 |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |
England and Wales Court of Appeal (Civil Division) Decisions |
||
|
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Springwell Navigation Corporation v JP Morgan Chase Bank & Ors [2010] EWCA Civ 1221 (01 November 2010) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2010/1221.html Cite as: [2010] EWCA Civ 1221, [2010] 2 CLC 705 |
||
[New search]
[Context
]
[View without highlighting]
[Printable RTF version]
[Help]
A3/2009/0704 AND A3/2009/0705 |
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
MRS JUSTICE GLOSTER DBE
Strand, London, WC2A 2LL |
||
B e f o r e :
LORD JUSTICE RIMER
and
LORD JUSTICE AIKENS
____________________
 SPRINGWELL NAVIGATION CORPORATION(a Body Corporate) |
Appellants |
|
| - and - |
||
| (1) JP MORGAN CHASE BANK (A Body Corporate) (formerly known as The Chase Manhattan Bank) (2) JP MORGAN EUROPE LIMITED (formerly known as Chase Manhattan International Limited) (3) JP MORGAN SECURITIES (C.I.) LIMITED (formerly known as Chase Manhattan Securities (C.I.) Limited) (4) JP MORGAN PLC (Formerly known as Chase Investment Bank Limited) |
Respondents |
____________________
Mr Mark Hapgood QC, Mr Adrian Beltrami QC and Ms Catherine Gibaud (instructed by Clifford Chance LLP, London) for the Respondents
Hearing dates : 14th, 15th, 16th, 17th, 18th, 21st and 22nd June 2010
____________________
Crown Copyright ©
| Para | |
| Section A: Introduction to the Appeal | |
| I. History of the Case so far | 1-9 |
| II. The Parties and the personalities involved, particularly JA and AP | 10-17 |
| III(A): The claims put forward by Springwell before Gloster J: the "Pre-Default claims" and "Post- Default claims" |
|
| The Pre-Default Claims | 18-24 |
| The Post-Default Claims | 25-33 |
| III(B): Chase's defences to the Pre-Default and Post- Default claims before Gloster J. | |
| Defences on the Pre-Default claims | 34-38 |
| Defences on the Post-Default claim | 39 |
| IV(A): The principal conclusions of the judge on the Pre-Default Claims | 40-60 |
| IV(B): The principal conclusions of the judge on the Post-Default Claims | 61-74 |
| Section B: The arguments of the parties and the issues that arise on the appeal. | |
| V(A) The Parties' arguments on the Pre-Default Misrepresentation Appeal. | 75-87 |
| Chase's arguments | 88-91 |
| The Principal Issues on the Pre-Default Misrepresentation Appeal | 92 |
| V(B) The arguments of the parties and the issues on the Post-Default Appeal | |
| Springwell's arguments |
93-97 |
| Chase's arguments | 98-100 |
| Section C: The Pre-Default Appeal | |
| VI. Pre-Default appeal: Principal Issue (1): Was the judge correct in her findings on what representations (if any) were made by JA to AP in relation to the GKO LNs ("the representations issue") | 101 |
| The "conservative" representation: the evidence relied on by Springwell on appeal |
102-108 |
| The "liquid" representation: the evidence relied on by Springwell on appeal |
109-110 |
| The "Currency Risk" representation: the evidence relied on by Springwell on the appeal |
111 |
| Can Springwell impugn the judge's findings on the representations made? |
112-115 |
| VII. Pre-default Appeal: Principal Issue (2): Was the judge correct in her conclusion on whether the alleged representations were actionable, apart from the Relevant Provisions? | 116-126 |
| VIII. Pre-default Appeal: Principal Issue (3): The effect of the Relevant Provisions | 127-131 |
| Sub-Issue (a): The GKO LN Note terms: to whom does the term "Holder" apply? | 132-140 |
| Sub-Issue (b): The GKO LN Terms and Conditions: the effect of Sections 6(c) and 5(e): the "Lowe v Lombank" issue | 141-171 |
| Sub-Issue (c) The construction of the terms of the DDCS letters | 172-173 |
| Sub-Issue (d): do the DDCS Letters apply to the purchase of the GKO LNs at all? | 174-175 |
| Sub-Issue (e): can CMSCI rely on the terms of the DDCS letters? | 176 |
| Sub-Issue (f): Does Chase have to establish that it would be "unconscionable" for Springwell to resile from the contractual estoppel before it can rely on either Sections 5(e), 5(f) and 6(c) of the GKO LN Terms and Conditions or clauses 4 and 6 of the DDCS letters? |
177-178 |
| Sub-issue (g): Are the terms of the GKO LN Terms and Conditions and the terms of the DDCS letters caught by section 3 of the Misrepresentation Act 1967 and so subject to the regime of the UCTA? |
179-180 |
| The DDCS Letters paragraphs 4 and 6 | 181 |
| The GKO LN terms Section 6(c) | 182 |
| "Reasonableness" | 183-184 |
| Sub-issue (h): Given the conclusions so far, what is the effect of the Relevant Provisions? | 185-186 |
| The terms of the GMRA | 187 |
| IX: Pre-Default Appeal: Principal Issue (4): Reliance and causation of loss |
188-189 |
| X: Conclusions on the Pre-Default Appeal | 190 |
| Section D: The Post-Default Appeal | |
| Introduction | 191-193 |
| XI: The Post-Default Appeal: Principal issue (1) were the S-account forward currency contracts "deliverable" in the sense found by the judge? If so, what are the consequences? | 194-207 |
| XII. Post-Default Appeal: Principal Issue (2): Was CMIL entitled to give the force majeure notice to CMBI on 24 November 1998? | 208-210 |
| XIII. Post-Default Appeal: Principal Issue (3): Were the actions/inactions of Chase/CMIL between 18 November 1998 and CMBI's termination notice of the forward currency contracts on 23 March 1998 such that CMSCI was in breach of its obligations under Section 3(c) of the GKO LN terms? |
211-216 |
| XIV. Post-Default Appeal: Principal Issue (4): Did any actions or inactions of Chase/CMIL make CMSCI guilty of "gross negligence" or "wilful default" within the terms of Section 3(c) of the GKO LNs? |
217 |
| XV. Post-Default Appeal: Conclusions | 218 |
| Section E: Disposal | 219-220 |
| Appendix 1 | Appendix 1 |
| 1997 Dealings in Developing Country Securities Letter ("DDCS letter") | |
| Global Master Repurchase Agreement ("GMRA") | |
| GKO Linked (S Account) Note ("GKO LN") Terms and Condition |
|
| GKO Linked (S Account) US$ Note Terms and Conditions (July 15 1998) Risks Disclosure Key Risks to Investors ConfC Confirmation |
|
| Appendix 2 | Appendix 2 |
| Master Forward Agreement Master Agreement No 1 |
Lord Justice Aikens :
Section A: Introduction to the Appeal.
I. History of the Case so far.
Springwell") was the "treasury" company for a group of shipping companies owned and controlled by the Polemis family. Springwell was beneficially owned by Adamandios Polemis ("AP"), his brother Spiros Polemis ("SP") and their mother, who was the widow of the founder of the current group, the late Mr Leonidas Polemis. Springwell, as the treasury company of the group, had, since 1996, invested heavily and profitably in emerging market securities, including a derivative of Russian GKOs. Derivatives of GKOs were issued by banks such as Chase Manhattan Bank, as the first respondent was formerly known. The derivatives were known as "GKO Linked Notes", which I shall call "GKO LNs". This will describe both the derivative generally and the instruments which are the subject of this litigation. In the case of the Chase derivatives, the GKO LNs were issued by Chase Manhattan Securities (C.I.) Limited ("CMSCI"), as the third Respondent was formerly known. The GKO LNs were always traded in US dollars. Because the underlying GKOs were traded in roubles, to avoid the possibility of a currency loss on the GKO LNs at redemption if the rouble/US dollar exchange rate had deteriorated by the time the underlying GKO matured, the GKO LNs contained, as part of their structure, a forward currency contract for the conversion of the GKO rouble proceeds into US dollars at the redemption date of the GKO LNs.
Springwell made 42 separate purchases of GKO LNs. The sellers of the GKO LNs to Springwell were Chase Investment Bank Limited ("CIBL") and then Chase Manhattan International Limited ("CMIL"), as the fourth and second Respondents were formerly known. The last purchase was made over a week after the IMF "rescue package" was announced. At the time of the moratorium on 17 August 1998, Springwell still had eleven GKO LNs in its portfolio. Their cost had been US$ 87,837,270. Those eleven GKO LNs were due to mature on dates between mid–September 1998 and January 1999. They constituted about one-third of Springwell's Russian and Russian related investments. The eleven GKO LNs' nominal maturity value, or "redemption amount" was US$95,259,716. The result of the Russian moratorium declared on 17 August 1998 and subsequent Directives of the Russian Central Bank was that the underlying GKOs did not perform and so Springwell's outstanding GKO LNs defaulted. They were ultimately restructured. At the same time, the value of the rouble against the US dollar fell from 6.2 roubles to the dollar before the 17 August announcement to 22.77 roubles to the dollar by 28 January 1999. Some Russian banks became bankrupt. Many western banks, including Chase, lost large sums as a result of this débâcle.
Springwell against various entities in what was then the Chase Manhattan Bank and is now JP Morgan Chase Bank. I will call these entities collectively "Chase". In the trial before Gloster J, Springwell claimed over US$ 700 million in damages, alleging that Chase had breached various contractual, tortious and fiduciary duties in advising on the nature and contents of Springwell's investment portfolio as a whole, which included not only Russian securities but also those of other "emerging market" countries. Those claims were collectively known as the "Pre-Default claims". Another of the many allegations was that Chase failed to take action after the Russian August 1998 default to recover some of the value of the forward currency contracts which were part of the GKO LNs. That claim was one of four claims known at the trial as the "Post-Default claims".
Springwell's claims other than the Post–Default claims. It covers 742 paragraphs over 266 pages. The second judgment, dealing with the four categories of Post-Default Claim, runs to 261 paragraphs over 84 pages.[2] Both judgments are admirably clear and deal (with only very small exceptions) comprehensively with the facts, the expert evidence and the law. The judge dismissed all but one of Springwell's claims, which was a minor custody fees claim.
Springwell sought permission to appeal on all the main aspects of the judgments on which it had lost, but the judge refused permission. At an oral hearing before Thomas and Aikens LJJ on 16 June 2009, Springwell sought permission to appeal on two aspects only of the two judgments of Gloster J. The first of these concerned claims that Chase, through its employee Mr Justin Atkinson ("JA") had made specific misrepresentations as to the nature of the GKO LNs in the course of telephone conversations with AP, in particular between March 1997 and July 1998. Springwell asserted that it was induced to invest in GKO LNs by these misrepresentations, thereby incurring loss in respect of the 11 GKO LNs it held when the Russian moratorium was announced on 17 August 1998 and which subsequently defaulted. At the trial and on appeal this claim was called the "Misrepresentation Claim", although that term embraces claims both under section 2 of the Misrepresentation Act 1967 and for alleged negligent misstatement by JA to AP.
Springwell to obtain some value from the forward currency contracts attached to the GKO LNs in the period after the Russian default. That was the most important of the four Post–Default claims that had been advanced at the trial.
Springwell, and Mr Mark Hapgood QC and Mr Adrian Beltrami QC (who responded on the Post – Default claim appeal) on behalf of Chase. There were 15 Appeal Bundles, plus a Core Bundle, together with 7 bundles of authorities. Springwell's "Skeleton" arguments ran to over 100 pages, excluding appendices. Chase's "Skeleton" arguments ran to 180 pages, excluding appendices. Luckily all the documents, including transcripts of the appeal hearing, were available on a CD, prepared by the parties.
II. The Parties and the personalities involved, particularly JA and AP.
Springwell Navigation Corporation, which was incorporated in Liberia. From 1986/7 the Polemis shipping group was generating profits which were not needed immediately for use in the business. The funds therefore needed to be invested elsewhere and Springwell was incorporated specifically so that it could be the investment vehicle of the Polemis group. Springwell had no employees. From 1990 until 1998 the management of Springwell, including the decisions about its investments, were largely those of AP alone. After the Russian default, SP took over the principal management of Springwell and its claim against Chase.[3]
Springwell held its bank account with the London branch of the Chase Manhattan Bank ("CMB") from 1986 to 1998. From 1990 to 1998 the account was maintained in a unit within CMB known as the Private Bank. CMB is now known as JP Morgan Chase Bank, the first respondent to the appeal. CMB was responsible for providing the financial arrangements, including loans, to enable Springwell to purchase securities such as the GKO LNs on a leveraged/margin basis.
Springwell. In 1997, following the merger of Chase and Chemical Bank, CIBL was replaced in the investment bank role by Chase Manhattan International Limited ("CMIL"). It too sold investments to Springwell. That bank is now known as JP Morgan Europe Limited which is the second respondent to the appeal.
Springwell against CMBI and it is therefore not a party to the present appeal.
Springwell. All the sales/purchases of the GKO LNs which are the subject of the appeal were made during telephone conversations between JA and AP. Those telephone conversations were regular and often long. From May 1997 they were tape- recorded and all the tapes of telephone conversations between JA and AP covering the relevant period, which totalled nearly 1000, were disclosed by Chase as part of pre-trial discovery.[5]
Springwell should buy, sell or hold any particular investments. Gloster J also found that, in so doing, JA was giving investment advice, although this was "no more than the recommendations of a trader to a buyer as to what was available, on what terms and perhaps also as to the respective merits of the products on offer, given the requirements of the particular client".[8] However, AP retained control over all decision making and all decisions on whether to initiate trades on Springwell's behalf.[9]
Springwell might give rise to what she described as a "low level duty of care …on the part of the salesman not to make any negligent misstatements, or even to use reasonable care not to recommend highly risky investments without pointing out that it was such…".[10] But that was "miles away" from the much broader scope of duty of care said by Springwell to be owed to it by Chase as an "investment advisor" to Springwell. Gloster J rejected that case entirely.
III(A): The claims put forward by Springwell before Gloster J: the "Pre-Default claims" and "Post- Default claims".
