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Disclaimers effective to protect issuer from liability to secondary market investor – importance of basis or "duty-negating" clauses

11 January 2017

The Court of Appeal in Taberna Europe CDO II plc v Selskabet (formerly Roksilde Bank A/S) (In Bankruptcy) [2016] EWCA Civ 1262 overturned a ruling against the issuer of subordinated notes who, at first instance, was found to be liable to a secondary market professional investor for damages for misrepresentations made in investor presentation/roadshow slides and a quarterly results announcement. At first instance Eder J held that market standard disclaimer wording in the investor presentation slides did not protect the issuer. The Court of Appeal however disagreed. The Court of Appeal ruling makes clear the importance of setting out the basis upon which information is shared prior to entering into a transaction, and emphasises the distinction made by the courts between “duty-negating” (or “basis”) clauses and more traditional exclusion clauses (“liability-negating” clauses).

The defendant, Roskilde, a Danish bank (now insolvent and known as Selskabet AF1) (issuer) issued subordinated notes (notes) under a Euro Medium Term Note (EMTN) Programme. They were originally issued to Bank A in December 2006 and subsequently marketed to prospective investors, including Bank B. Taberna, an Irish investment vehicle, purchased notes from Bank B on the secondary market for just over EUR 26 million in February 2008.

The issuer suffered severe financial difficulties shortly after the purchase, and defaulted under the notes. Taberna sued the issuer in England for damages under s2(1) Misrepresentation Act 1967 for misrepresentations made by the issuer in various documents, including a March 2007 Offering Circular (OC), the issuer’s Q3 2007 Report (Q3 Report) and an “Investor Presentation/Roadshow” (IP) published around the same time as the Q3 Report although by the time of the appeal the dispute focused exclusively on the IP.

First instance decision

Liability to secondary market

At first instance (covered here), Taberna successfully argued that there had been misrepresentations made to it as to the size of the issuer’s non performing loans. Even though Taberna had not been one of the original investors marketed to as part of the initial roadshow, and notwithstanding the IP had been produced “solely for use by investors met during the ….roadshow”, it was held that the material in the IP had been directed at investors in the secondary market as the issuer had intended to make it available for use by such investors and, in the case of Taberna, it had been specifically directed to the IP on the issuer’s website by a third party with the issuer’s encouragement.


In the first instance decision the Issuer was not protected by standard market disclaimer wording (see summary table below). In respect of disclaimers B and E, Eder J held that the issuer could not rely on the disclaimer wording because it was in the IP as opposed to a contract between the parties.

Disclaimer table.png

Court of Appeal

Liability to secondary market – yes, subject to disclaimers

On owing duties to secondary market investors, the Court of Appeal agreed with Eder J. The issuer had extended the IP to the secondary market by directing investors to its website where the IP was found. As such, any disclaimer in the IP to the effect that it was only for roadshow investors had to be disregarded. However, the Court of Appeal made clear that in order for a representation in a document to be actionable there needed to be a connection between the issuer and end investor such that it was clear that the issuer was intending the investor to rely on the document. In an age where much material is available electronically, simply having material accessible on the internet is insufficient, but where an investor is specifically directed to the material then the issuer can hardly complain if the investor seeks to rely on it, subject of course to any disclaimers within the material.

Disclaimers effective - yes

However, the Court of Appeal overturned the first instance decision as it related to disclaimers (b) – (e) (see above), thus enabling the issuer to fully defend Taberna’s action for damages.

The Court of Appeal noted that s3 of the Misrepresentation Act 1967 applies where a contract contains a term which excludes or restricts liability for any misrepresentation a party may have made before the contract was entered into. It was right, noted the court, that such an attempt to exclude liability, after the misrepresentation has been made, would need to be by agreement, for example a contractual estoppel or by a conventional exclusion clause, and hence form part of the contract between the parties.

Duty-negating / basis clauses

The same reasoning did not apply to a non-contractual notice, such as that contained in the IP. It is possible to limit the scope of a representation or exclude it all together by making clear that no representation was in fact being made upon which there could be any reliance (IFE Fund SA v Goldman Sachs International [2007]1 Lloyd’s Rep 264 cited). As such, it was held that disclaimers (b) and (e) were not exclusion clauses to which s3 of the Misrepresentation Act applied, or which needed to be incorporated within the terms of a contract, rather they were clauses which qualified the nature of the statements which the IP contained. Or, as the Court of Appeal said, they “limit the nature and scope of the statements contained in the [IP] in a way that made it clear that they could not be relied upon as a basis for a decision of any kind”. The Court of Appeal referred to these clauses as “duty-negating clauses” but they are also often referred to as “basis clauses” because they are seen as setting out the basis upon which the parties are dealing.

Court of Appeal

Liability negating / traditional exclusion clauses

The IP also contained more traditional exclusion clauses, or what the Court of Appeal referred to as liability-negating clauses. The Court of Appeal took the view that a document such as the IP, even though it was not a contractual document, should be able to specify that information was being provided on the basis that the issuer was not taking responsibility for it, provided this was reasonable. The starting point, they said, was not to invoke the contra proferentem rule and resolve any ambiguity in favour of the investor, but rather to recognise that commercial parties are entitled to make their own bargains and have the court interpret the relevant clauses accordingly. The Court of Appeal found that there was in fact no ambiguity in the exclusion clauses (c) and (d) and it was quite clear that no responsibility was being accepted for the information in the IP.


This is an important decision which makes clear the importance of setting out the basis upon which information is shared prior to entering into a transaction. It is helpful that the Court of Appeal has confirmed that it is possible to share information pre-investment while also limiting the ability of an investor to rely on it. It should be noted, however, that in this case the parties were both sophisticated and great care will be needed where dealing with less sophisticated parties.

It remains to be seen whether it will be possible for investors to run the argument successfully that such clauses fall foul of the Unfair Contract Terms Act 1977 (UCTA) on the basis that they should be regarded as excluding or restricting the scope of a duty and hence be treated as exclusion clauses by virtue of s13 UCTA. While, for sophisticated counterparties, making such distinctions may well continue to prove problematic, all parties should take care in how they draft non-reliance clauses. It may well be wise to make clear that their purpose is to set out the basis upon which the parties are dealing and sharing information rather than being an attempt to limit or negate the existence of a duty that would otherwise arise.

This case is also a useful reminder that even if a document makes it clear who is entitled to rely on it, if there is any interaction between the issuer and the end investor, including through third parties, or any reference to such material, it will be very hard for the issuer to argue successfully that they did not direct such investors to that material, even where they were not the original intended recipients of it. Much will depend on the precise facts of a particular case and it is of course possible that disclaimers can be used to guard against any formal reliance as they were in this case.