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Springwell Navigation Corp v JPMorgan Chase Bank & ors - "Non-Reliance" Wording Works

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Springwell has lost its appeal in its long running litigation against JPMorgan Chase (Chase) with both its misrepresentation and post‑default damages claims being dismissed.

The judgment in Springwell Navigation Corp v JPMorgan Chase Bank (formerly Chase Manhattan Bank) & ors [2010] EWCA Civ 1221 is good news for financial institutions: it appreciates both the context in which statements by financial institutions to sophisticated investors are made as well as the freedom for parties to agree what they like, subject to any law to the contrary.


Springwell was the investment vehicle for a group of shipping companies owned and controlled by Adamandios Polemis (AP) and his family (a Greek shipping family) who had a long‑standing relationship with a number of companies within the Chase group.

During the 1990s, Springwell began investing heavily in emerging market debt. By 1998 its portfolio was heavily concentrated in Russia and, in particular, in derivative instruments referred to as GKO‑linked notes (the GKO LNs). These notes were issued by Chase but were referenced to underlying bonds issued by the Russian Federation known as “GKOs”. As a consequence of the Russian financial crisis in 1998, the value of these investments was marked down heavily and effectively the portfolio collapsed.

Springwell claimed over US$700 million in damages. At first instance Gloster J dismissed all but one of Springwell’s claims (which was a minor custody fees claim). Springwell’s claim that Chase had breached various contractual, tortious and fiduciary duties in advising Springwell on the nature and content of its investment portfolio therefore failed, as did its claim that Chase was liable for negligent misrepresentation under s2(1) Misrepresentation Act 1967 (MA) and Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465.

Springwell appealed its negligent misrepresentation claim, and a claim relating to Chase’s administration of Springwell’s investments following the Russian crisis. Although the judgment is quite fact‑specific there are a number of principles of note which can be extracted. 

The Misrepresentation Claim

Springwell alleged that Chase was liable under s2(1) MA and for negligent misstatement on the basis that it had allegedly misrepresented that the GKO LNs were “conservative”, “liquid” and (although not pursued as a separate representation) “without currency risk”.

Were any misrepresentations in fact made?

The court (with Aikens LJ giving the lead judgment) first asked itself whether any of the alleged misrepresentations had in fact been made. Context was key.

  • It noted that although a Chase employee had referred to the GKO LNs as “conservative” the word cannot be lifted “like a fish out of water”. It had to be considered in the context of the particular investor and market. AP was a sophisticated investor who understood the significant risks attached to the GKOs. The Chase employee used the term “conservative” in the sense that the GKOs themselves were local currency issues on which there had been few if any sovereign defaults historically. Further, the GKO LNs were short term in nature and had, as part of their terms, a forward currency contract which lessened the risks.
  • References to the “liquidity” of the investments also had to be seen in their context, namely that the GKO LNs were short term and that the risk of sovereign default on the local currency underlying GKOs was seen as low. AP understood that GKO LNs could not be regarded as liquid in the same way as US or UK treasury bonds. Likewise AP understood that the “cash” jargon the Chase employee was using was not intended to, and did not, convey that Springwell was buying instruments that were equivalent to investment grade assets and so of equivalent liquidity.
  • The court rejected any assertion that the Chase employee had misrepresented the currency risk as AP was found to have been well aware of the currency devaluation and Russian bank default risks involved with the GKOs.

The court therefore concluded that the misrepresentations alleged had, in fact, not been made.

If any misrepresentations were made, were they actionable?

In any event, the court held that even if the alleged misrepresentations were in fact made they did not amount to actionable representations. Again context was key.

  • The court held that Chase’s employee was merely giving his opinions on the qualities of the GKO LNs as a salesman to a sophisticated investor, rather than stating any fact. As the MA is concerned with fact rather than opinion, in order to be successful with a claim under the MA Springwell had to argue that each time the Chase employee gave an opinion on the nature of the GKO LNs it carried with it an implied statement of fact that the employee had reasonable grounds for holding that opinion. The court held that there was no such implied statement. The nature of the relationship between the Chase employee and AP, and AP’s understanding of the statements made to him was fatal to this claim.
  • Likewise, the court held that there was also no negligent mis statement. The court accepted Gloster J’s tentative conclusion at first instance that there may be a “low level” duty of care on the part of a salesman (such as the Chase employee) not to make any negligent misstatements and to use reasonable care not to recommend a highly risky investment without pointing out that it was such (Springwell did not argue for a higher duty on appeal). However, again the court held that the duty of care must be viewed in the relevant context. In this case “given the judge’s conclusion that there was no general duty of care on Chase to give advice and given the judge’s findings on the nature of the statements made by JA [the Chase employee] and what AP knew about GKO LNs and Russia, there simply were no actionable misstatements at all, let alone negligent ones”.

If there are any actionable misrepresentations, does the contractual documentation preclude a successful misrepresentation claim and exempt Chase from liability in any event?

The court continued that if, contrary to its findings, there were indeed any actionable misrepresentations, Chase’s contractual documentation precluded any successful misrepresentation claim being made and exempted Chase from liability in any event.

Chase argued that the “non‑reliance” provisions in its contractual documentation meant Springwell was contractually estopped from asserting that Chase had made any actionable misrepresentation concerning the GKO LNs.

