the expression “reduced interest rate” was “just a translation issue”. Notwithstanding Mr. Béar’s criticisms of that explanation, I have some sympathy with that view. The difficulty for Taberna was that the Investor Presentation drew specific attention to what in the English language version were described as “non-performing loans”. As the judge said, the natural meaning of that expression includes all loans in respect of which there is anything other than an insignificant default. What a reasonable investor would regard as significant for these purposes might be open to debate, but the concept itself seems clear enough. There was no other reference in the Investor Presentation to loans in default, so the reader would naturally understand that the reference to NPL included all non-performing loans, i.e. all loans in respect of which there was a significant default. When Mr. Frappier gave his understanding of the expression I think he was really doing no more than explaining what he regarded as a significant default. “Loans with reset interest” does not appear to be a widely used expression, and I do not think that it was unreasonable for Mr. Frappier to think that there was a translation factor at work. The weakness in Mr. Béar’s argument, in my view, lay in the assertion of a need to ascribe to the expression “NPL” a meaning which is unduly precise.

Although I do not accept Mr. Lord’s submission that a person to whom the Investor Presentation was directed could be forgiven for not having read the last page, I do agree that he could not reasonably have been expected to extend his researches to the Danish version of the company’s accounts or to compare the document with the annual accounts. English is the pre-eminent language of commerce, which is no doubt why the English language version of the document was posted on Roskilde’s web site, and the very act of making it available to the potential investor himself or a class of persons to which he belongs amounts to an invitation to accept it at face value. For the reasons I have given, I do not think that there is anything to be gained by discussing the finer details of the ways in which the statement might have been interpreted. The judge’s conclusion amounts to a finding that the statement in the Investor Presentation amounted to a representation that the figure for NPL represented the whole range of loans which were significantly in default and I think he was entitled to accept Mr. Frappier’s evidence as illustrative of what it meant.

Having held that Roskilde had misrepresented to Taberna the level of its non-performing loans and that Taberna had relied on that representation when deciding to buy the notes from Deutsche Bank, the judge went on to hold that Taberna was entitled to recover damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967 in the amount that it had paid for the notes. His reasoning can be found in paragraph 105 of the judgment in the following terms:

105.

“ . . . I readily accept that the facts of the present case are somewhat unusual. In particular, this is not a simple case of only two parties (A and B) where a representation is made by A to B and, in reliance on such representation, B enters a bilateral contract with A. Here, the position is more complicated. Thus, it is plain that at least certain pre-sale negotiations took place between Deutsche Bank and Taberna; that Taberna entered into a contract with Deutsche Bank; and that it was pursuant to that contract (to which Roskilde was not a party) that Taberna acquired the subordinated notes from Deutsche Bank. However, there is equally no doubt, and Mr Béar accepted, that the effect of such acquisition was to bring Taberna and Roskilde into a contractual relationship - although the precise mechanism whereby such contract came into existence is not entirely clear to me. It is perhaps also noteworthy that, contrary to a “normal” contract, the consideration for the subordinated notes i.e. the purchase price was paid by Taberna to Deutsche Bank not Roskilde. However, I am unpersuaded that these somewhat unusual features take the present case outside the scope of s2(1) . . . .”

Mr. Béar submitted that the judge’s analysis was wrong, because the loss that is recoverable under the Act is the loss that the claimant has incurred as a result of being induced to enter into a contract with the representor. In this case, he submitted, the representation did not induce Taberna to enter into a contract in any relevant sense with Roskilde. It was induced to enter into a contract with a third party, Deutsche Bank, and the loss which it seeks to recover is the price it paid for the notes under that contract.

In response Mr. Lord submitted that under section 2(1) the representee is entitled to recover the whole of the loss he has suffered as a result of his reliance on the misrepresentation. In the present case Taberna was induced by Roskilde’s misrepresentation to buy the subordinated notes from Deutsche Bank and its loss extends to all the consequences of doing so, including the loss it has suffered as a result of the notes having become worthless. In support of that submission he placed considerable reliance on the decision of this court in Royscot Trust Ltd v Rogerson [1991] 2 Q.B. 297.

