UK: Ruling On Issuer Liability In Secondary Market

Taberna Europe CDO II Plc v Selskabet (formerly Roskilde Bank A/S) (In Bankruptcy) [2016] EWCA Civ 1262

In December 2016, the Court of Appeal handed down its first ruling on the question of whether a claim under the Misrepresentation Act 1967 against an issuer is available to secondary market purchasers. The judgment offers helpful guidance on the circumstances in which a bank may be liable to those other than its original audience for a misrepresentation contained in an investor presentation.  It also considers the effect of the bank's disclaimer on the final page of the presentation, how to construe exclusion clauses and the applicability of the Misrepresentation Act 1967 to secondary market purchases.

The Court of Appeal overturned the first instance decision in which damages of over €26 million had been awarded to the claimant investment company (Taberna) for misrepresentation by the defendant, a now bankrupt Danish bank (Roskilde).  At the time, this ruling was generally considered to be the first occasion on which an English court had given judgment for misrepresentation against a note issuer in respect of a purchase of notes in the secondary market.


The claim arose from Taberna's purchase in February 2008 of subordinated notes originally issued by Roskilde; the notes were purchased by Taberna on the secondary market from Deutsche Bank AG. During the second half of 2008, Roskilde experienced severe financial difficulties and entered into bankruptcy in early 2009. As a result, it was unable to make any principal or interest payments to Taberna on the subordinated notes.

Taberna sought damages for misrepresentation from Roskilde, claiming that it had been induced to buy the notes by misrepresentations made by Roskilde about its non-performing loans. Roskilde had produced an "Investor Presentation" for use in conjunction with a "road show" aimed at potential investors in the new issue of securities. The document was a slide show to accompany an oral presentation and contained a lengthy disclaimer on the final page purporting to restrict the scope of any representations, and exclude liability for any statements. The presentation included a graph and figures for the coverage ratio of the loans. Taberna obtained a copy of the document after Roskilde had published it on its website. In addition, another bank had, with Roskilde's encouragement, directed Taberna to the Investor Presentation on the website in connection with a further planned issue of debt.

Taberna argued that it had relied on the Investor Presentation and claimed damages from Roskilde in the sum of the purchase price paid to Deutsche Bank, under section 2(1) of the Misrepresentation Act 1967.


The issues considered on appeal were:

  • whether Roskilde misrepresented the amount of its non-performing loans to Taberna in the Investor Presentation;
  • if so, whether Taberna was entitled to recover damages in the amount it paid Deutsche Bank for the notes under section 2(1) of the Misrepresentation Act 1967; and
  • if so, whether the loss was to be apportioned under section 1 of the Law Reform (Contributory Negligence) Act 1945 on the grounds that Taberna was itself partly responsible for it.

The Court of Appeal's key findings are discussed below.

Were the representations in the Investor Presentation which was published on the website directed at Taberna?

The Court of Appeal held that they were. Although Taberna had not attended the "road show", the presentation had come to its attention through Roskilde's website. The information contained in the presentation could therefore be treated as having been directed to Taberna.

The Court of Appeal observed that the English courts have long been aware of the danger in allowing third parties to rely on documents produced for a purpose other than that to which they have been put, or directed to an audience of which they are not members. If there was to be a duty on the maker of a statement to all and sundry for any purpose for which they may choose to rely on it, it would expose the maker to potentially unlimited liability and would also give the world at large an unwarranted entitlement to appropriate expert knowledge or professional expertise for their own purposes (Peek v Gurney (1873) LR 6 HL 377; Caparo v Dickman [1990] 2 AC 605). However, counsel for Taberna submitted that this case could be distinguished from one where, say, a member of the public makes use of a company's accounts when considering whether or not to buy shares; Roskilde had deliberately brought the Investor Presentation to the attention of anyone who might be considering buying its notes in the secondary market and in particular to the attention of Taberna as a potential investor.

The Court of Appeal recognised that most commercial documents now exist primarily in electronic format and are readily available to a wide audience "at the touch of a button", but observed that this should not erode the scope of the established principles enunciated in cases such as Caparo v Dickman. However, the Court considered that "if a company actively invites potential investors to make use of information originally produced for a different purpose, it can hardly complain if they do so".  In other words, the mere placing of material on a website did not of itself create the degree of proximity necessary to give rise to a duty of care. A closer degree of connection was required between the maker of the statement and the recipient before it would be possible to conclude that the maker had intended the recipient to rely on the information in a particular way. On the facts, Roskilde had intended potential investors to rely on the presentation when deciding whether to invest in its subordinated securities; it had taken steps to draw Taberna's attention to its website; and it had deliberately made the presentation available with a view to Taberna relying on it for investment purposes.

Was the disclaimer effective?