Springwell at the trial was that Chase had been engaged to give general investment advice to Springwell since its incorporation and assumption of the "treasury company" role for the Polemis group in 1986. Springwell alleged that Chase, through CMB and CMIL, owed a duty of care in contract and tort to give Springwell careful investment advice in accordance with Springwell's investment objectives. Springwell contended that its investment objectives were those of a conservative investor whose aims were principally the preservation of capital and the maintenance of liquidity in its portfolio. Springwell asserted that AP, who was the recipient of the investment advice of Chase (largely through JA), was an unsophisticated investor who had little comprehension of basic concepts of risks and rewards, so that Springwell was absolutely reliant on the advice it received from JA in all respects. Springwell alleged that Chase, largely through JA, gave negligent recommendations and incorrect advice and also failed to give proper advice or proper risk warnings about investments recommended.
Springwell (given its alleged investment objectives) was abandoned just before the trial.
Springwell relied on 149 extracts from transcripts of telephone conversations between JA and AP as the basis for these claims.[13] Springwell also relied on those extracts for the General Advisory Claim.
Springwell had argued that there were three broad categories of misrepresentation by JA which had been relied on by Springwell in purchasing the GKO LNs. The first category covered somewhat inchoate representations that the investments proposed by JA (including the GKO LNs) were "appropriate" for Springwell, could reasonably be expected to result in profit and were not subject to significant risks of default. The second category comprised general misrepresentations about Russia and the state of its economy; in particular, misrepresentations that there would be no default on Russia's debt obligations and/or no devaluation of its currency. The judge found that none of the representations in either of these two categories were made and there is no appeal from that conclusion.
Springwell rejected these offers in January and June 1999.
Springwell's Post-Default claim concerning the forward currency contracts was against CMSCI only, as the issuer of the GKO LNs to Springwell. Its case was that on the 9 forward currency contracts between CMIL and CMBI (whether CMBI acted as principal counterparty in the currency forward contracts or as "pass through" party) that were outstanding as at 17 August 1998, CMSCI/CMIL were "in the money", ie. in credit for value, to the extent of US$ 49 million. Springwell argued that this was because, in principle, CMBI remained obliged to pay to CMIL the US dollars due on maturity of those forwards. Springwell next argued that, by Section 3(c) of the Terms and Conditions of the GKO LNs, CMSCI was under a duty to Springwell, as "Holder" of the GKO LNs, to exercise a duty of care with respect to the forward currency transactions. Springwell argued that this meant that CMSCI had a duty to try and obtain value for the outstanding currency forwards that it had (through CMIL) with CMBI in respect of all of Springwell's 9 outstanding GKO LNs where there was a currency forward involving CMBI, whether as the direct counterparty or where the currency forward "passed through" CMBI to another Russian bank counterparty.
Springwell accepted that it could only recover under the terms of Section 3(c) of the GKO LN conditions, if it could show that it had suffered loss as a result of Chase's "wilful misconduct" or "gross negligence" in relation to "any Transaction". It was common ground at the trial and before us that the forward currency contracts were within the term "any Transaction" within Section 3(c). Springwell contended that CMSCI was guilty of "wilful misconduct" or "gross negligence" in failing to extract value from the "transactions" constituted by these 9 outstanding forwards. Effectively, Springwell alleged that the Chase group, acting for CMSCI/CMIL, decided voluntarily to release CMBI from its obligations to CMIL/CMSCI under the direct forward currency contracts; purporting to do so in the "wider interests" of the Chase group. It also alleged that the Chase group did not do enough in relation to forward contracts where CMBI was the "pass–through" party. Springwell argued that these decisions made by Chase in relation to the forwards were to the detriment of GKO LN holders such as Springwell. Springwell's case was that if CMIL/CMSCI had acted properly, in particular by having arms-length negotiations with CMBI, then they would have recovered all or at least some of the value of all the 9 currency forwards.[26]
III(B): Chase's defences to the Pre-Default and Post- Default claims before Gloster J.
Springwell's investments. Secondly, it argued that Springwell's investment objectives were those of an aggressive investor which sought the highest possible yields and believed those could be found in emerging market securities. Moreover, Chase argued that AP himself became a highly sophisticated investor who was at ease with emerging markets and happy to take big risks in order to obtain high yields on investments. Thirdly, Chase denied that any of the general or specific representations about investments generally or specific investments such as GKO LNs had been made by JA to AP as alleged. Fourthly, in any event, Chase argued that AP had not relied on advice or representations made by JA. Fifthly, Chase submitted it could not be shown that the advice or representations of JA (or other Chase employees) were the cause of Springwell's decision to purchase any particular investment, so that Springwell could not prove that the cause of its alleged losses were the advice (or lack of it) given by Chase or any representations made by Chase through JA.
Springwell and relevant Chase entities. These were collectively referred to at the trial, in the judgments below and on the appeal as "the Relevant Provisions". I will use the same term in this judgment. Chase's case was that the terms of the Relevant Provisions operated so that it was agreed between all parties that the relationship between Springwell and Chase was non-advisory and there could be no duty of care owed by Chase to Springwell. Further, Chase argued that the terms of the Relevant Provisions operated so as to preclude Springwell from relying on any actionable representation that Chase might have made or from any Chase entity being liable in damages for any such representation. Therefore, the overall effect of the Relevant Provisions, on Chase's case, was to prevent or exclude any liability in relation to all the Pre-Default claims. I will mention them all here as part of the background to the appeal, but later in the judgment I will only refer in detail to those that are relevant to the appeal concerning the GKO LN claims.
Springwell, one in 1993 and the other on 17 September 1997, which were called the "DDCS Letters".[27] These confirmed Springwell's regulatory classification as a "Non-Private Customer" for the purposes of the rules of the Securities and Futures Authority Limited ("SFA"), in respect of dealings by Springwell for the latter's own account in "various debt and equity securities of public and private issuers located in developing countries ("Instruments")". The DDCS Letters also set out the terms on which Chase was prepared to deal with Springwell in respect of such Instruments. The DDCS Letters were signed by way of acceptance by Springwell. Chase relies in particular on the terms of paragraphs 4 and 6 of the Letters. The relevant terms of the 1997 Letter[28] are set out in Appendix 1 to this judgment.
Springwell to enable it to purchase investments. The MFA was signed by Springwell in 1992. It was replaced by the GMRA in September 1997.[31] The relevant clauses, also reproduced in Appendix 1 to this judgment, are 1, 2, 9 and 25.
Springwell with term sheets, confirmation sheets and risk disclosure sheets for each purchase. The confirmation sheets were called "confirms" and that term is used in the judgments below. The judge made findings of fact on the process by which the GKO LN documentation was produced and the specific manner in which Springwell dealt with its GKO LN trades.[33] None of those findings of fact are challenged except one,[34] although the judge's construction of the GKO LN documentation is very much in issue. The relevant terms of the GKO LNs,[35] the GKO LN Terms and Conditions,[36] the Risk Disclosure sheet,[37] and the Confirmations or "confirms"[38] are set out in Appendix 1 to this judgment.
IV(A): The principal conclusions of the judge on the Pre-Default Claims
Springwell's case that it had conservative investment objectives and that it had a conservative attitude to risk were "constructs of fantasy which bore no relation to reality".[43] On the contrary, the judge found that by the 1990s Springwell was an extremely aggressive investor, comfortable in emerging markets and sought very high returns from the purchase of fixed income instruments in those markets and was prepared to assume significant risk in order to do so.[44]
Springwell and that all the material risks were disclosed to Springwell and known to AP.[45] The judge also found that AP was at all times aware of the risk of sovereign default by Russia and that he frequently discussed this with JA. The judge found that the risk of sovereign default on local currency Russian government securities such as GKOs was seen as low. Moreover, the judge found that AP was at all times aware of the risks of devaluation of the Russian rouble. This was seen as very low in 1997 and as rather higher in 1998; but there was "no preponderance of view". It was therefore reasonable to take the view, which JA held, that this would not occur. The judge also found that AP was able to and did take his own view on the likelihood of this occurrence.[46]
Springwell and AP's attitude to the purchase of GKO LNs:
"AP was an enthusiastic purchaser of GKO-Linked Notes, which produced high yields on short-term assets and which provided
Springwell and concluded first, that at all times Chase had no general advisory duty of any sort regarding Springwell's investment portfolio. Secondly, the judge held that any such duty was precluded by the Relevant Provisions. I will attempt to summarise the judge's conclusions on the correct construction and effect of the Relevant Provisions in the context of her findings on the Misrepresentation Claims below. Thirdly, the judge concluded that even if any such a duty of care had been owed, Chase was not in breach of it. Fourthly, Springwell's case on the General Advisory Claim failed on causation. Lastly, any claim would have been substantially reduced because of Springwell's contributory negligence.
"My analysis of the Relevant Provisions in the DDCS Letters is that they precluded any representation being made at all, whether of fact or of opinion, by CMB, CIBL or CMIL. The terms of the Relevant Provisions in the Letters make it absolutely clear:
i) that neither CMB nor CIBL/CMIL (or any associated company) were taking any responsibility for the "fairness, accuracy or completeness" of any information, written or oral regarding "any instrument or investment opportunity";
ii) that neither CMB nor CIBL/CMIL would not have "taken any independent steps to verify" that information written or oral;
iii) that "no representation or warranty express or implied" was made by CMB, CIBL/CMIL or their officers (in this context, JA) in relation to such information written or oral; and
iv) conversely, that by signing the letters,
Springwell under clauses 9, 24 and 25 of the GMRA.[50]
Springwell was bound in its dealings with CMSCI, CMB and CMIL by the terms of the GKO LNs themselves, "which Springwell had repeatedly and on a routine basis, by the GKO-Linked Note confirms, represented that it had read, understood and accepted".[51] The judge concluded that the effect of Section 6(c) of the GKO LN terms[52] taken with the terms of the DDCS Letters was a "strong pointer" against it being reasonable for Springwell to rely on any statements made subsequent to the purchase of a particular GKO LN as being actionable representations inducing Springwell to retain the Notes.[53]
Springwell engaged would not have assumed that JA's statements were actionable or that his expressions of opinion were to be treated as anything more than "trader's opinions from the trading floor, based upon Chase research and [JA's] own view of the markets and the economic and political situation".[54] Secondly, whether determining if there was any actionable misrepresentation at all or whether Springwell was entitled to rely on any representation that was made, all the Chase entities concerned "…were respectively only prepared to allow Springwell direct access to the emerging markets trading desk and to JA on the express basis that, in accordance with the signed contractual documentation, Springwell was contractually precluded from bringing a claim in misrepresentation and that Chase entities were not assuming any responsibility for statements that were made". That therefore precluded Springwell from bringing any Misrepresentation Claims either under the 1967 Act or for negligent misstatement at common law.[55]
Springwell.
Springwell would not qualify as actionable misrepresentations in any event, even without the presence of the Relevant Provisions. Instead they were properly to be characterised as expressions of opinion without any representation by the maker (JA) that he had reasonable grounds for his view. But the judge emphasised that she did not need to decide the point in the light of her conclusion on the effect of the Relevant Provisions on the Misrepresentation Claims.
Springwell. She concluded that the statements of JA concerning the Russian economy were not false or made negligently, even if they turned out to be wrong or over-optimistic and he had reasonable grounds for expressing the views that he did.[57]
"…given AP's knowledge as to the type of instruments in which he was dealing, I find it to have been highly unlikely that AP would have placed any reliance on JA's use of terminology to convince himself that such shorthand, informal terms were somehow conveying that
On the appeal, Springwell challenged this finding of fact on reliance. In the alternative it argued for a narrow interpretation as to the scope of the finding.
Springwell, given their yield and their short-term nature, even when balanced against the risk. But JA did not describe them as "straightforward" and he had discussed the risks with AP, who "… knew that the Notes carried particular risks". The judge accepted that, within Chase, JA had described the GKO LNs as "conservative" to Stewart Gager,[64] but "…that was in the context of a discussion about concentration limits where JA was trying to explain to [Stewart Gager] why Springwell had such a large concentration in Russia". The fact that Springwell had various Chase hedges was also a factor why JA regarded Springwell's position as conservative.[65]
IV(B): The principal conclusions of the judge on the Post-Default Claims
"In relation to all eleven Failed Notes, the first hedge comprised a forward foreign exchange transaction, conducted through the S-Account, between CMIL on the one hand, acting on behalf of CMSCI, and CMBI or, on two occasions, VTB, on the other hand. These were defined in the Notes as a "Designated Forward Transaction"; each was a dollar/rouble forward contract under which CMBI (or VTB) agreed to sell CMIL sufficient dollars to redeem the Note in return for the transfer to CMBI (or VTB) of the amount of roubles payable under the referenced GKOs. The nine forward contracts between CMIL and CMBI were referred to as "the CMBI Forwards". These were all S-Account Forward Contracts which I find as a fact were "deliverable" in the sense that they required the delivery of the roubles in the S Account for conversion into dollars".
Springwell on the appeal.
"…the reality of CMIL's position, thereafter, post-Moratorium, was that it simply was not in a position to deliver roubles so as to obtain the benefit of its forwards with CMBI. That remained the position thereafter".[70]
Springwell's argument that Chase's decision not to set up separate negotiating teams for CMSCI/CMIL and CMBI to deal with the issue of the outstanding forwards was a breach of CMSCI's "appropriate duty" to Springwell.[73] Even if there had been a duty to set up separate negotiating teams and they had negotiated, the result would have been no different, because everyone knew that the forwards could not be performed and, unlike other Russian banks (such as VTB), CMBI had no relationship or other reason to curry favour with CMIL (which had acted as CMSCI's agent). "Thus in reality there was little prospect that CMBI would have agreed to pay any sum at all to CMIL in settlement of unperformable forwards".[74]
Springwell that it should have provided its own money to fund the S Account with roubles. There was no obligation on CMSCI to do so and there was no evidence that Springwell had funds available to do this in any event.[82]
Section B: The arguments of the parties and the issues that arise on the appeal.