Again, in view of the conclusions I have already reached it is unnecessary to decide this issue in order to dispose of the appeal, but it raises a question of some importance which was fully argued and I therefore think it right to express my views on it.

Section 2(1) of the Misrepresentation Act 1967 provides as follows:

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

It is generally recognised that the Act was passed principally to remedy two perceived defects in the existing law: the inability of a person who had been induced to enter into a contract by a misrepresentation that was not fraudulent to recover damages, and the inadequate nature of the remedy of rescission in the case of innocent misrepresentation. That would suggest that the draftsman was setting out to modify the law relating to the relationship between the two parties to the contract, rather than the law relating to negligent misstatement in general. In my view, the opening words of the subsection (“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss . . . ”) are consistent with that interpretation, which involves reading the word “thereof” as referring to the entering into a contract. Mr. Lord, however, submitted that it refers simply to the misrepresentation and that the representee is entitled to recover for all the consequences of the misrepresentation.

In order to understand the scope of section 2(1) it is helpful to consider it in the context of the other provisions of the Act, in particular section 2(2), which gives the court the power to award damages in lieu of rescission. Rescission is a remedy available to a party to a contract in cases where he has been induced to enter into it by an innocent misrepresentation on the part of the other party to it. Moreover, by section 2(3) any damages awarded under section 2(2) are to be taken into account when assessing damages under section 2(1). All that supports the conclusion that the Act is dealing only with the relationship between the two contracting parties arising out of or in relation to a contract which has been induced by misrepresentation on the part of one of them. This was a point made by Mustill J. in Resolute Maritime Inc v Nippon Kaiji Kyokai (The ‘Skopas’) [1983] 1 W.L.R. 857.

I do not think that Royscot v Rogerson suggests otherwise. In that case a motor dealer agreed to sell a car to a customer on hire purchase for £7,600, of which the customer was to pay a deposit of £1,200 (15.78%). The finance company would not enter into a hire purchase agreement with a customer unless he had paid a deposit of at least 20% of the price of the vehicle. The dealer therefore told the finance company that the price of the car was £8,000 of which the customer had paid £1,600 (20%) by way of a deposit. The amount being financed by the claimant was the same in each case (£6,400), but the amount of the customer’s deposit was less than the finance company had been led to believe. In the event the customer sold the car and failed to make the payments due under the hire purchase agreement. The finance company sued the dealer under section 2(1) of the Misrepresentation Act 1967 and obtained judgment in default for damages to be assessed. On the assessment the judge held that the finance company was entitled to recover by way of damages only the difference between what it would have paid the dealer if the deposit had been correctly stated (£4,800) and the amount it actually paid the dealer (£6,400), namely £1,600. On appeal this court held that the finance company was entitled to recover the difference between the amount it had paid to the dealer (£6,400) and the total amount of the instalments paid by the customer (£2,774.76), namely, £3,625.24. Balcombe L.J. identified the question for decision as

“ . . . whether the measure of damages for an innocent misrepresentation giving rise to a cause of action under the Act of 1967 was the tortious measure, so as to put the representee in the position in which he would have been if he had never entered into the contract, or the contractual measure, so as to put the representee in the position in which he would have been if the misrepresentation had been true, and thus in some cases give rise to a claim for damages for loss of bargain.”

Having concluded that on the language of the subsection the correct measure of damages was the tortious measure, he turned to consider whether it was the fraud measure or the negligence measure. He held that it was the former and said at pages 306H-307A:

“With all respect to the various learned authors whose works I have cited above, it seems to me that to suggest that a different measure of damage applies to an action for innocent misrepresentation under the section than that which applies to an action for fraudulent misrepresentation (deceit) at common law is to ignore the plain words of the subsection and is inconsistent with the cases to which I have referred. In my judgment, therefore, the finance company is entitled to recover from the dealer all the losses which it suffered as a result of its entering into the agreements with the dealer and the customer, even if those losses were unforeseeable, provided that they were not otherwise too remote.”