Springwell argued that this was not possible as the Court of Appeal case of Lowe v Lombank [1960] 1 WLR 197 was authority for the principle that a statement in a contract that one party (Springwell) acknowledges certain past facts (that Chase had made no representations), known by both parties to be false (because Chase had made representations) cannot be converted into a contractual obligation upon the giver of the acknowledgment that he (Springwell) will do or will not do acts in the future on the basis of that acknowledgement. (NB. Lowe v Lombank was not cited in Peekay International Ltd and another v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 and Springwell argued that the general statements made in Peekay regarding contractual estoppel were therefore wrongly decided per incuriam or at least obiter and should not be followed.) The court rejected Springwell’s argument and said it was not bound by the statements in Lowe v Lombank on which Springwell sought to rely as they were not a necessary part of the decision as the case had in fact been decided under the Hire Purchase Act 1938 (as amended).

The court therefore held that, subject to any reasonableness argument under s3 MA (see below) there was no legal principle which prevented such statements being converted into a contractual obligation. The court concluded that Springwell, by signing the contractual documentation, must be taken to have read and understood it and was contractually bound by its acknowledgments that no representation or warranty had been made by Chase in relation to the purchase of the GKOs. Springwell was thus contractually estopped from asserting that any actionable representations were made by Chase.

The court also concluded that by virtue of the contractual provisions Springwell was precluded from claiming reliance on any of the alleged misrepresentations. Springwell had contractually agreed that the relevant Chase entity was not assuming any responsibility for statements made by the Chase employee. Springwell was therefore precluded from bringing any claim under s2 MA or for negligent misstatement. Further, the contractual documentation exempted Chase from liability in any event (under a provision which stated that Chase was not liable for any loss unless such loss was caused by Chase’s gross negligence or wilful misconduct).

It is worth noting that the court differentiated the juristic concept of “contractual estoppel” from the doctrine of “estoppel by convention”, with there being no requirement in relation to the former for it to be shown that it would be “unconscionable” for the maker of the relevant statements to resile from those statements. The court said that the “…reason why that is a requirement in the case of “estoppel by convention” is precisely because there is no contract between the parties. Therefore some other mechanism has to come into play to make the non‑contractual “convention” enforceable.”

Section 3 Misrepresentation Act 1967

The court then addressed whether the relevant provisions were caught by s3 MA and thereby whether the provisions fell foul of the reasonableness regime under the Unfair Contract Terms Act 1977 (UCTA). A term falls within s3 MA if it excludes or restricts a party’s (Chase’s) liability by virtue of any misrepresentation made by it before the contract was made or any remedy available to another party (Springwell) by reason of such a representation. If it does it will only be of effect so far as it satisfies the requirement of reasonableness as set out in UCTA.

The court approached this issue by asking itself three key questions:

  • Do the relevant provisions relate to whether any alleged misrepresentation was made at all (ie does the term go to whether an investor in Springwell’s position would have understood Chase to be making representations at all) (s3 does not apply)? Or do they purport to exclude liability for or a remedy resulting from a misrepresentation which has been made (s3 applies)? The court held that a number of the provisions merely set out the terms on which Chase was agreeing to contract with Springwell and therefore fell outside the scope of s3. On the other hand the straight restrictions on liability for loss as well as the “non reliance” provisions (although these were more difficult to classify) were exemption clauses and therefore caught by s3.
  • The court then asked itself whether, if s3 MA applies, had Chase established that the particular provision satisfied the requirement of reasonableness as stated in UCTA. Again, the court noted that the provisions must be seen in context and it took into account the fact that AP was a sophisticated investor in emerging market investments who was conscious of the risks involved. The court therefore found that the terms were indeed reasonable.

Chase was therefore entitled to rely on the exemption clauses.

Drafting seen in context

Springwell made much of the fact that wording in the contractual provisions did not, in its view, exactly sit with the reality of the transaction. For example, Springwell argued that it was not bound by the “non‑reliance” statements in the GKO LNs which were purportedly made by the “Holder” of those GKO LNs as, due to the financing structure, the “Holder” was in fact a Chase entity. The court took a pragmatic approach when construing who made these statements and said they must be set in their context as to do otherwise would be a commercial and practical nonsense. It held that when the sale of the GKO LNs was taken as a whole it was plain that the entity that is to have the ultimate benefit of the purchase rather than the financier of the purchase must be making the statements.

Comment: The Court of Appeal’s judgment should give some comfort to financial institutions facing misrepresentation claims by sophisticated investors. The court looked at the context in which the alleged misrepresentations were made and held that the sophisticated investor should be held to its contractual statements of “non‑reliance”. However, the facts in this case were favourable, as it was clear that Springwell was a sophisticated investor who understood the risks attaching to its investment. This greatly assisted the court in reaching its conclusions and less sophisticated investors may seek to argue that, in circumstances where the relationship between the parties is less equal, misrepresentations and a higher duty of care should more easily be found. Similarly in such circumstances it may be arguable that any “non‑reliance” provisions fall foul of UCTA’s reasonableness regime. For sophisticated investors, if the “non‑reliance” clauses have been properly drafted, it may be that they can only bring a successful claim if they can meet the high standards required to establish fraud.