V(A) The Parties' arguments on the Pre-Default Misrepresentation Appeal
Springwell's arguments. Springwell's appeal is confined to three specific misrepresentations about the GKO LNs which it claims that JA made to AP during telephone conversations between March 1997 and July 1998. The three representations relied on are that the GKO LNs were (i) "conservative"; (ii) liquid; and (iii) without currency risk. Mr Brindle stated that the third was not argued as an independent misrepresentation, but an "adjunct" to the first two. Mr Brindle noted that the judge expressly stated that she did not need to conclude whether the representations alleged were actionable or not, because she had based her conclusion on the Misrepresentation Claim on the Relevant Provisions.[86] Mr Brindle invited us, nonetheless, to review the judge's conclusions on the nature of the representations as stated by Gloster J at paragraphs 706-711 of the first judgment.
Springwell's case remains that these specific representations give rise to causes of action against CMSCI, under section 2 of the Misrepresentation Act 1967, and against CMIL, under the principles established by the Hedley Byrne case. As to the first of these causes of action, Mr Brindle submitted that even if the representations of JA to AP were opinions, rather than statements of fact, then, in the circumstances in which they were made, they carried with them an implied representation by JA to AP that there were reasonable grounds for the opinions stated.[87]
Springwell were subject to the Bank of England's "London Code of Conduct",[89] in which paragraph 24 of the section "General Standards" stipulates that:
"When entering into or arranging individual deals, dealers and brokers must ensure that at all times great care is taken not to misrepresent in any way the nature of the transaction".
Springwell.
Springwell was investing in investments that were equivalent to investment grade assets. Secondly, the finding in paragraph 711 that JA only described the GKO LNs as "conservative" in Chase internal conversations and not to AP. Thirdly, if paragraph 233 (i)-(iv) were to be read as findings that Finbarr Sheehan (FS)[93] explained or that AP read and was aware of the effect of the Relevant Provisions in the 1993 DDCS Letter, they were challenged.
Springwell was precluded from bringing any claims based on alleged representations. Secondly, he submitted that the judge was wrong to hold that either CMSCI (against whom the Misrepresentation Act claim is made) or CMIL (against whom the negligent misstatement claim is made) could rely on the terms of the GMRA. Those terms applied only to the repurchase contract under the financing arrangements between CMB and Springwell. Thirdly, the DDCS Letter terms are not relevant because the GKO LNs were not within the definition of the transactions to which the letters applied, viz. "debt and equity securities of public and private sector issuers located in developing countries". Mr Brindle emphasised that the issuer of the GKO LNs, CMSCI, was located in Jersey, in the Channel Islands, not Russia. Fourthly, Mr Brindle argued that only CMIL could rely on the terms of the DDCS Letters, but not CMSCI, which was not a party to them. Although he accepted that CMIL could rely on the terms of the DDCS Letters in principle, he submitted that clauses 4 and 6 did not prevent CMSCI being liable for misrepresentations or CMIL from being liable for negligent misstatements. Mr Brindle relied in this regard on the argument based on Lowe v Lombank[94] to which I refer below in relation to the terms of the GKO LNs.
Springwell now accepted that both CMSCI and CMIL could rely on the terms of the GKO LNs and associated documents, Mr Brindle submitted that they did not assist them for two main reasons. The first is that the only clause of any real help to CMSCI or CMIL is Section 6(c), the last sentence of which states that "the Holder" of the GKO LN has "…not relied on, and acknowledges that neither CMSCI or CMIL has made, any representation or warranty in respect of the purchase of this note". But, Mr Brindle submitted, the "Holder" was at all times CMB, not Springwell, because of the way the financing arrangements were structured.
Springwell) had relied on representations by JA (on behalf of CMIL and CMSCI) and both knew that to be the case, then an "acknowledgement" in the GKO LN terms that Springwell had not relied on such representations could not give rise to a contractual promise that Springwell would not do so. Mr Brindle accepted that if AP had stated, unequivocally, that he and Springwell did not rely on anything said by JA when deciding whether or not to buy GKO LNs, that could give rise to an estoppel by representation, but he argued that there had been no finding by the judge to that effect.
Springwell to resile from that convention and there was no finding of the judge to the contrary.
Springwell on the specific misrepresentations alleged, Mr Brindle submitted that this court should make findings, even though the judge did not do so in relation to the Misrepresentation Claims. He accepted that the tests are slightly different, depending on whether the claim is made under section 2 of the 1967 Act or for damages for negligent misstatement. In the former case, he submitted, the question is whether the representee has been induced to enter the contract. He submitted that inducement can be established even if the contract might have been entered into without the misrepresentation alleged, provided that the misrepresentation "materially contributed" to the claimant's actions.[103] In the case of negligent misstatement, Mr Brindle argued that the test is whether the misrepresentation was a "real and substantial part of what induced the representee to enter into the transaction".[104] Mr Brindle submitted that both tests were readily satisfied on the facts of this case.
Springwell could establish that the statements of JA were actionable misrepresentations, Springwell must fail on the issue of reliance, because there is no evidence that AP relied on these particular three representations when deciding whether or not to buy GKO LNs, as opposed to all the 149 representations relied on at the trial. In this regard, Mr Hapgood pointed out that the representations now relied on were not pleaded originally (although others were), but only pleaded after disclosure of the transcripts of the telephone conversations.
Springwell in relation to the sale of the GKO LNs. As principal, CMSCI could rely on the terms agreed between its agent and Springwell. Secondly, Mr Hapgood submitted that the distinction drawn by Mr Brindle between an agreement to treat past events as if something else had happened, which to the parties' knowledge is not true, and an agreement to treat a current state of affairs as the case for the basis of a contract, even if known not to be true, is a false one. Thirdly, he distinguished Lowe v Lombank as turning on the terms of the hire purchase legislation which was the background to the case. Fourthly, Mr Hapgood submitted that Peekay was correctly decided and confirmed the principle of "contractual estoppel" and was binding on this court. Fifthly, the element of "unconscionability" that is needed before a party can rely on an estoppel by convention is not needed in the case of a contractual estoppel.
Springwell can rely on any representations at all. He accepted that the provision was subject to the requirement of "reasonableness" under the UCTA, but relied on the judge's findings of fact that the terms were reasonable. Fourthly, Mr Hapgood submitted that Springwell was bound by the terms of the GKO LNs and the confirmation notes because Springwell had signed the confirmations as "customer". The terms were agreed conditions on which the purchases of GKO LNs were carried out.
(1) was the judge correct in her findings on what representations (if any) were made by JA to AP in relation to the GKO LNs ("the representations issue")?
(2) was the judge correct in her conclusion on whether the alleged representations were actionable, apart from the Relevant Provisions ("the actionability issue")?
(3) was the judge correct in her conclusions on the effect of the Relevant Provisions, including the question of whether they were caught by section 3 of the Misrepresentation Act and UCTA ("the Relevant Provisions issue")?
(4) if actionable representations were made and Chase is not entitled to rely on the Relevant Provisions, what findings, if any, should this court make in relation to the issues of reliance and causation of loss ("the reliance/causation issue")?
V(B) The arguments of the parties and the issues on the Post-Default Appeal
Springwell's arguments. Mr Baker accepted the judge's conclusion[105] that CMSCI had to exercise the "appropriate care" to maximise the recoveries from the "Transactions" which term included the forward currency contracts between CMSCI/CMIL and CMBI.[106] He accepted that the "appropriate care" was the same degree of care which CMSCI would exercise in relation to the administration of similar transactions on its own account, in accordance with the wording of Section 3(c) of the GKO LNs. Mr Baker submitted that the best way to judge whether Chase acted with "appropriate care" in relation to the CMIL/CMSCI – CMBI forwards was to test how Chase acted in relation to forward currency contracts it had with other Russian banks where CMBI was not involved at all.
Springwell under the terms of Section 3(c) of the GKO LN terms unless Springwell demonstrated that Chase had been grossly negligent in taking or refraining from taking any action with respect to the transactions regarding the forward currency contracts. He stated that Springwell's case on appeal would concentrate on the "gross negligence" of Chase, in particular CMSCI, although the case based on "wilful misconduct" was not abandoned.
Springwell relied when reaching her decision on the facts on the Post-Default claims. Mr Baker said that the key lay in the provisions of the FMA[107] between CMIL and CMBI, which set out the terms on which the forwards were made and to be performed and which was governed by English law. The judge failed to deal with matters which Springwell relied on to show that there was a substantial debate which should have taken place between CMIL and CMBI on the liability of CMBI on the forwards, if CMIL and CMBI had negotiated at arms-length. Moreover, CMIL acted contrary to its own economic interests and those of holders of GKO LNs (such as Springwell) in declaring force majeure under clause 22 of the FMA on 24 November 1998. There was no evidence on why CMIL declared force majeure; Mr Heath's[108] evidence was that he simply advised on the decision; but he did not take it. Moreover, there was no evidence that CMBI itself ever considered declaring force majeure or that CMBI would have sought to terminate the Chase Forwards for no return without CMIL's declaration. The judge disregarded, or wrongly regarded as not significant, evidence which showed that the declaration of force majeure and CMBI's subsequent termination of the forwards on 23 March 1998 were done solely to give CMBI grounds for not making any payment.
Springwell therefore challenges seven primary findings of fact of the judge. These findings of the judge are: (i) that CMIL did not align itself with CMBI or act in the wider "Chase" interest in relation to the Chase forwards;[109] (ii) that there was no evidence that CMSCI/CMIL knew it was in breach of its obligations under the GKO LNs to take appropriate care in relation to the forward transactions;[110] (iii) that Chase's offer to buy back GKO LNs Nos 4, 10 and 11 replicated (and were seen by Chase as replicating) the negotiated settlements which had been achieved with some other Russian banks;[111] (iv) that there was only a remote possibility that any sum could have been extracted through negotiations between CMSCI and CMBI and that the sum offered by Chase to buy back GKO LNs Nos 4,10 and 11 was better than the result which could have been obtained by the negotiation route;[112] (v) that the Chase forwards could not have been performed and that force majeure could have been validly declared;[113] (vi) the decision to send the notice of termination was a collective decision taken by Chase as a whole through the working committee (set up in early 1999);[114] (vii) that the termination of the Chase forwards by CMBI was not intended to be an aggressive or significant step as regards Chase's relationship with its clients, including Springwell.[115]
Springwell, which replicated in economic terms (as seen by Chase) the negotiated settlements with some of the other Russian banks. That was better than any result which would have been achieved by any attempted separate negotiations between CMIL (on behalf of CMSCI) and CMBI.[121]
Springwell could not successfully challenge those findings of fact, then the judge's conclusions on both "gross negligence" and "wilful default" were incapable of being challenged. The actions of Chase had to be judged by reference to the fact that the forwards were a part of the GKO LNs; the forwards were not free-standing.
(1) Were the S account currency forwards "deliverable" in the sense found by the judge? If so, what are the consequences of that conclusion ("the deliverable issue")?
(2) Was CMIL entitled to give the force majeure notice on 24 November 1998 ("the force majeure issue")?
(3) Were the actions or inactions of Chase/CMIL between 14 November 1998 (when the moratorium ended) and the time of CMBI's termination notice on 23 March 1999 such as to put CMSCI in breach of its obligations to take care in respect of the currency forward transactions, within the terms of Section 3(c) of the GKO LNs ("the Chase failures issue")?
(4) Did the actions or inactions of Chase/CMIL make CMSCI guilty of "gross negligence" or "wilful default" within the terms of Section 3(c) of the GKO LN terms ("the gross negligence/wilful default issue")?
Section C: The Pre-Default Appeal.
VI. Pre-Default appeal: Principal Issue (1): Was the judge correct in her findings on what representations (if any) were made by JA to AP in relation to the GKO LNs ("the representations issue").
Springwell on appeal. Mr Brindle relied on two specific telephone conversations. First, that of 19 November 1997.[122] That is a conversation about how GKO LNs are going to perform in the next few weeks. Chase's proprietary sales desk thought that the "rates" on them (ie. the yield) would go down, but AP said he thought that they would not. There was a discussion about what yield could be obtained on "Chase hedged paper" with a very short maturity of about nine weeks. In this context JA said: "It's possible I may be able to come with the most conservative thing in the world with a 13 per cent coupon on it…now that would be something". However, AP then stated that he did not wish to buy "Chase backed" GKO LNs (ie. those where the currency forward is with CMBI), but asked JA to buy him GKO LNs hedged with a Russian bank where the yield would be 19 per cent.
"…of all the different Russian alternatives available I would had did [sic] categorise them in my mind and make the same suggestion to clients of mine that they were conservative at the time".
"So the point is I don't want you, I wanted you to be – it's important Gary that you are comfortable with these as a CD, because of course the attraction in this kind of market is very clear, and that is that people are defensive because the financial markets are pretty volatile at the moment. So people are generally looking to keep relatively short, you know one year and shorter….And there is nothing to compare which is anything like as good as these things".
Finbarr Sheehan agreed.[130]
Springwell on appeal. Mr Brindle relied on statements by JA to AP in telephone conversations on 14 May 1997,[132] 23 March 1998[133] and 31 March 1998.[134] In the first, JA said, talking of the nature of GKO LNs, that "… the underlying asset is a big tradable asset so you can always sell the things you know". In the second AP stated, in the context of a conversation about GKO LNs, that he is never interested in buying something illiquid and JA said "I know, nor am I". In the third JA said that there is "…great liquidity in GKOs". However this last statement was made in the context of Chase saying that it would not leverage money market securities (ie. short-dated securities) of clients such as Springwell, an attitude which JA described as "…nonsense". Mr Brindle also relied on the fact that JA admitted in cross-examination that he had described GKO LNs as "CDs" or "money market instruments" or instruments of "cash management" from the start.[135] In his witness statement, AP had said that JA had described GKO LNs as liquid investments.[136]
Springwell's primary case on the "liquidity" representation, which was that JA represented to AP that the GKO LNs were liquid investments. He complained that the judge concentrated only on Springwell's secondary argument that JA represented that they were investments with a high degree of liquidity akin to that associated with time deposits or money market instruments.