Ralph Gibson L.J. said at page 308H -309A:

“Upon proof of the misrepresentation which induced the finance company to purchase the car and to enter into the hire-purchase agreement with the customer, and upon failure by the dealer to prove the defence of reasonable ground of belief under section 2 of the Act of 1967, the finance company was, in my judgment, entitled to recover the loss suffered by it as a result of entering into the two contracts as if the misrepresentation had been made fraudulently. That seems to me to be the plain meaning of section 2 of the Act of 1967 as explained by Balcombe L.J. I find it impossible to attribute to Parliament the intention, by the use of the words in section 2(1), of causing the maker of such a representation to be liable as for a negligent statement. If that had been the intention I have no doubt whatever that apt words would have been used to express it.”

As can be seen from those passages, the court in that case was concerned only with identifying the correct measure of damages on a claim under section 2(1). Once it was established that the fraud measure of damages applied, the finance company was entitled to recover the whole of the loss it had incurred as a result of entering into the contract with the dealer. That included the loss incurred under the hire-purchase contract with the customer, entry into which was the ultimate purpose of the transaction with the dealer. Mr. Lord submitted that because the finance company was able to recover the loss it incurred under the contract with the customer the case supported the conclusion that it is not necessary for the loss to flow from entering into a contract with the representor. However, I do not think that one finds anything in Royscot v Rogerson to support the conclusion that, where A is induced to enter into a contract with B as a result of a misrepresentation made by C (C not acting as an agent of B), A can recover damages from C under section 2(1) of the Misrepresentation Act. In that case the finance company’s contract with the customer and the disposal by him of the car were regarded as consequences of having entered into a contract with the dealer who had made the misrepresentation. In a case of the kind just mentioned A might, in appropriate circumstances, have a claim for deceit or for negligent misrepresentation against C, but not for damages under the Act. Similarly, A would have no right to rescind the contract and would therefore not be entitled to recover damages in lieu of rescission under section 2(2).

In my view, the background to the legislation and the language of section 2(1) itself read in the context of section 2(2) point to the conclusion that it is concerned only with representations made by a person who enters into a contract with the representee and with losses arising as a result of entering into that contract. That conclusion is reinforced by certain observations of Hoffmann L.J. in William Sindall Plc v Cambridgeshire County Council [1994] 1 W.L.R. 1016. The case concerned a misrepresentation by the vendor of development land that it was not subject to any undisclosed encumbrances. Some time after the sale had been completed it was discovered that the site was subject to an easement of drainage. The buyer sought to rescind the contract and a question arose whether the court should award damages in lieu of rescission under the Misrepresentation Act and, if so, what the measure of damages should be.

When discussing the scheme of the Act Hoffmann L.J. said at page 1037G-H:

“First, section 2(1) provides for damages to be awarded to a person who “has entered into a contract after a misrepresentation has been made to him by another party and as a result thereof” — sc. of having entered into the contract — “he has suffered loss.” In contrast, section 2(2) speaks of “the loss which would be caused by it” — sc. the misrepresentation — “if the contract were upheld.” In my view, section 2(1) is concerned with the damage flowing from having entered into the contract, while section 2(2) is concerned with damage caused by the property not being what it was represented to be.”

Evans L.J. appears to have agreed with Hoffmann L.J., although he did not directly address the meaning of section 2(1), and Russell L.J. agreed with both judgments.

For all these reasons I have reached the clear conclusion that section 2(1) of the Act entitles the representee to recover only such damages as flow from his having entered into a contract with the representor.

As a result of purchasing the notes from Deutsche Bank, Taberna was brought into contractual relations with Roskilde on the terms of the notes. That is a complicating factor which allows Taberna to argue that it entered into a contract with Roskilde within the meaning of section 2(1) in reliance on the misrepresentation in the Investor Presentation. It would not have been available if Taberna had acquired from Deutsche Bank property of some kind other than an obligation of a contractual nature. The argument begs the question, therefore, what is meant in section 2(1) by the expression “has entered into a contract after a misrepresentation has been made to him by another party thereto” and the nature of the loss to which the section refers. For the reasons given earlier, I am of the view that section 2(1) is concerned only with the contract which the representee has been induced to enter into directly with the representor (and in respect of which a right of rescission would arise) and does not extend to an obligation of a contractual nature which the representee acquires from a third party and in respect of which there would be no right of rescission. Although the notes in the present case represented obligations of a contractual nature, they are better regarded for these purposes as a species of property, which Taberna acquired pursuant to a contract with Deutsche Bank. The loss which Taberna incurred under that contract, and which in this action it seeks to recover from Roskilde, could have been the subject of a claim under section 2(1) only if it had been induced to buy the notes by misrepresentation on the part of Deutsche Bank, but that has never been suggested.

