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Court of Appeal rules on applicability of the Misrepresentation Act 1967 to secondary market purchasers


The Court of Appeal has given judgment in Taberna Europe CDO II Plc v Selskabet AF 1. September 2008 In Bankruptcy (formerly known as Roskilde Bank A/S). The case raises a number of important issues regarding claims for misrepresentation by secondary market purchasers.

Taberna was an Irish investment fund. It purchased subordinated debt issued by Roskilde, a Danish bank, in the secondary market. Taberna thereby entered into contracts with both the secondary market seller (Deutsche Bank) and Roskilde.

It later emerged that Roskilde had misstated its percentage of “Non-Performing Loans” in an Investor Presentation. Roskilde had published the Investor Presentation on its website and Taberna had relied on the presentation in deciding to make its investment. Taberna sued Roskilde for misrepresentation under s.2(1) of the Misrepresentation Act 1967.

Eder J found for Taberna at trial. Roskilde appealed.

On appeal the Court of Appeal held that Taberna was entitled to rely on the figures published by Roskilde on its website, rejecting an argument that no representation was made to Taberna with intent that it be relied upon. The Court of Appeal also upheld Taberna’s case regarding the meaning of the representation made, and rejected Roskilde’s contributory negligence defence.

However, the Court of Appeal held that s.2(1) of the Misrepresentation Act 1967 could not apply to Taberna’s claim at all, where Taberna purchased Roskilde’s debt in the secondary market. s.2(1) applies “[w]here 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…”. The Court held that the relevant loss must “result from” the contract with the misrepresentor, rather than merely result from the misrepresentation made. The Court of Appeal concluded that Taberna’s loss (the sum it paid to Deutsche Bank) resulted from its contract with Deutsche Bank, rather than the contract with Roskilde.

The Court of Appeal also held that Roskilde was entitled to avoid liability by relying on disclaimer language in the Investor Presentation, finding that this language meant that Roskilde did not accept responsibility for the representations, even if the disclaimer lacked contractual force.

On this basis, the appeal was allowed.  The judgment is here.

Tim Lord QC and Craig Morrison acted for Taberna on appeal, instructed by Duane Morris.