Springwell on the appeal. As already noted, Mr Brindle did not pursue the allegation that this was a separate representation. Mr Brindle acknowledged that the currency forwards did hedge the currency risks. But he submitted that the implication of JA saying that there was no currency risk[137] was that there would never be any risk that counterparties to the forward currency contracts might default. In this regard Mr Brindle relied on a passage in JA's cross-examination in which he accepted that he had talked to AP about the impact a devaluation might have on some of the "hedge providers in the GKO". Gloster J asked JA whether the devaluation of the rouble would have an effect on the credit risk of the FX forwards. JA said:
"On the provider of the forward….that is where the pressure would be felt. But I have said that in that situation I believed that Chase would certainly honour its obligations and obviously there is a scale of risk associated with which banks you have….the way I saw it and the way that other people who knew
Springwell impugn the judge's findings on the representations made? I am quite satisfied that they cannot. First, I deal with the "conservative" representation, which Mr Brindle relied on most heavily. I accept that JA used that word both within Chase and to AP to describe GKO LNs, but the word cannot be lifted like a fish out of water. The judge has found, and Springwell accepts, that AP was a sophisticated investor, who knew about "emerging markets", who knew the jargon and who knew that the very high returns from investment in fixed income instruments in those markets, including Russia, carried significant risk.[139] The judge expressly found that the material risks (sovereign default, currency default and counterparty default), were all disclosed and known to AP.[140]
Springwell that it was buying instruments that were equivalent to investment grade assets and so of an equivalent liquidity.[143] I therefore reject Mr Brindle's submission that the judge's finding in [1/710] could not be made on the basis of the evidence before her.
Springwell has no case on this at all. There was no actual currency risk unless a counterparty defaulted on the forward currency contracts. It is not asserted that JA made any representation that counterparties, whether it be CMBI or any other Russian bank, would never default. The judge found that AP knew the currency devaluation risks and the Russian bank default risk involved. Any statements by JA about "currency risks" must be construed in the light of that understanding between JA and AP. The judge's conclusions, as set out at [1/706] are, in my view, unassailable.
VII. Pre-default Appeal: Principal Issue (2): Was the judge correct in her conclusion on whether the alleged representations were actionable, apart from the Relevant Provisions?
"well appreciated the context in which JA was offering his views and opinions was as a salesman…[and] that AP did not understand JA to be providing an in-depth expert analysis of the economic or political situation in Russia, or the considered views of an investment advisor…AP appreciated at the time that JA was exchanging views with him about often uncertain future events (such as, for example, possible devaluation of the rouble or the likelihood of Russia defaulting on its GKO obligations".
Springwell would hold the GKO LNs in the future, which was usually until their maturity, which would be within the next year. Looked at in terms of the quality of the GKO LNs at the time the statement was made or as to their quality in the future until maturity, JA was not stating facts, he was making a judgment about them by comparison with other possible investments, in similar or other markets and conditions.
Springwell were in fact made, he has to overcome the finding of fact by the judge that there was no implied representation by JA that he had objectively reasonable grounds for the opinions he expressed.
"The meaning and effect of words never falls to be viewed in a vacuum. It is shaped by the context of their communication, including the parties' respective positions, knowledge and experience. A description or commendation which may obviously be irrelevant or may even serve as a warning to one recipient, because of its generality, superficiality or laudatory nature, or because of the recipient's own knowledge and experience, may constitute a material representation if made to another less informed or sophisticated receiver….whether there was any and if so what particular representation must thus depend an objective assessment of the likely effect of the proposal or presentation on the recipient. In making such an assessment, it is necessary to consider the recipient's characteristics and knowledge as they appeared, or ought to have appeared, to the maker of the proposal or representation".
Springwell as being for high yielding emerging market instruments and so Springwell (through AP) accepted a preparedness to buy riskier investments.[148] AP was well aware of the risks of potential Russian volatility, sovereign default, devaluation of the rouble and the risky nature of the investments being made.[149] The relevant risks are all set out very clearly in the Risk Disclosure document which accompanied each set of Terms and Conditions, which I reproduce in Appendix 1 to this judgment. I accept that there was a relationship between the parties, but that by itself is not enough to create, as a matter of law, an implied representation by Chase (through JA) that there was a reasonable basis for the opinions JA gave. Mr Brindle was unable to point to anything which could undermine the judge's conclusion as to the nature of the relationship between JA and AP and AP's understanding of the statements that JA made to him.
VIII. Pre-default Appeal: Principal Issue (3): The effect of the Relevant Provisions.
Springwell was bound by the terms of the GKO LNs in its dealings with CMSCI, CMB and CMIL. In other words, Mr Brindle accepted that both CMSCI and CMIL can rely on the terms of the Notes and associated GKO LN documentation insofar as they may affect the Misrepresentation Act claim (against CMSCI) and the negligent misstatement claim (against CMIL).
Springwell and so means that Springwell makes various acknowledgements about risks, representations and warranties, or whether "Holder" refers to CMB, which actually held the Notes as security for advances made to Springwell to purchase the GKO LNs. Assuming "Holder" means Springwell or that Springwell is in some other way bound by the terms of Section 6(c), the second issue is whether the wording of Sections 5(e), 5(f) and 6(c) means that Springwell is contractually precluded, as against CMSCI and CMIL, from being able to rely on any representation or warranty made by either of them with respect to the advisability of purchasing the particular GKO LN for which the Note was issued: this was dubbed the "Lowe v Lombank" issue. The third issue is whether, in order to be able to rely on a "contractual estoppel", it is necessary for the party wishing to assert its right to do so to establish that it would be "unconscionable" for the other party now to rely on representations made by the first party that it had contracted not to rely upon, by analogy with the requirement in a case of estoppel by convention.[152] The fourth issue is whether the GKO LN terms and conditions are caught by section 3 of the Misrepresentation Act 1967 and, if so, whether they are "unreasonable" within the terms of the UCTA regime.
Springwell (the "Customer") on…" a stated date, which was the settlement date, usually 4 or 5 days after the trade date. The confirm recorded the obligation of "the Holder" to pay the "Consideration Amount" and that upon receipt of that payment, CMSCI would fax a copy of the GKO LN to "the Holder" for signature.
Springwell via finance provided by CMB. Thus the judge found that "…each of the [GKO LNs] was leveraged, [so] "the Holder" was CMB and it was thus CMB who was to pay the Consideration Amount".[156] The confirm also recorded that, because of the financing, the non-transfer/non-assign provisions of the GKO LN terms were to be waived "…because the Note was to be sold by Springwell to CMB, and subsequently resold to Springwell". The confirm further noted that it was agreed "in furtherance of the foregoing" that the Note was to be issued to CMB. The judge held that Springwell "…acquired the contractual entitlement to the issue of the Note to itself at the trade date, was on-selling the Note to CMB under the financing arrangements". The judge records that Mr Brindle "…made something of this…" but in her view it was irrelevant to Springwell's awareness of the provisions of the GKO LN documentation.
Springwell at Piraeus or its London office. In many cases the GKO LNs were signed by Springwell and returned to Chase. AP admitted he signed at least two Terms and Conditions Sheets and Risk Disclosure sheets in the name of another director of Springwell, Mr Baxivanos.
Springwell, nor did Section 6(c) say anything about what representations had been made to Springwell or what Springwell had or had not relied on. Thus, the wording of Section 6(c) could not give rise to any estoppel (whether contractual or otherwise) which prevented Springwell, as opposed to "the Holder" viz. CMB, from asserting that it, Springwell, had relied on advice as to the advisability of purchasing the GKO LNs or on representations or that it, Springwell, had such advice given to it.
Springwell as "the Customer". The confirm expressly indicates the mechanism to be used in respect of the sale and purchase of a GKO LN that has been financed by CMB: the Note will be sold to CMB and then there will be a subsequent transfer of the Note when the Customer's obligations in connection with the financing have been satisfied in full. It is in order that this can be done that the confirm states the provisions of the Note rendering it non-transferable and non-negotiable will be waived. The confirm also provides that the Customer represents and warrants that it has read the Note and the terms of the Note, of which a summary is attached.
Springwell and returned to Chase. There is no appeal from that finding. Therefore Springwell was bound by the Terms and Conditions of the GKO LNs, including Section 6(c). Given the understanding that Springwell would have the benefit of the Notes and that it was bound by the Terms and Conditions, I think that "Holder" in Section 6(c) has to be construed so as to include Springwell as the "customer". In my view this construction is confirmed if the terms of Section 5 are examined. That Section deals with "Other Risks Assumed by Holder". It is obvious that "the Holder" there is referring to the Customer, not a Chase entity that is the purchaser of the GKO LNs under a financing arrangement. In particular, it would not make sense for the terms of Section 5(e) and 5(f) to be directed at another Chase entity. This view is also confirmed, I think, by the terms of Section 6(a); it would not make sense to limit "the Holder" to CMB in the context of the representations and warranties that "the Holder" gives under that provision. It is, in my view, plainly a Customer such as Springwell that is to be treated as giving those representations and warranties as to its power to execute the Note and that it constitutes a valid and binding operation and so forth. It could hardly have been intended that only CMB, as "the Holder", would represent and warrant that it "has the knowledge and experience in financial and business matters as to be capable of evaluating the merits and the risks of this Note and it has determined that purchasing this Note is appropriate in the light of the Holder's business strategies and objectives".
Springwell. Therefore Springwell is bound by the terms of Sections 5 and 6 of the Terms and Conditions as "the Holder".
Springwell is that the statement in the last sentence of Section 6(c), viz. that "the Holder has not relied and acknowledges that neither CMSCI nor CMIL has made any representation or warranty with respect to the advisability of purchasing this note" cannot be used by CMSCI to prevent Springwell advancing its Misrepresentation Act claim against CMSCI. Mr Brindle submitted that the last sentence can only operate as a representation by Springwell that neither CMSCI nor CMIL has made any representations or warranties on the advisability of purchasing the GKO LN concerned. He accepts that if CMSCI (or CMIL) could establish, on the facts, that Springwell had made a representation to CMSCI that it (Springwell) accepted that CMSCI had made no representation or warranty as to the suitability of buying the GKO LN and it was also shown that it was intended by Springwell that CMSCI should rely on that representation as true and it (CMSCI) had in fact done so, and that Chase did not believe that AP relied on JA's advice when making decisions to invest in GKO LNs, then Springwell could be estopped by that representation from relying on any representations that CMSCI had, in fact, made. Mr Brindle relied on the finding of fact of the judge[159] that Chase had not proved that it did not believe that AP relied on JA's advice in coming to his decisions on GKO LNs to submit that Chase could not therefore rely on Section 6(c) by virtue of an estoppel by representation.
"The hirer further acknowledges and agrees that he has not made known to the [hire purchase company] expressly or by implication the particular purpose for which the goods are required and that the goods are reasonably fit for the purpose for which they are in fact required".
"To call it an agreement as well as an acknowledgement by the [claimant]cannot convert a statement as to past facts, known by both parties to be untrue, into a contractual obligation, which is essentially a promise by the promisor to the promisee that acts will be done in the future or that facts exist at the date of the promise or will exist in the future. To say that the hirer "agrees" that he has not done something in the past means no more than that the hirer, at the request of the owner, represents that he has not done that thing in the past. If intended by the hirer to be acted upon by the person to whom the representation is made, believed to be true by such person and acted upon by such person to his detriment, it can give rise to an estoppel: it cannot give rise to any positive contractual obligations. Although contained in the same document as the contract, it is not a contractual promise".
"A convention of the parties, which binds them to adhere to an assumed state of facts, may amount to an express contract in which case each party contracts with the other to be estopped. Burrough's Adding Machine Ltd v Aspinall (1925) 41 TLR 276 CA is an example".
The passage in Spencer Bower continued by noting that the present chapter was concerned with "estoppel by convention" rather than estoppel by contract. It then made the further comment:
"But it has been of interest to notice, by way of introduction to the subject, that there may be an estoppel whereby parties are precluded, as a matter of contract, by virtue of operative words, and not those of a mere recital, from setting up a version of the facts different from that which they have agreed to assume; and this result may be likened to statutory estoppel".
"Before considering entering into this transaction you must make your own independent assessment as to whether it is appropriate for you based upon your own judgment and upon advice from such advisors as you consider necessary. ANZ Bank is not acting as your financial advisor or in a fiduciary capacity in relation to this transaction. It is an express term that you may enter into with ANZ Bank that you are not relying on any communication (written or oral) made by ANZ Bank as constituting either investment advice or a recommendation to enter into this transaction…".
"57. 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, 27th October 1999)…"
Springwell is not the same as an agreement: therefore on the proper construction of this clause, it cannot create a contractual estoppel. I disagree. The correct analysis must be the same as that in Peekay. Springwell signed the terms and conditions more than once. In law it is to be taken as having read and understood them. Therefore the terms are part of the contract for the sale of the GKO LNs and Springwell is bound by them. Springwell and Chase contract for the purchase of the GKO LNs on the basis that Springwell is bound contractually to its statement, or acknowledgement, that no representation or warranty has been made by Chase. Moreover, Springwell must be bound by the terms of Section 5(e), which means that it accepts that CMSCI has not made any representations or warranties of the kind set out there.
Springwell is contractually estopped from contending that there were any actionable representations made by Chase on which Springwell could base its current claims either under the Misrepresentation Act or for negligent misstatement. Secondly, they point strongly against any statements of JA from being actionable, either as misrepresentations under the 1967 Act or as negligent misstatements.
Springwell is contractually bound by the representations that it states it is giving to Chase, viz. that it is a sophisticated investor, that it is familiar with and able to evaluate the merits and risks associated with the instruments with which the DDCS letter is concerned and is able to assume the risk of loss associated with such instruments. The effect of clause 6 is that Springwell accepts that no express or implied representations are or will be made by CMIL concerning any written or oral information regarding any instrument or investment opportunity covered by the terms of the DDCS letters.
Springwell had agreed with Chase that statements by JA were to be treated as his expressions of opinion, based on Chase research and JA's own view of the markets and the economic and political association in Russia. Springwell had agreed that statements by JA in the numerous telephone calls with AP were not to be susceptible to scrutiny with a view to seeing if they constituted potential actionable misrepresentations.
Springwell was "…dealing for your own account in" the types of instruments identified. "Dealing …in…" meant, on the judge's construction, the whole process of investing and participating in an emerging country where the underlying instrument issued by the borrower is issued in that emerging country.[196] Mr Brindle submitted that this is to stretch the words of the first paragraph of the DDCS letter too far.
Springwell was "dealing in" GKOs, albeit at one remove. Any reading which divorced the GKO LNs from the underlying GKOs and which did not regard the GKO LNs as investments in "emerging market" instruments is artificial and lacks commercial common sense.