Mr. Lord sought to argue in the alternative that in this case the loss which Taberna was seeking to recover flowed from the contract it had entered into with Roskilde. In one sense that might be true, but that is not the loss which Taberna is seeking to recover and does not fall within section 2(1) of the Act. Taberna is seeking to recover the price it paid for the notes and thus a loss which it says it incurred as a result of entering into the contract with Deutsche Bank. The contract that came into being between Taberna and Roskilde as a result of the purchase of the notes was a consequence of the contract with Deutsche Bank, not the cause of it.

Mr. Béar’s final submission was that contributory negligence is in principle available as a defence to a claim under section 2(1) of the Misrepresentation Act and that if Roskilde was liable to Taberna, the loss which Taberna suffered was caused in part by its own failure to make proper enquiries before it bought the notes from Deutsche Bank. The loss it suffered, if otherwise recoverable, should therefore be apportioned under section 1 of the Law Reform (Contributory Negligence) Act 1945. He submitted that a distinction is to be drawn for these purposes between negligence on the part of the claimant in failing to ascertain that the representation made to him was false and negligence in some respect unconnected with the representation.

In view of the conclusions I have already reached, it is unnecessary to decide this question and I therefore propose to state my provisional views on it as briefly as I can. In paragraph 180 of his judgment the judge summarised the background to this issue, referring to powerful statements of judicial opinion to be found in Reynell v Sprye (1852) 1 De G. M. & G. 660, Redgrave v Hurd (1881) 20 Ch. D. 1, Nocton v Lord Ashburton [1914] AC 932 and Strover v Harrington [1988] Ch. 390 to the effect that when a person has taken another’s statement at face value and has acted on the faith of it, as it was intended that he should, the representor cannot be heard to say that the representee was in part the author of his own misfortune because he could with reasonable diligence have discovered the true position. However, he accepted on the authority of Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch. 560 that contributory negligence may in principle be a partial defence to a claim under section 2(1) of the Misrepresentation Act, at any rate where there is a concurrent breach of a duty of care at common law (as was accepted to be the case here), but accepted the caveat entered by Sir Donald Nicholls V.-C. in that case that to attribute any significant part of the loss to the claimant’s failure to take care to protect his own interests will be appropriate only in very special cases, of which this was not one.

Section 2(1) of the Misrepresentation Act creates a form of statutory liability sounding in negligence. In principle, therefore, contributory negligence ought to be available as a defence and in Standard Chartered Bank v Pakistan National Shipping Corpn and Others (Nos 2 and 4) [2002] UKHL 43 [2003] 1 A.C. 959, to which Mr. Béar drew our attention, Lord Hoffmann in paragraphs 16 and 17 appears to have accepted that that was so. However, whether it is equitable to apportion part of the responsibility for the loss to the claimant will depend on the facts of the case. Mr. Béar submitted that in this case Taberna had failed to make the sort of enquiries into Roskilde’s financial position that would have been expected of any prudent investor and must thus bear part of the blame for its loss. The judge was not persuaded of that, but more importantly, he was not persuaded that, even if Taberna had been negligent, this was a case in which it would be equitable to reduce its damages. That involved an assessment by the judge of the particular circumstances of the case, with which, in my view, this court ought to be slow to interfere. I am not persuaded that there are grounds for interfering with the judge’s decision on this issue.

For all these reasons I have reached the conclusion that Taberna is not entitled to recover damages against Roskilde under section 2(1) of the Misrepresentation Act 1967. I would therefore allow the appeal.

I agree.

I also agree.