The Court of Appeal found that it was. Since there was no direct contractual relationship between Roskilde and Taberna incorporating the disclaimer, the relevant securities having been purchased in the secondary market from a third party, the disclaimer could only be effective as a notice that Roskilde would not accept liability for the accuracy of the Investor Presentation's contents. The Court of Appeal considered that it was clear from section 2 of the Unfair Contract Terms Act 1977 that in principle, and subject to the requirement of reasonableness, a party could insert a notice into a document limiting the scope of, and liability for, any representations contained in the document. The fact that section 3 of the Unfair Contract Terms Act 1977, which applied the same principle to contractual terms which restrict liability for misrepresentation, was silent on non-contractual notices did not indicate that a notice purporting to exclude liability would be ineffective: section 3 was concerned with attempts to exclude liability for misrepresentation after the event, not with whether there had been a misrepresentation.

If a non-contractual notice could be effective for the purposes of the Unfair Contract Terms Act 1977, there was no reason why a party should not be entitled to rely on a suitably worded disclaimer to limit the scope of its representations or to exclude them altogether. As to the exclusion of liability for misstatement, a party could, in principle, publish information on the basis that they were not willing to take responsibility for it, at least where it was reasonable for them to do so and the position had been made clear. These were commercial parties who were entitled to make their own bargain and the Court's task was simply to interpret fairly the words used. Roskilde had been entitled to include and rely on the disclaimer in the Investor Presentation.

Counsel for Taberna argued that the disclaimer was in small print at the back of the document and so the Court could not be satisfied that a reasonable reader would have seen and understood it. The Court did not accept this contention, commenting that "experienced professional investors" like Taberna would be well aware that such documents must be read in their entirety. The Court concluded that Taberna was in no better position than the investors to whom the document was originally addressed and that Roskilde was therefore entitled to rely on the disclaimer as an answer to Taberna's claim.

Was the company entitled to recover the amount it had paid for the notes under section 2(1) of the Misrepresentation Act 1967?

The answer was 'no'. Although unnecessary to decide the issue, the Court noted that this was a question of some importance and had been fully argued. The Court observed that the Misrepresentation Act 1967 was concerned only with the relationship between contracting parties arising out of, or in relation to, a contract that had been induced by the misrepresentations of one of them. There was nothing to support the conclusion that, where A was induced to enter into a contract with B as a result of C's misrepresentations, A could recover damages from C under section 2(1) of the Misrepresentation Act 1967. Section 2(1) entitled the representee to recover only those damages flowing from their having entered into a contract directly with the representor. Taberna's loss (the sum it paid to Deutsche Bank) resulted from its contract with Deutsche Bank, not any contract with Roskilde. Although Taberna was brought into contractual relations with Roskilde on the terms of the notes as a result of purchasing the notes from Deutsche Bank, the Court considered that the notes were better regarded as a species of property which Taberna acquired from Deutsche Bank.

Should any loss be apportioned on the basis of contributory negligence because Taberna had failed to make proper enquiries before purchasing the notes?

Although it was unnecessary to decide the point, the Court expressed its provisional view. The Court considered that since section 2(1) created a form of statutory liability sounding in negligence, contributory negligence ought, in principle, to be available as a defence. However, whether it was equitable to apportion responsibility for the loss would depend on the facts. In this instance, there was no basis for interfering with the judge's conclusions that the company had not failed to make proper enquiries and that, in any event, it would have been inequitable to reduce any damages sum.


In summary, although the Court of Appeal considered that the bank had misrepresented the extent of its non-performing loans, it also held that the disclaimer was effective and a complete answer to Taberna's claim. However, and although the views expressed were obiter, had there been no disclaimer and assuming a negligent misstatement claim could have been made out, any damages awarded would have been calculated by reference to the applicable tortious principles rather than in accordance with the Misrepresentation Act 1967 (where damages are calculated more generously as for the tort of deceit rather than the tort of negligence). This is because the Court considered that the Misrepresentation Act 1967 only regulates misrepresentations between parties to a contract and the loss referred to in Section 2(1) of the Misrepresentation Act 1967 has to result from the entry into of a contract with the party who made the misrepresentation, not merely from the misrepresentation made. Therefore, any claim against the original issuer of the notes by the secondary market purchaser should properly be framed as a negligent misstatement claim rather than a negligent misrepresentation claim under the Misrepresentation Act 1967.  

Although this case related to subordinated notes, its reasoning may be applied to any secondary market purchase, such as shares.  Notably, the Court of Appeal agreed with Mr Justice Eder that statements contained in financial documentation published on a website so that potential investors can have access to them, are theoretically capable of amounting to representations to those potential investors. This case illustrates the potential liability risk arising from publishing financial information online to the world at large; clearly drafted disclaimers should be included to seek to avoid the risk of such liability.

Ruling On Issuer Liability In Secondary Market

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