Springwell. Springwell claims against CMIL as the employer of JA who is alleged to have made the negligent misrepresentations. Springwell claims against CMSCI in respect of the claim under section 2 of the Misrepresentation Act. But the maker of the alleged misrepresentations was the same person, JA. So Springwell must allege that CMIL through JA was acting as the agent of CMSCI and CMSCI, as CMIL's principal, is liable for misrepresentations made on its behalf by CMIL/JA. If the case is put on that basis (and I can see no other way of putting it), then CMSCI, as principal, must be entitled to rely on contractual defences that are available to its agent, CMIL, through whom the alleged misrepresentations were made. Therefore, I would conclude that CMSCI can rely on the terms of the DDCS letters so as to create a contractual estoppel against Springwell with regard to the alleged misrepresentations by JA.
Springwell to resile from the contractual estoppel before it can rely on either Sections 5(e), 5(f) and 6(c) of the GKO LN Terms and Conditions or clauses 4 and 6 of the DDCS letters? I have, effectively, rejected Mr Brindle's argument that there is no juristic concept of "contractual estoppel" which is distinct from the doctrine of "estoppel by convention". To my mind, once it is accepted that there is a separate doctrine of "contractual estoppel" then there is no room for a requirement that the party which wishes to rely on that estoppel must demonstrate that it would be unconscionable for the other party to resile from the conventional state of affairs that the parties have assumed. The reason why that is a requirement in the case of "estoppel by convention" is precisely because there is no contract between the parties. Therefore some other mechanism has to come into play to make the non-contractual "convention" enforceable.
Springwell's argument that the Relevant Provisions were ineffective because they fell within section 3 of the Misrepresentation Act and fell foul of the UCTA regime as "last ditch".[198] The judge accepted that the last sentence of paragraph four (I think this must mean the penultimate sentence) and the last main clause in the last sentence of paragraph 6 of the DDCS letters were "genuine exclusion clauses". However, the judge held that "the bulk of the terms…were not exclusion clauses but merely clauses which defined the nature of the services which Chase was rendering to Springwell and which confirmed the basis on which the parties were transacting business". [199] However, Mr Brindle correctly pointed out that the judge did not identify precisely which provisions did fall within section 3 or fell foul of the UCTA regime.
Springwell by reason of such misrepresentation. The second is, assuming that they do, whether or not Chase has established that the particular provisions satisfy the requirement of reasonableness. But section 3 does not affect the prior question of whether, given the terms of the Relevant Provisions overall, an investor in Springwell's position would have understood Chase to be making representations at all or, indeed, what those might be. Therefore the first question to consider is whether the clauses said to offend section 3 of the 1967 Act and the UCTA regime are ones which relate to whether any alleged misrepresentation was made at all, or whether it purports to exclude liability for a misrepresentation which has been made.[201]
Springwell and they therefore fall outside the scope of section 3. The statement in the middle of the very long sentence that makes up clause 6 is more difficult to classify. This states: "…no representation or warranty, express or implied, is or will be made by either CMB or CMIL or CMp, their representative officers, servants or agents or those of their associated companies in or in relation to such documents or information….". However, as Christopher Clarke J trenchantly put the point in the Riaffiesen case,[202] "…to tell the man in the street that the car you are selling him is perfect and then agree that the basis of your contract is that no representations have been made or relied on, may be nothing more than an attempt retrospectively to alter the character and effect of what has gone before and in substance be an attempt to exclude or restrict liability". I would therefore be inclined to regard that part of clause 6 of the DCSS letters as falling within section 3 and therefore subject to the UCTA regime.
Springwell, then this clause is an attempt retrospectively to alter the character and effect of what has gone on before and so is in substance an attempt to exclude or restrict liability.
Springwell is contractually estopped from asserting that any actionable misrepresentations were made at all by JA; secondly, Springwell is precluded from claiming reliance on any of the alleged misrepresentations and, thirdly, Springwell has contractually agreed that CMSCI and CMIL were not assuming any responsibility for any statements that were made by JA. Therefore, fourthly, Springwell is precluded from bringing any claim, whether against CMSCI under section 2 of the Misrepresentation Act or against CMIL for negligent misstatement by virtue of the Relevant Provisions. For good measure, lastly, the effect of the penultimate sentence of paragraph 4 of the DDCS Letter must be that Chase is exempted from any liability in any event. Springwell did not mount any argument, in relation to the Pre-Default Appeal, that either CMIL or CMSCI had been guilty of "gross negligence" or "wilful default".
IX: Pre-Default Appeal: Principal Issue (4): Reliance and causation of loss.
Springwell's case on causation very difficult. First, Gloster J found that the investment in GKO LNs was within the long-held investment objectives of Springwell as she found them to be, viz. investment in high-yielding, short term emerging market instruments which provided Springwell with the benefit of cash flow and liquidity.[206] Secondly, the judge accepted the expert evidence of Ms McLeod-Wilson, Chase's expert on emerging market debt investments, that, given its investment objectives, Springwell would not have acquired any different portfolio apart from the one that it did in fact acquire even if other advice had been tendered.[207] Thirdly, the judge concluded that even if JA had said more than he had about risks involved or even if AP had been given further risk warnings, it would not have made AP change his investment profile.[208] Those are findings of fact which cannot reasonably be challenged and Mr Brindle did not really attempt to do so.
X: Conclusions on the Pre-Default Appeal.
Springwell's submissions on what representations were made by JA. Secondly, I reject the argument that there were actionable misrepresentations. Lastly, I conclude that CMIL and CMSCI can rely on the Relevant Provisions in the DDCS letters and the GKO LNs and they preclude any successful claim being made against CMSCI under section 2 of the Misrepresentation Act or against CMIL for negligent misstatement and they exempt both Chase companies from liability in any event.
Section D: The Post-Default Appeal
Springwell's contention is that CMIL was at all times acting as the agent of CMSCI and that CMSCI is therefore responsible for the actions or failures of CMIL in relation to the currency forwards contracts. Springwell asserts that CMIL was "grossly negligent" or guilty of "wilful default" in failing to make efforts to procure performance of the nine currency forward contracts. Gloster J dismissed this claim. None of the disclaimers or exclusions relied on by Chase in relation to the Pre-Default claim are relevant to the Post-Default claim. There is no dispute that CMSCI was under the duty imposed by Section 3(c) of the terms of the GKO LNs.
Springwell under Section 3(c) of the GKO LN terms was to maximise recoveries under the relevant "Transaction" (in this case the nine outstanding forward currency contracts) for the benefit of Springwell as the ultimate "Holder". Secondly, this means that Chase was not free, in the administration of these transactions, to disregard this primary function and to decide, for Chase's own separate economic benefit, not to attempt to do things which a reasonable person, acting on his own, would have done.[209] Therefore, I agree with Gloster J's conclusion that "…CMSCI (acting by CMIL) would not be justified, by example, voluntarily to release CMBI from its obligations under a Designated Forward Transaction simply for the purpose of reducing CMSCI's payment obligations under the Notes or of reducing CMBI's financial obligations and in the "wider interests" of the Chase group".[210]
Springwell that any actions or failures by CMIL, for which CMSCI is responsible as its principal were, at the least, negligent. Like Gloster J, in the context of the present case I regard the debate about what precisely is meant by "gross negligence" as a "somewhat sterile and semantic one".[211] Before the judge it was common ground that "wilful misconduct" involved a knowingly wrongful action or failure to act or some act or failure to act that was done with "reckless carelessness", that is not caring what the results of that carelessness might be.[212] The parties adopted the same position on the appeal. Therefore, if "gross negligence" is not established, there is no hope of proving "wilful misconduct".
XI: The Post-Default Appeal: Principal issue (1): Were the S-account forward currency contracts "deliverable" in the sense found by the judge? If so, what are the consequences?
Springwell, there could be no argument that CMBI had an obligation to pay US dollars to CMIL on the forward currency contracts as they matured.
Springwell has to be that CMIL ought to have pressed CMBI to press its Russian bank counterparties to pay US dollars to CMBI to enable it to perform its obligations to CMIL (assuming that the "deliverable" issue was otherwise overcome). This proposition just has to be stated to see that any failure by CMIL to push CMBI cannot be characterised as "gross negligence" or "wilful default" under Section 3(c) of the GKO LNs. The judge accurately described this claim as "hopeless".[226]
XII. Post-Default Appeal: Principal Issue (2): Was CMIL entitled to give the force majeure notice to CMBI on 24 November 1998?
XIII. Post-Default Appeal: Principal Issue (3): Were the actions/inactions of Chase/CMIL between 18 November 1998 and CMBI's termination notice of the forward currency contracts on 23 March 1998 such that CMSCI was in breach of its obligations under Section 3(c) of the GKO LN terms?
Springwell. The first is that Chase should have set up separate negotiating teams, one in CMIL and one in CMBI, to deal with the issue of the forward currency contracts, rather than the two Chase group committees that were set up in December 1998 to deal with the Russian situation.[229] Gloster J found that, "in certain respects" some members of these committees "did not necessarily appreciate the niceties of the separate obligations owed by CMSCI/CMIL to Holders of GKO Notes to maximise recoveries and were keen, in the interests of the Chase Group, commercially to align CMSCI/CMIL with CMBI". But she concluded that there was no breach of CMSCI's duty of care under Section 3(c) of the GKO LN terms.[230]
Springwell's argument on this issue. It was the Chase group, not CMIL, that set up the two committees which were to oversee the Chase group Russian interests. Quite how CMSCI itself is to be regarded as in breach of its duty to Springwell under the GKO LN terms simply by virtue of the committees being set up by Chase as a group escapes me. It might be said that CMSCI should have argued with Chase headquarters that it (CMSCI) had a duty to ultimate Holders, such as Springwell, to maximise recoveries under the forward currency contracts, so that, in respect of those contracts, there should be arms-length negotiations between CMIL and CMBI to see if there could be any recovery; so that CMSCI's failure to make this argument to the Chase group as a whole amounted to a breach of duty under Section 3(c).
Springwell. It therefore seems to me that the challenges Springwell wishes to make to the findings of the judge in [2/221-222] are, at the least, irrelevant.
XIV. Post-Default Appeal: Principal issue (4): Did any actions or inactions of Chase/CMIL make CMSCI guilty of "gross negligence" or "wilful default" within the terms of Section 3(c) of the GKO LNs?
Springwell's appeal on the issue of quantum of the Post-Default Appeal.
XV. Post-Default Appeal: Conclusions.
Section E: Disposal
Lord Justice Rimer:
Lord Justice Rix:
1997 Dealings in Developing Country Securities Letter
("DDCS letter")
17 September 1997
……..
Dear Sirs,
Dealings in Developing Country Securities
We refer to our recent discussions when you informed us that you wished us to effect an introduction to the capital markets desk of our associated companies. Chase Manhattan International Limited CCMIL") and Chase Manhattan plc ("CMp"), with a view to you dealing for your own account in various debt and equity securities of public and private sector issues located in developing countries ("Instruments").
We are pleased to arrange such an introduction on the basis that the following conditions apply, both to our activity in arranging the introduction and the activity of CMIL and CMp, when dealing for you in such instruments. This letter is accordingly signed on behalf of The Chase Manhattan Bank ("CMB"), CMIL and CMp. The conditions referred; to above are:
1. CMB, CMIL and CMp have decided, having regard to the frequency and size of your dealings in instruments, and having regard to your understanding and experience in such activities (as far as is known to CMB, CMIL. and CMp), to categorise you as a Non-Private Customer for the purposes of the rules of The Securities and Futures Authority Limited ("SFA"), in respect of dealings in such instruments.
2. By treating you as a Non-Private Customer, you will not gain the same degree of protection under the rules of SFA than if you were to be treated as a Private Customer. Neither CMB, nor CMIL, nor CMp will be required to comply with the rules which are designed to protect Private Customers and as a result will not be required by the rules to give you risk disclosure statements, to ensure that any advice which is given to you is suitable to your circumstances, to give you prior disclosure of the applicable charges in relation to a transaction or to enter into a Customer Agreement conforming with SFA rules. Neither CMB nor CMIL nor CMp will be under a duty to secure best execution in respect of any transaction or accept from you an order placed on a "best execution" basis. As a result, neither CMB nor CMIL nor CMp, will be required to ascertain the best available price in the relevant market for transactions of the kind and size concerned nor effect transactions for you at such a price which is no less advantageous to you in every transaction. In having no such duty, neither CMB nor CMIL nor CMp, have any obligation to disclose any remuneration which they or any third party with whom you or they may effect the transaction might receive.
…….
4. Neither CMB nor CMIL nor CMp are required to give you investment advice generally or in relation to specific investments, make any enquiries about, or to consider, your particular financial circumstances or investment objectives. By placing an order with CMB or CMIL, or CMp, you represent that you are a sophisticated investor, are purchasing the instrument concerned for your own account for investment purposes and not with a view to any distribution thereof, and that you have independently, without reliance on CMB or CMIL or CMp, or any associated person, made a decision to acquire the instrument having examined such information relating to the instrument and the issuer thereof as you deem relevant and appropriate. You have represented to CMB and CMrt, and CMp, and therefore they have assumed that, you are fully familiar with and able to evaluate the merits and risks associated with such instruments and any consequence of these instruments forming part of a portfolio of investments and are able to assume the risk of loss associated with such instruments. You should therefore consider whether an instrument is appropriate in your particular financial circumstances or in the light of your investment objectives. Neither CMB nor CMIL nor CMp are liable for any loss which you may incur arising out of any investment decision made by you in consequence of any service contemplated in this letter unless such loss is caused by its gross negligence or wilful misconduct. Neither CMB nor CMIL nor CMp shall be obliged to provide any dealing services to you and may within its absolute discretion decline to do so at any time.
6. When providing you with any circular, information memorandum, investment advertisement, published recommendation or any other written or oral information regarding any instrument or investment opportunity neither CMB nor CMIL nor CMp, will have taken any independent steps to verify the document or information and no representation or warranty, express or implied, is or will be made by either CMB or CMIL or CMp, their representative officers, servants or agents or those of their associated companies in or in relation to such documents or information nor will CMB or CMIL or CMp or any of their associated companies be responsible or liable (save to the extent required under the applicable law, rules or regulations) for the fairness, accuracy or completeness of such documents or information.
