SPRINGWELL NAVIGATION CORPORATION V JP MORGAN CHASE MANHATTAN BANK

[2010] EWCA Civ 1221, Court of Appeal, Lord Justice Rix, Lord Justice Rimer and Lord Justice Aikens. 1 November 2010

Appellant alleging investment losses due to negligent advice of respondents - Whether respondents guilty of misrepresentation - Validity of exclusion clauses - Whether exclusion clauses incorporated into agreement - Mistake - Estoppel by contract - Misrepresentation Act 1967, section 3

Springwell Navigation Corporation was the investment vehicle of the Polemis family, who owned and operated a large Greek shipping fleet. During the 1990s Springwell invested very heavily in emerging markets, acquiring, through Chase, a portfolio of debt instruments with a face value of over US$700 million. In particular, during 1997 and 1998, Springwell built up substantial investments in Russian bonds or instruments referenced to Russian bonds in the nature of treasury bills. Those instruments included "GKO-Linked Notes", which were derivatives issued by one of the Chase entities. They were referenced to underlying short-term, non-interest-bearing bonds, denominated in roubles, quoted at a discount to face value, and issued by the Russian Federation. The GKO-Linked Notes embedded forward contracts for the conversion of the GKO rouble proceeds into dollars. Springwell invested very profitably in GKO-Linked Notes from April 1996. However, as part of the measures imposed in Russia, the referenced GKOs on Springwell's outstanding GKO-Linked Notes defaulted and were restructured. Springwell's other investments, not only in Russia, but also in other states of the former Soviet Union and Indonesia, were also heavily marked down. Springwell made a series of claims against Chase. The Court of Appeal, upholding the first instance judgment of Gloster J, held as follows.(1) Gloster J's ruling that there had not been representations by Chase that the GKO Linked Notes were conservative, liquid and without risk could not be impugned. (2) Even if there had been representations, they would not have been actionable as they were nothing more than expressions of opinion(3) The Terms and Conditions of the GKO Linked Notes, to the effect that no representations or warranties had been made by Chase, were binding, by reason of the doctrine of contractual estoppel. (4) The reasonableness requirement in section 3 of the Misrepresentation Act 1967 would, had the statements in question been representations, been applicable because the agreement sought to exclude Chase's liability, but the terms were on the facts reasonable. (5) Chase was not, within the terms of the agreement between the parties, guilty of gross negligence or wilful default in its conduct following the default on the GKO Linked Notes.