Case Analysis
Taberna Europe CDO plc
v
Selskabet AF1.September 2008 In Bankruptcy (formerly known as Roskilde Bank A/S)
[2015] EWHC 871 (Comm)
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Mr Justice Eder has recently handed down judgment in the case of Taberna Europe v
Roskilde Bank, a claim in misrepresentation under section 2(1) Misrepresentation Act
1967 which raises two interesting and discrete questions relating to misrepresentation.
Facts
Taberna purchased loan notes offered by Roskilde, a Danish bank, with a nominal face
value of some 27 million Euros from Deutsche Bank in the secondary market in February
2008. It did so in part in reliance on statements made in literature produced by Roskilde
and intended for investors. As a result of purchasing the loan notes, Taberna and Roskilde
were brought into a contractual relationship, albeit the court was not entirely clear how.
Roskilde subsequently went bankrupt in March 2009, prior to transferring its assets and
certain liabilities to a newly set up bank. The loan notes purchased by Taberna were not
included in the transfer. Taberna brought a claim against Roskilde in misrepresentation on
the basis that it claimed that the liability for any damages awarded to it, would have been
transferred to the new bank in the transfer, and not retained by Roskilde. This latter point
was not decided at the trial, and is likely to be subject to separate proceedings in
Denmark.
Judgment
The court found that Roskilde was liable under section 2(1) Misrepresentation Act 1967,
and ordered it to pay Taberna the price Taberna paid Deutsche Bank for the loan note as
damages.
Two interesting points of law arose in the claim:
1. Whether s.2(1)of the Act had any applicability in this claim, as Roskilde was not a
party to the contract between Taberna and Deutsche Bank;
2. The likelihood of an award under s.2(1) of the Act being reduced for contributory
negligence.
Applicability of s.2(1)
Section 2(1) states:
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
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fraudulently, that person shall be so liable notwithstanding that the
misrepresentation was not made fraudulently, unless he proves that he
had reasonable ground to believe and did believe up to the time the
contract was made that the facts represented were true.
Roskilde argued that it could not be liable as it was not a party to the contract between
Taberna and Deutsche Bank which caused Taberna the loss it claimed. In particular,
Roskilde argued that:
1. Whilst the result of the contract between Taberna and Deutsche Bank was to
bring Taberna and Roskilde into a contractual relationship, this was merely
fortuitous, and not the purpose of the contract between Taberna and Deutsche
Bank;
2. The loss claimed by Taberna was the price paid to Deutsche Bank. This arose
from the contract with Deutsche Bank, not the subsequent contract between
Taberna and Roskilde.
3. The only contract induced by Roskilde’s representations was that between
Taberna and Deutsche Bank; the contract between Roskilde and Taberna was not
caused by any representations made by Roskilde.
The judge did not accept this argument. At paragraph 105 of his judgment he accepted the
facts of the case were ‘unusual’ and that the mechanism whereby the acquisition of the
loan note from Deutsche Bank caused the contract between Taberna and Roskilde to
come into existence was ‘not entirely clear’. However, he then stated, without much
further elaboration that he was unpersuaded these features took the case outside the scope
of s.2(1).
Analysis
The judge appears to have avoided dealing with Roskilde’s central argument, namely that
s.2(1) requires the representor to be a party to the contract that was entered into.
Roskilde’s argument that it was not a party to the sale of the loan note by Deutsche Bank
to Taberna, which was the contract in relation to which representations were made, and
in relation to which the losses were suffered, appears sound. It will be interesting to see
whether Roskilde appeals this part of the judgment, and if it does, whether the Court of
Appeal will approve the judge’s reasoning.
Contributory Negligence
At paragraph 181, the judge considered the apparent conflict between what was referred
to as the rule in Redgrave v Hurd (1881) 20 Ch D, namely that someone who had made a
misrepresentation cannot claim the innocent party negligently failed to discover the truth,
and the judgment in the case of Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560
that damages awarded under s.2(1) of the Act may be reduced for contributory negligence.
He stated:
In truth, it has always seemed to me difficult to reconcile the conclusion
that the defence of contributory negligence is available to a claim for
misrepresentation under s2(1) of the 1967 Act with these strong statements
which are expressed in terms which almost suggest a general principle
amounting to a rule of law. Notwithstanding, the approach adopted by Sir
Donald Nicholls V-C in Gran Gelato was that although the 1945 Act
applies, the court must still consider what, if any, apportionment to make;
that, in that context, the question is whether any reduction in damages is
“just and equitable”; and that, although “in principle” carelessness in not
making other enquiries provides no answer to a claim when the plaintiff
has done that which the representor intended he should do, it would need
to be a “very special case” before carelessness would make it just and
equitable to reduce the damages otherwise payable. In my view, the main
difficulty is to identify even in general terms the kind of case which might
properly be regarded as a “very special case”. So far as I am aware, there
is no reported case where damages otherwise payable for
misrepresentation under s2(1) of the 1967 Act have been reduced by
reason of contributory negligence.
Analysis
This is perhaps as close as a judge can come to stating that a decision is wrong without
expressly saying so. It certainly seems that judges have avoided following the Gran Gelato
by determining that the case before them is not one where a reduction for contributory
negligence would be appropriate, as the judge did here. As such, Gran Gelato is likely to
remain a dead letter decision that is quietly ignored by the courts.
Christopher Edwards
Forum Chambers
cedwards@forumchambers.com