……."
"……
1. Availability
(a) From time to time the parties hereto may enter into transactions in which one party, acting through a Designated Office, ("Seller") agrees to sell to the other, acting through a designated Office ("Buyer") securities and financial Instruments (Securities") (other than equities U.S. Treasury instruments and Net Paying Securities) against the payment of the purchase price by Buyer to Seller, with a simultaneous agreement by Buyer to sell to Seller Securities equivalent to such Securities at a date certain or on demand against the payment of the purchase price by Seller to Buyer.
(b) Each such transaction (which may be a repurchase transaction ("Repurchase Transaction") or a buy and sell back transaction ("BuySell Back Transaction") shall be referred to herein as a "Transaction" and shall be governed by this Agreement, including any supplemental terms or conditions contained in Annex 1 hereto, unless otherwise agreed in writing, if this Agreement may be applied to BuySell Back Transactions. If Transactions are to be effected under this Agreement by either party as an agent, this shall be specified in Annex 1, and the provision of Annex IV shall apply to such Agency Transactions.
2. Definitions
(a) "Act of Insolvency" shall occur with respect to any party hereto upon:
(i) its making a general assignment, for the benefit of, or entering into a reorganisation arrangement, or composition with creditors; or
(ii) its admitting in writing that it is unable to pay its debts as they become due; or
(iii) its seeking, consenting to or acquiescing in the appointment of any trustee, administrator, receiver or liquidator or analogous officer of it or any material part if its property; or
(iv) the presentation or filing of a petition in respect of it (other than by the counter party to this Agreement in respect of any obligation under this Agreement in any court or
……
(d) Where either party has transferred Margin Securities to the other party it may at any time before Equivalent Margin Securities are transferred to it under paragraph 4 request the other party to transfer Equivalent Margin Securities to it in exchange for the transfer to the other party of new Margin Securities having a market value at the time of transfer at least equal to that of such Equivalent Margin Securities. If the other party agrees to the request, the exchange shall be effected, subject to paragraph 6(5) by the simultaneous transfer of the Equivalent Margin Securities and new Margin Securities concerned. Where either or both of such transfers is or are effected through a settlement system in circumstances which under the rules and procedures of that settlement system give rise to a payment by or for the account of one party to or for the account of the other party, the parties shall cause such payment or payments to be made outside that settlement system, for value the same day as the payments made through that settlement system, as shall ensure that the exchange of Equivalent Margin Securities and new Margin Securities effected under this sub-paragraph does not give rise to any net payment of cash by either party to the other.
……
9. Representatives
Each party represents and warrants to the other that –
(a) it is duly authorised to exercise and deliver this Agreement, to enter into the Transactions contemplated hereunder and to perform its obligations hereunder and thereunder and has taken all necessary action to authorise such execution, delivery and performance.
(b) it will engage in this Agreement and the Transactions contemplated hereunder (other than Agency Transactions) as principal;
(c) the person signing this Agreement on its behalf is, and any person representing it in entering into a Transaction will be duly authorised to do so on its behalf;
(d) it has obtained all authorisations of any governmental or regulatory body required in connection with this Agreement and the Transactions contemplated hereunder and such authorisations are in full force and effect;
(e) the execution, delivery and performance of this Agreement and the Transactions contemplated hereunder will not violate any law, ordinance, charter, bye-law or rule applicable to it or any agreement by which it is bound or by which any of its assets are affected;
(f) it has satisfied itself and will continue to satisfy itself as to the tax implications of the Transactions contemplated hereunder.
(g) in connection with this Agreement and each Transaction:
(i) unless there is a written agreement with the other party to the contrary, it is not relying on any advice (whether written or oral) of the other party, other than the representations expressly set out in this Agreement;
(ii) it has made and will make its own decisions regarding the entering into of any Transaction based upon its own judgment and upon advice from such professional advisers as it has deemed it necessary to consult;
(iii) it understands the terms, conditions and risks of each Transaction and is willing to assume (financially and otherwise) those risks;
(h) at the time of transfer to the other party of any Securities it will have the full and unqualified right to take such transfer and that upon such transfer of Securities the other party will receive all right, title and interest in and to those Securities free of any lien, claim, charge or encumbrance; and
(i) the paying and collecting arrangements applied in relation to any Securities prior to their transfer from that party to the other under this Agreement will not have resulted in the payment of any income in respect of such Securities to the party transferring such Securities under deduction or withholding for or on account of UK tax.
On the date on which any Transaction is entered into pursuant hereto and on each day on which Securities, Equivalent Securities, Margin Securities or Equivalent Margin Securities are to be transferred under any Transaction, Buyer and Seller shall each be deemed to repeat all the foregoing representations. For the avoidance of doubt and notwithstanding the arrangements which Seller or Buyer may have with any third party, each party will be liable as a principal for its obligations under this Agreement and each Transaction.
…..
25. Parties to Rely on Their Own Expertise
Party B represents as of the date hereof and as of the date of each Transaction that: (a) it is a sophisticated investor; (b) in the normal course of its business, it enters into transactions similar to Transactions; (c) it has had access to such information concerning Transactions and Securities as it has requested; and (d) that it is familiar with and able to evaluate the merits and risks associated with Transactions and Securities, including the risks of entering Transactions involving Securities denominated in foreign currencies, and has the financial resources to absorb the risk of any loss that may be associated with Transactions and Securities.
….."
GKO LINKED (S ACCOUNT) NOTE
……..
TERMS AND CONDITION
……..
Section 3. Transactions. (a) This Note passes through to the Holder the return and risks of investing in the Designated GKO Assets and converting payments from such assets to U.S. Dollars, whether or not Chase actually owns the Designated GKO Assets or actually engages in the foreign exchange transactions. Accordingly, this Note incorporates all transactions necessary and related to investing in the Designated GKO Assets (including, but not limited to, transactions previously entered into in the event that this Note relates to Designated GKO Assets sold by Chase from its portfolio of GKOs purchased in the primary or secondary market, all transactions directly or indirectly with the Designated Dealer, MICEX or the Central Bank of Russia, and the redemption and settlement of the Designated GKO Assets) and exchanging the Rouble proceeds thereof to U.S. Dollars, which have been entered into pursuant to the Dealer Agreement or under applicable Russian laws or regulations, including S Account Rules, or under existing market practices, as such may change from time to time, which transactions shall include, but shall not be limited to, the following:
(i) The application of Roubles from Chase's S Account to purchase the face amount of the Designated GKO Assets in a primary auction or in the secondary market through CMBI and MICEX or from Chase's portfolio of GKOs purchased in the primary or secondary market and payment of any applicable MICEX or dealer commissions and/or fees. The Designated GKO Assets settle using the clearing and settlement systems of the Central Bank of Russia and MICEX.
…..
(iii) Chase entering into a forward foreign exchange transaction or transactions (together the "Designated Forward Transaction") with CMBI pursuant to which Chase will exchange the Rouble proceeds of the Designated GKO Assets for an amount of U.S. Dollars sufficient to pay the Note Principal Amount plus Interest on the Note Maturity Date.
(iv) To the extent that pursuant to applicable Russian laws and regulations CMBI has entered or will enter into a forward foreign exchange transaction with the Central Bank of Russia to hedge a portion of the amount of the Designated Forward Transaction at an official exchange rate set by the Central Bank of Russia, then such forward contract shall be considered a Transaction under this Note and CMBI's performance under the Designated Forward Transaction shall be conditioned upon performance of the Central Bank of Russia.
(b) The holder acknowledges that at any time Chase may pool the funds received from other persons under transactions similar to that described in this Note and Chase's proprietary investments similar to that described in this Note in connection with any purchase of the Designated GKO Assets, or Designated Forward Transactions or any other Transaction. The Holder agrees that in computing any amount to be deducted from the Redemption Amount or in making any calculations with respect to Transactions hereunder Chase may pro rate such amount or calculation among the Holder and such other persons and Chase in any commercially reasonable manner. Except as provided in Section 4(b)(x) below, the Holder shall not have any interest in or right to the Designated GKO Assets or any of the other Transactions. Chase has no obligation to enter into the Transactions described in paragraph (a) above and may not own the Designated GKO Assets at the GKO Maturity Date, but this Note is intended to operate as if Chase did enter into the Transactions and did own the Designated GKO Assets at the GKO Maturity Date. For the avoidance of doubt, the economic return and the risks profile with respect to this Note, including Transactions described in paragraph (a) above, will be earned or incurred by the Holder, including, but not limited to, the risk of fees or taxes on Designated GKO Assets or other Transactions or other risks outlined in Sections 4 or 5 herein, whether or not Chase actually owns the Designated GKO Assets or actually engages in any of the other Transactions.
(c) In entering into, or taking or refraining from taking any action with respect to, any Transaction, Chase shall be responsible for exercising only that degree of care which it exercises in relation to the administration of similar transactions for its own account, provided that Chase shall not be liable to the Holder with respect to anything Chase may do or refrain from doing with respect to this Note or any Transaction in the absence of the gross negligence or wilful misconduct of Chase. In particular, CMSCI and CMIL shall not be deemed to have acted in a fiduciary capacity with respect to any Designated GKO Assets or any other Transaction or the administration of the Transactions. Chase shall not be responsible for the actions or misconduct of any party directly or indirectly involved with any Transaction (other than the gross negligence or wilful misconduct of Chase or its affiliates), and the Holder agrees not to hold Chase liable or otherwise responsible for any loss, cost, expense, claim or liability arising therefrom. In performing its obligations hereunder, Chase will not be required to take any action or to refrain from taking any action which in Chase's opinion is contrary to or would infringe upon any law.
…….
Section 5. Other Risks Assumed by Holder. In addition to those risks assumed by the Holder as described elsewhere in this Note, the Holder expressly acknowledges and agrees that:
……
(f) This Note has liquidity risk and is highly structured and non-transferable and there may not exist at any time a market for this Note. Although Chase, at its discretion, may provide a re-purchase bid price for this Note if requested, Chase is under absolutely no obligation to do so and in any event, may be unwilling or unable to provide a bid due to disruptions or illiquidity in the Russian securities or foreign exchange markets, including changes in regulations, taxes or other government restrictions. In addition, any repurchase bid price for this Note would reflect all costs associated with any early termination of Transaction.
Section 6. Representations and Warranties. (a) The Holder hereby represents and warrants to CMSCI (for itself and on behalf of CMIL) that (i) it has the power to execute, deliver and perform this Note and to purchase this Note; (ii) this Note has been duly authorized, executed and delivered by it and constitutes its valid and binding obligation; (iii) the person(s) executing this Note on its behalf have been duly authorized to do so; (iv) neither entering into this Note nor the purchase or performance of this Note contravenes any law, regulation or contractual restriction applicable to it or any order or judgment of any court with appropriate jurisdiction; (v) it has the knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of this Note and it has determined that purchasing this Note is appropriate in light of the Holder's business strategies and objectives; (vi) all authorizations of, exemptions by and filings with any governmental or other approvals or authority that are required to be obtained or made by it in connection with this Note have been obtained or made and are valid and subsisting; and (vii) if the Holder is a U.S. Person (as defined in Regulation 5 under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act")), it is a "qualified purchaser" as defined in Section (2)(a)(51) of the U.S. Investment Company Act of 1940, as amended, and an "accredited investor" within the meaning of Section (a) of Rule 501 of the U.S. Securities Act or a "qualified institutional buyer" as defined in Rule 144A of the U.S. Securities Act.
…….
(c) The Holder acknowledges that it understands the risks and potential consequences associated with purchasing this Note, that it has made such independent appraisal of Russia and its economy and legal and political circumstances as the Holder deems appropriate and has consulted with legal, investment, ERISA, accounting, tax and other advisers to the extent appropriate to assist it in understanding and evaluating the risks involved and the consequences of purchasing this Note, the content of S Account Rules and the effect of such rules on the Transactions, and the tax treatment of the Transactions and any investments through S Accounts; and that it has been given access to all information about Chase, the Transactions, the parties to the Transactions, this Note, Roubles and the Designated Assets that the Holder has requested for purposes of any such evaluation. In addition, the Holder has not relied on, and acknowledges that neither CMSCI nor CMIL has made, any representation or warranty with respect to the advisability of purchasing this Note.
……..".
GKO Linked (S Account) US$ Note
…….
Terms and Conditions (July 15 1998)
…….
International Forward Contract
Deliverable S Account foreign exchange forward contract with Chase Moscow converting the maturity payment RUR proceeds of the Underlying Instruments into U.S. dollars on September 17, 1998 sufficient to pay the Redemption Amount. 100% of CMBI's obligations under the International Forward Contract shall be lodged by CMBI entering into a forward foreign exchange contract (deliverable or non-deliverable; to be confirmed by Reuters/Swift messages with the counterparty) with Inkom Bank, a bank organized in Russia (the "Russian Bank Counterparty") ("the Local Forward Contract"). CMBI's performance under the International Forward Contract shall pass through the default risk of the Russian Bank Counterparty under the Local Forward Contract.
Note Repurchase
The Notes are illiquid and not actively traded in any financial market. Although Chase, at its discretion, may provide a re-purchase bid price for the Notes if requested, Chase is under no obligation to do so and in any event, may as a result of market conditions, be unable to provide a re-purchase bid price if requested. Any repurchase bid price for a Note would reflect all costs associated with early termination, including the costs associated with the S Account restrictions in convertibility of Roubles.
…….."
FOOTNOTE SET OUT IN THE GKO-LINKED TERMS 7 CONDITIONS SHEET
"Client are advised to make an independent review and reach their own conclusion regarding the legal, credit, tax and accounting aspects of this offering relating to their particular circumstances. Neither Chase Manhattan International Limited (CMIL), nor The Chase Manhattan Bank (Chase), nor any person acting on their behalf, makes any representation or warranty, implied or express, regarding the accuracy, completeness, or currentness of the information contained herein, We or the company or person connected or associated with us may be an underwriter or distributor of, or a market maker or otherwise hold a long or short position as a principal in a security or financial instrument (or in options, futures or other derivative instrument thereon) which has been discussed herein. This summary is not an offer of, or an invitation to subscribe for, or purchase, the Notes as described herein. Actual offerings are made only in accordance with applicable laws. CMIL is regulated by the Securities and Future Authority.
CMSCI/CMBI S ACT WITH RUSSIAN BANK FWD RISK (29 MAY 1998 FORM)."
RISKS DISCLOSURE
Key Risks to Investor
- All default, loss or other risks with respect to the transactions with respect to the Notes, including transactions relating to the purchase of the Underlying Instruments, redemption of the Underlying Instruments and exchange of the maturity proceeds of the Underlying Instruments into U.S. Dollars.
- Default risk of the Russian Government on the Underlying Instruments.
- Default Risk of CMBI as a counterparty to CMIL on the International Forward Contract.
- Default risk of the Russian Bank Counterparty as counterparty to CMBI on the Local Forward Contract
- Custody default or loss risk of (a) National Depository Center as the main Custodian for the Underlying Instruments, and (b) CMBI, as custodian for CMIL in its investment in the Underlying Instruments.
- Risk of the ability to convert Roubles to U.S. Dollars.
- Risk of imposition by the Russian Government of change in laws or regulations, which may affect the return on the Underlying Instruments and Forward Contracts. The Investor acknowledges that it has made such investigation of the S Account regulations as it deems necessary and that Chase has made no representatives with respect to the S Account regulations.
- In the event that CMSL, in its sole discretion, anticipates that it shall incur after the Note Maturity Date any costs or expenses which could be deducted from the Redemption Amount, it may reduce the Redemption Amount by such amount in anticipation of such payment.
…….."
CONFIRMATION
………
This is to confirm that a 10.00% Linked (S Account) GKO Note ("the Note) has been issued by Chase Manhattan Securities (C.I) Ltd to
…….
In connection with the financing of the purchase price of the Note from The Chase Manhattan Bank, London Branch, the provisions of the Note that render it non-transferable and non-negotiable will be waived for the purpose of selling the Note to The Chase Manhattan Bank, London Branch and the subsequent transfer to the Customer of the Note when its obligations in connection with such financing have been satisfied in full. In furtherance of the foregoing, it is agreed that the Note will be issued in the name of The Chase Manhattan Bank, London Branch.
The Customer hereby represents and warrants that it has read the Note and understands the terms of the Note.
A summary of the terms of the Note are in the attached Terms & Conditions sheet. Please confirm your acceptance of these terms by signing this confirmation and faxing it to the attention of Michael Lim at 212-383-0334.
The Chase Manhattan Bank as Agent for
Chase Manhattan Securities (C.I.) Limited
……."
MASTER AGREEMENT No. 1
……..
8.4.2 if agreed by the Dealer and the Investor with respect to a particular Currency Transaction, the Dealer's obligation to deliver to the Investor pursuant to such Currency Transaction funds, other than the Minimum Compensatory Value under the relevant Compensatory Currency Transaction, is conditional upon the due performance by any counterparty (other than the Dealer) under any relevant Non-Central Bank Currency Transaction and the Dealer shall bear no liability to the Investor in respect of the non-performance by such counterparty of such obligations.
………
10. Forward Foreign Exchange Transaction
10.1 The Investor may, in response to the Dealer's terms, notify the Dealer no later than the specified time through the Reuter's Dealing Service that it wishes to enter into a Forward Foreign Exchange Transaction. Such notification shall include the following information:
10.1.1 Amount of Roubles the subject of the proposed Forward Foreign Exchange Transaction.
10.1.2 Type of the proposed Forward Foreign Exchange Transaction (i.e. with or without the Option);
10.1.3 Effective Date of the proposed Forward Foreign Exchange Transaction; and
10.1.4 Term of the Forward Foreign Exchange Transaction always, subject, however, to the Forward Transaction Term and Option Forward Transaction Term.
10.2 The Dealer shall inform the Investor Bank through the Reuter's Dealing Service whether or not it is possible to proceed with the arranging of the proposed Forward Foreign Exchange Transactions and if it is so possible, indicate the maximum amount which it believes may be converted by that investor taking into account the limits specified in Clause 8.2 and the conditions imposed by the Central Bank as the Rouble value of the related Compensatory Currency Transaction pursuant to the Non-Resident GKO Regulations (such amount, the "Forward Rouble Amount") and the Forward Exchange Rate.
10.3 On receipt of the information specified in Clause 10.2, the Investor will promptly, and in any event no later than the specified time, inform the Dealer through the Reuter's Dealing Service whether or not the Dealer's Terms (including, without limitation the Forward Rouble Amount and the Forward Exchange Rate) are acceptable to it and, if so, and make available to the Investor's Rouble Account an amount of Roubles sufficient to satisfy its obligations under the relevant Forward Foreign Exchange Transaction.
10.4 The conclusion of the Forward Foreign Exchange Transaction through the Reuter's Dealing Service (such Forward Foreign Exchange Transaction, for the avoidance of doubt, to be deemed valid and binding on the parties hereto only if the Reuter's communication contains the full name of each party's authorized representatives and the Investor's registration code) shall:
10.4.1 irrevocably instruct the Dealer to deduct the Forward Rouble Amount from the Investor's Rouble Account on the Forward Exchange Date; and
10.4.2 where the Forward Foreign Exchange Transaction provides for an Option, oblige the Investor to pay the Option Fee in immediately available funds on the New York or London Business Day, as specified by the Dealer, next following the Effective Date to the Specified Bank Account of the Dealer.
10.5 Each of the Dealer and the Investor shall promptly send to the other party a completed Forward Transaction Confirmation setting out the terms of the Forward Foreign Exchange Transaction.
10.6 Subject to Clauses 8.4 and Clauses 10.3and 10.4 the Dealer shall promptly pay into the Investor's Relevant Currency Account in immediately available funds the Relevant Currency equivalent (at the Forward Exchange Rate) of the Forward Rouble Amount less any deductions required or permitted pursuant to this Agreement.
10.7 Where a Forward Foreign Exchange Transaction provides for an Option the Investor shall have the right to exercise such Option at any time prior to the Option Notice Deadline by giving an Option Notice to the Dealer.
10.8 Where a Forward Foreign Exchange Transaction provides for an Option the Investor shall, no later than the Option Notice Deadline, inform the Dealer whether or not it wishes to exercise the Option. In the event that the Investor fails so to inform the Dealer, the Investor shall be deemed to have exercised unconditionally its right under the Option to terminate such Forward Foreign Exchange Transaction.
10.9 If at the Forward Exchange Date the Forward Rouble Amount does not stand to the credit of the Investor's Rouble Account, the Dealer is irrevocably authorized by the Investor (but is not obliged) to:
10.9.1 apply any or all of the Investor's 812 Balance in satisfaction of the outstanding Forward Rouble Account; and/or
10.9.2 sell Bonds held in the Investor's Securities Deposit Account at a commercially reasonable price and apply the proceeds in satisfaction of the outstanding Forward Rouble Amount provided that the Dealer shall notify the Investor of such sale no later than the time of such sale.
If any part of Forward Rouble Amount remains outstanding following such application or sale, the Investor shall be obliged to enter into a Spot Currency Transaction on the terms and subject to the conditions stated in Clause 9 and will indemnify the Dealer, promptly upon demand, against all losses, liabilities, costs and expenses incurred, directly or indirectly, as a result of the operation of this Clause 10.9.
……..
20. Default
20.1 If:
20.1.1 the Investor fails to pay, transfer or deliver on the due date any sum of money required by this Agreement or any Instruction or Confirmation to be paid, transferred or delivered to the Dealer; or
20.1.2 the Investor is otherwise in breach of any of its obligations hereunder and such breach is not remedied within these New York Business Days after notice of such breach; or
20.1.3 an Act of Insolvency of this Investor occurs
(In each instance, a "Default") then (i) the following provisions of this Clause 20 will apply and (ii) if the Dealer elects to terminate this Agreement (and, with respect to a Default under Clauses 20.1.1 and 20.1.3, any or all outstanding Transactions to which such Default relates) the relevant provisions of Clause 30 will also apply.
……..
22. Force Majeure
22.1 If one party (the "Affected Party") is prevented or delayed from or in performing any of its obligations under this Agreement or under any Transaction by reason of:
22.1.1 the occurrence of a natural or man-made disaster, armed conflict, act of terrorism, riot or labor disruption; or
22.1.2 circumstances affecting the Trading System and its Bond Market Servicing Organizations, the Central Bank or the New York, London or Moscow currency markets generally (including, without limitation, the failure of the issuer of Bonds to redeem such Bonds on the due date for redemption).
where in each case the relevant event or circumstance is beyond the Affected Party's control exercising reasonable efforts to perform, then the Affected Party may notify the other party of such event or circumstance and of the obligations performance of which is thereby delayed or prevented, and the Affected Party shall thereupon be excused the performance or punctual performance, as the case may be, of such obligations for so long as the relevant event or circumstance of prevention or delay may continue.
…………."
Note 1 Originally the appellants brought proceedings against Chase in the US Courts. In 2001 the present proceedings were started by Chase, which sought declarations of non- liability. Note 2 I will refer to paragraphs in these two judgments as [1/x] or [2/y], as appropriate. I will refer to documents by reference to the appeal bundle, tab and page number: eg. CB (Core Bundle)/10/1. [Back] Note 4 “S-Accounts” were accounts maintained in Russian banks by non-Russian investors for the purpose of investing in rouble denominated Russian Federation instruments, such as GKOs, and forward rouble/foreign exchange contracts, in accordance with Russian laws and regulations. CMIL maintained an “S-Account” with CMBI. [Back] Note 5 Chase disclosed a total of about 1500 transcripts of telephone conversations. These included telephone conversations internal to Chase. [Back] Note 8 [1/107, 108 and 148]. [Back] Note 11 Section 2(1) provides: “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 grounds to believe and did believe up to the time the contract was made the facts represented were true.” [Back] Note 13 See: [1/656]. The 149 statements which Note 14 The alleged representations were said also to have referred to other Russian paper sold by Chase. They were not the subject of the appeal. [Back] Note 15 The first was a “Custody Fees claim”, for fees allegedly wrongly charged between March 2000 and March 2001. Note 16 [2/6] and [2/8]. [Back] Note 19 Of the 11 GKO LNs outstanding as at 17 August, two of the forward currency contracts were between CMSCI (with CMIL acting as agent) and, directly, a Russian bank called Vneshtorgbank, or the Bank of Foreign Trade, known as “VTB”; 3 of the forwards were between CMSCI/CMIL and CMBI and the remaining 6 were between CMSCI and other local Russian banks: Inkombank, Imperial Bank and Sberbank, with CMBI being interposed in the middle in a “pass-through” capacity. The 3 CMSCI/CMBI forwards were attached to GKO LNs referred to as Nos 4,10 and 11 on the appeal. The GKO LNs to which the other 6, non VTB forwards, (ie. the CMBI “pass-through” forwards) were attached, were referred to as Nos 1-3, 5,6 and 8. No claim was made in respect of the 2 forwards with VTB, which were associated with GKO LNs Nos 7 and 9. [Back] Note 21 Russian Central Bank Directive No.407-U dated 10 November 1998 and effective from 12 November 1998 changed S Account Regulations (called “the S Account Amendment” in the judgments below) to prohibit the purchase of foreign currency from non-residents in exchange for roubles to be deposited in S Accounts. That regime was continued by the Russian Central Bank Directive No. 523-U of 23 March 1999. On the same day CMBI confirmed termination of the CMBI forward currency contracts with CMSCI/CMIL: [2/43-44 and 2/45 and 2/220]. [Back] Note 22 Russian Central Bank Directive 523-U: [2/45 and 220]. [Back] Note 23 One, which was UK based, was called “the Working Committee”; the other, which was New York based, was called the “Senior Steering Committee”: [2/221]. [Back] Note 24 VTB had made an offer to settle initially on 16 November 1998 and had credited CMIL’s account, which CMIL accepted on account. There were further negotiations in January 1999, when VTB was persuaded to settle at a better rouble/US$ rate, approximately, in gross terms: 11 roubles to the $. [Back] Note 25 Chase letter to Note 26 On the appeal, no claim is pursued in respect of the two VTB forwards – see fn 19 above: Note 27 “DDCS” is short for “Dealings in Developing Country Securities”. For the purposes of the appeal the only relevant letter is the 1997 one, because all 11 outstanding GKO LNs were bought after the second letter had replaced the first. [Back] Note 28 That is: the first two opening paragraphs and numbered paragraphs 1, 2, 4 and 6. [Back] Note 29 K/79/367.07-12. [Back] Note 31 Therefore only the GMRA is relevant for the purposes of the appeal for the same reasons given in fn. 27 above. [Back] Note 34 Sprngwell challenges the finding, if there be one at [1/233 (i)-(iv)], that Finnbarr Sheehan explained or that AP read and was aware of the effect of the Relevant Provisions of the 1993 DDCS Letter. [Back] Note 35 Definitions of “GKO”, “S-Account”, Section 3(a), 3(a)(i), 3(a)(iii), 3(a)(iv), 3(b), 3(c), Section 5(f), Section 6(a) and 6(c). [Back] Note 36 The relevant ones being: the definition of “International Forward Contract” and “Note Repurchase” and the statement above the client signature, together with the footnote to each of the two pages of the Terms and Conditions. [Back] Note 37 The relevant ones being the “Key Risks to Investor”. [Back] Note 38 The relevant ones being the opening paragraph and the last three paragraphs above the signatures for CMSCI and Note 52 That is: “…in addition the Holder has not relied on, and acknowledges that neither CMSCI nor CMIL has made any representation or warranty in respect to the purchase of this note”. [Back] Note 56 [1/677]. The exception noted at fn 205 of the judgment, which was accepted by Chase, concerned a statement by JA as to the Ukraine Note, which is irrelevant to the appeal. [Back] Note 58 That is: (i) that the GKO LNs were without currency risk; (ii) that they were “straightforward” investments, alternatively straightforward investments akin to time deposits or money market instruments; (iii) that the GKO LNs were liquid investments, alternatively investments with a high degree of liquidity akin to that associated with time deposits or money market instruments; and (iv) that the GKO LNs were conservative and secure investments. Alleged representation (ii) is not relied on in the appeal, but the other three are. [Back] Note 64 Head of the Hellenic Group in the Chase Private Bank (New York) between March 1996 – 1999. [Back] Note 66 20 February 2009: [2009] EWHC 282 (Comm) at [37]. [Back] Note 80 [2/231 and 240]. [Back] Note 83 Two forwards with each of Sberbank, Inkombank and Imperial Bank: [2/207]. [Back] Note 87 He relied on Brown v Raphael [1958] Ch 636 as applied to actions under section 2 of the Misrepresentation Act 1967, eg. as in Avon Insurance PLC v Swire Fraser Ltd [2000] Lloyd’s Rep IR 535 at 541 per Rix J. [Back] Note 88 He relied in particular on Esso Petroleum Co Ltd v Mardon [1976] QB 801 [Back] Note 89 Published in July 1995: [Auth 5/82]. [Back] Note 91 He referred by analogy to Bankers Trust International PLC v PT Dharmala Sakti Sejahera [1996] CLC 518; particularly pages 531 and 576. [Back] Note 92 “CD” is short for “certificate of deposit”, a term used to connote cash or an equivalent, generally speaking. [Back] Note 93 Employee of Chase: Relationship Manager for Note 94 [1960] 1 WLR 196; in particular the passage at 204 per Diplock J who gave the judgment of the court. [Back] Note 95 [2006] 2 Lloyd’s Rep 511 [Back] Note 96 In particular Watford Electronics v Sanderson [2001] 1 All ER (Comm) 696; Deepak Fertilizers and Petrochemicals Corporation v ICI Chemicals & Polymers Ltd [1998] 2 Lloyd’s Rep 139 at 168 per Rix J. However, in Peekay the Court did refer to Grimstead v McGarrigan [1999] All ER (D) 1163. [Back] Note 97 However, Chadwick LJ was party to Grimstead, Watford and also Peekay. [Back] Note 98 Mr Brindle particularly relied on the decision of the CA in Norwegian American Cruises A/S v Paul Mundy Ltd (the “Vistafjord”) [1988] 2 Lloyd’s Rep 343, especially the approval by Bingham LJ of the analysis of Peter Gibson J in Hamel-Smith v Pycroft & Jetsave Ltd (unrep. 5 Feb 1987), quoted at pages 351-352 of the “Vistafjord” case. [Back] Note 99 [1/597-606]. This finding is in the part of the judgment dealing with the General Advisory Claim, but it was agreed that the conclusions applied equally to the Relevant Provisions insofar as the judge found that they precluded Note 100 Section 3 of the 1967 Act states: “If a contract contains a term which would exclude or restrict – (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or (b) any remedy available to another party to the contract by reason of such a misrepresentation, that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does”. [Back] Note 101 Section 11(1) and (5) of the Unfair Contract Terms Act 1977 provide: “In relation to a contract term, the requirement of reasonableness for the purposes of this Part of this Act, section 3 of the Misrepresentation Act 1967….is that the term shall have been a fair and reasonable one to be included having regard to the circumstances which were or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made. (5) It is for those claiming that a contract term or notice satisfies the requirement of reasonableness to show that it does”. [Back] Note 103 He relied in particular on Barton v Strong [1976] AC 104, UCB Corporate v Williams [2002] EWCA Civ 555 and Avon Insurance v Swire Fraser [2000] 1 Lloyd’s Rep IR 535. [Back] Note 104 He relied in particular on JEB Fasteners Ltd v Marks, Bloom & Co [1983] 1 All ER 583 and Downs v Chappell [1997] 1 WLR 426. [Back] Note 106 That is both the currency forwards where CMBI was the principal and those where the forwards “pass-through” CMBI but the ultimate counterparty is a non- Chase Russian bank. [Back] Note 107 CB/tab 14/page 181. [Back] Note 108 Mr AJ Heath was the Chase (New York) Vice President and Assistant General Counsel and he was a member of one of the two committees set up by Chase in early 1999 to oversee the “forwards issues”. [Back] Note 118 [2/219, 220, 222 and 224] [Back] Note 122 CB/10/98 at 100 [Back] Note 124 Day 25/transcript pp 109-112 [Back] Note 125 Day 25/transcript p 144, line 13. [Back] Note 126 Short for “certificate of deposit”, or the equivalent of cash. [Back] Note 127 Para 336: CB/3/38 [Back] Note 128 Mr Glick was the Credit Officer for Europe and the Middle East and had day to day responsibility for credit decisions of the bank concerning the “Hellenic group” of clients of which Note 129 Quoted at para 399 of AP’s witness statement: CB/2/21 [Back] Note 130 Mr Brindle relied on two further Chase internal telephone conversations on 7 May 1997 and 24 November 1997 in which JA described GKO LNs as “very conservative notes with …a fantastic yield”; and “a very conservative asset”: F/56/31 and F/56/216. [Back] Note 131 Day 17/p39-41: CB/11/135-6. [Back] Note 135 Day 25/pp 69 and 111: H/59/222 and 232. [Back] Note 136 Paras 398, 405, 441(c) and 638: CB/2/21, 25 and 33. [Back] Note 137 Eg in conversations on 30 January 1998 [F/56/281]; internally in Chase on 7 May 1998 [F/56/31] [Back] Note 138 Day 28/pp 166-168: [H/59/309-310]. [Back] Note 139 See above at [41], [43 and [45] [Back] Note 145 [1927] AC 177. [Back] Note 146 As expressed by Gloster J at [1/666-667]. [Back] Note 147 [1996] CLC 518 at 531 [Back] Note 151 [1996] CLC 518 at 533. [Back] Note 152 See [84] above. [Back] Note 153 However, this concession is subject to Mr Brindle’s argument that the decision of the Court of Appeal in the Peekay case [2006] 2 Lloyd’s Rep 511 was per incuriam. [Back] Note 154 Day 2/page 78/lines 21-22. [Back] Note 160 [1960] 1 WLR 197 at 204. [Back] Note 161 For instance, if A and B agree for the purposes of an insurance and re-insurance that A has never been in jail, yet both know he has, it may be that enforcing that agreement might contravene English law notions of public policy. [Back] Note 162 [2006] 2 Lloyd’s Rep 511 at [56]-[57] [Back] Note 163 Section 8(1)(d) of the Hire Purchase Act 1938 provided that (except in irrelevant circumstances) there will be an implied condition in a hire purchase agreement that the goods shall be of merchantable quality, but there will be no such implied condition where the “hirer has examined the goods…as regards defects which the examination ought to have revealed”. Section 8(2) stated that where the hirer has expressly or by implication made known “the particular purpose for which the goods are required, there shall be an implied condition that the goods shall be reasonably fit for the purpose”. Section 8(3) provided that: “…the warranties and conditions set out in sub-section (1) of this section shall be implied notwithstanding any agreement to the contrary, and the owner shall not be entitled to rely on any provision in the agreement excluding or modifying the condition set out in sub-section (2) of this section unless he proves that before the agreement was made the provision was brought to the notice of the hirer and its effect made clear to him”. The 1938 Act applied to contracts where the price of the goods was £100 or less. That figure was increased to £300 by the 1954 Act, and thus applied to this contract. [Back] Note 164 Lord Goddard CJ, Upjohn LJ and Diplock J. [Back] Note 165 Page 203 of the report. [Back] Note 166 Page 203 of the report. [Back] Note 167 Page 204 of the report. [Back] Note 168 Page 204-5 of the report. [Back] Note 169 [2010] EWHC 1392 at [252]. [Back] Note 170 Page 205 of the judgment. [Back] Note 171 Page 205 of the report. [Back] Note 172 [1999] CA Transcript 1733 [Back] Note 173 Page 28 of the transcript. [Back] Note 174 Pages 32 and 35 of the transcript. [Back] Note 175 [2001] 1 All ER (Comm) 696 [Back] Note 176 [39] and [40]. Neither Peter Gibson LJ nor Buckley J made further comments on this point. [Back] Note 178 [1967] 2 QB 786: see the remarks of Gloster J at [550]. [Back] Note 179 (1925) 41 TLR 276 [Back] Note 180 Bankes, Scrutton and Atkin LJJ. [Back] Note 181 [1991] Ch 448. [Back] Note 182 At pages 493E and 496B respectively. [Back] Note 183 3rd Ed. (1977), para 158 at page 158. [Back] Note 184 At page 496B-D. [Back] Note 185 Ferris J had been referred to Amalgamated Investments & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84, the leading authority on “estoppel by convention” and also the relevant passages in Spencer Bower. [Back] Note 186 [1992] Ch 421. [Back] Note 187 Page 435B. Stocker and Butler-Sloss LJJ agreed with Dillon LJ. [Back] Note 188 [2006] 2 Lloyd’s Rep 511. [Back] Note 189 [58] of the report. [Back] Note 190 See [56] of the report. [Back] Note 192 As Rix J noted in Deepak Fertilisers and Petrochemicals Corp v ICI Chemicals and Polymers Ltd [1998] 2 Lloyd’s Rep 139 at 168, Diplock J was “speaking in a wholly different context” to a contract between two commercial parties. In Deepak, Rix J held that a clause stipulating that there were no “agreements, understandings, promises or conditions…express or implied…which are not merged into this contract..” precluded claims based on negligent misstatement or collateral warranty, but not, on its proper construction, claims based on prior representations. [Back] Note 193 Bottin International Investments Ltd v Vonson [2006] EWHC 3112; Donegal International v Republic of Zambia [2007] 1 Lloyd’s Rep 397; Trident Turboprop (Dublin) Ltd v First Flight Courirers Ltd [2009] 1 All ER (Comm) 16; Titan Steel Wheels Limited v Royal Bank of Scotland [2010] EWHC 211 (Comm); Food Co UK LLP v Henry Boot Developments [2010] EWHC 358; Raiffeisen Zentralbank Osterreich v Royal Bank of Scotland PLC [2010] EWHC 1392. [Back] Note 197 Unrep. Transcript of 5 Feb 1987 at page 21F and following, quoted in Norwegian American Cruises A/S v Paul Mundy Ltd (The “Vistafjord”) [1988] 2 Lloyd’s Rep 343 at 351-2 per Bingham LJ. [Back] Note 200 [2010] EWCH 1392 Comm at [272] – [273] [Back] Note 201 See: William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016 at 1034E per Hoffmann LJ, with whom Russell and Evans LJJ agreed: see pages 1041 and 1046. See also: IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 Comm at [68-71] per Toulson J, approved on appeal: [2007] EWCA 811 at [28] per Waller LJ. [Back] Note 202 At [315]. He had used the car example, based on Lowe v Lombank, earlier in the judgment. [Back] Note 204 H/Tab 59/222 at transcript pages 70-71 [Back] Note 205 [1/233(i)-(iv)] [Back] Note 206 [1/629] and [1/630] [Back] Note 209 As the judge held at [2/200]-[2/201] [Back] Note 212 Forder v Great Western Railway [1905] 535 at 536 per Lord Alverstone CJ: [2/206]. [Back] Note 213 The definition of “Forward Foreign Exchange Transaction” in the FMA terms states that it is one between CMIL (“the Investor”) and CMBI (“the Dealer”) by which CMBI buys roubles from CMIL in exchange for “Relevant Currency” – viz. US$s – “for delivery on a Business day agreed” by the parties. [Back] Note 214 It will be recalled that in the case of six out of the outstanding eleven GKO LN purchases, the currency forward contracts were between CMIL and another Russian bank, with CMBI as the middle, or “pass through” party. [Back] Note 215 See the definition of “Rouble Account Agreement” in the FMA. [Back] Note 217 Joint Memorandum para 2.2.1: I/66/51 [Back] Note 218 [2/167(ii)(c)] [Back] Note 219 [2/241]-[2/242] [Back] Note 221 See the judge’s finding at [2/43] [Back] Note 222 As Rix LJ pointed out in argument, it would have been against CMBI’s interests to force CMIL to do anything that would have meant CMBI had to pay on the currency forward contracts: Appeal transcript Day 6/96. If Note 225 I note that Gloster J found that Mr Heath, Assistant General Counsel for Chase with responsibility for managing Chase’s Russian legal affairs, gave evidence that the force majeure notice was sent because the contracts were “deliverable”: [2/225]. In those circumstances how could it be negligent if CMIL did not put forward to CMBI an argument that the forwards had become “non-deliverable”? [Back] Note 227 MICEX means Moscow Interbank Currency Exchange: see FMA definitions. [Back] Note 229 There was a “working committee” which was UK based and a “Senior Steering Committee” which was US based: [2/221] [Back] Note 232 15 Jan 1999: CB/19/280; 19 March 1999: CB/19/289. [Back] Note 233 This is the judge’s finding of fact, although it was conceded by Mr Beltrami at the trial: [2/228] [Back]Springwell then counterclaimed, seeking damages for breach of contract, negligence, breach of fiduciary duty and, until just prior to the trial before Gloster J, fraud. The US proceedings were discontinued. For the purposes of this appeal it is not necessary to trace the litigation history in any detail. [Back]Springwell alleged were misrepresentations were collated under various headings in Appendix A to Springwell’s Closing Submissions at the trial. The appendix quoted selected extracts from the transcripts of the telephone conversations between JA and AP in the period May 1997 to August 1998. On the appeal, Springwell relied also on earlier, non-recorded telephone conversations between JA and AP, to which there was some mild objection by Chase. [Back]Springwell succeeded on that claim in the sum of US$445,472.13 plus interest: [2/260]. The second was called the “Post-Default Note Claim”, under which Springwell claimed that CMSCI was obliged to pay the maturity or “Redemption” amount of the 11 GKO LNs upon their maturity, despite the failure of the underlying GKOs to perform. That claim failed: [2/179]. The third was a claim for an account in respect of certain currency forward transactions. That claim also failed: [2/191]. [Back]Springwell dated 11 January 1999: CB/19/277. The offer concerned the 3 CMBI risk notes. Chase offered to buy those GKO LNs at 22.5% of their nominal value: [2/222-223]. A revised offer was made by Chase on 9 June 1999: [idem]. [Back]Springwell Outline on Appeal para 81. [Back]Springwell. [Back]Springwell 1994-2000. [Back]Springwell from being able to make the Misrepresentation Claims. [Back]Springwell was one. [Back]Springwell’s argument is to be consistent then CMBI (as well as CMIL) should have been acting at all times in its own, separate interests. [Back]