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Springwell Navigation Corporation v JP Morgan Chase Bank [2010] EWCA 1221

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16 November 2010

Springwell Navigation Corporation ("Springwell") has lost its appeal against first instance decisions rejecting its claims that JP Morgan Chase Bank ("Chase") mis-sold it Russian GKO-linked notes and mishandled these investments in the wake of the Russian financial crisis of 1998. The Court took account of the long standing relationship between the parties, Springwell's level of sophistication, the role played by the salesman at the bank, and the backdrop of the crisis in reaching its view. Importantly, it also reaffirmed the importance of contractual provisions precluding liability of an advisory nature being imposed on banks.


Springwell was the investment vehicle for a group of shipping companies owned by Adamandios Polemis ("AP") and his family which had a long-standing relationship with Chase. In the 1990s, Springwell began investing heavily in emerging market debt, initially in Latin America and later in Russia. By 1998, it had a heavily leveraged portfolio of instruments with a face value of USD700m which was heavily concentrated in Russian debt securities known as GKO-linked notes which were issued by Chase ("GKOs"). As a result of the Russian financial crisis in 1998, the value of these investments declined heavily and the portfolio collapsed.

At first instance, Springwell made two principal claims against Chase in respect of the losses it had incurred, alleging that Chase had breached a general advisory duty to Springwell and that Chase had misrepresented the risks related to the investments. Following a 68 day trial, Mrs Justice Gloster ("Gloster J") concluded that Chase did not owe a general advisory duty to Springwell regarding the appropriateness of its investments and that, in any event, such duty was precluded by the contractual documentation governing their relationship. (See our earlier bulletin for further details: JP Morgan Chase Bank v Springwell Navigation Corporation [2008] EWHC 1186).

The Appeal

Springwell appealed the first instance decisions on two main grounds. First, Springwell asserted that Chase, through its employee Justin Atkinson ("JA"), had made misrepresentations to AP as to the nature of the GKOs in the course of telephone conversations which took place between March 1997 and July 1998. Springwell asserted that it had been induced to enter into the investments based on those misrepresentations and as a result, incurred losses following the default of the GKOs ("Pre-Default claims"). Secondly, Springwell alleged that Chase had failed in its duty to obtain value from forward currency contracts attached to the GKOs in the period after the Russian default ("Post-Default claims").

Pre-Default claims

(i) Misrepresentation

On appeal, Springwell alleged that Chase had misrepresented to it that the GKOs were (i) conservative, (ii), liquid and (iii) without currency risk. The Court found that none of these misrepresentations had in fact been made by Chase.

In relation to the first allegation, the Court noted that the word "conservative" could not be lifted "like a fish out of water" and had to be considered in the context of the relevant market and on the basis that the GKOs were local currency issues on which there had been few, if any, sovereign defaults historically. The Court also agreed with Gloster J's findings that as AP was a sophisticated investor, he would have been familiar with the jargon and would have known that the GKOs would carry significant risk. Similarly, the Court found that the references to the liquidity of the investments had to be considered against the backdrop that AP knew that the GKOs could not be regarded as liquid in the same way as US or UK treasury bonds. Further, the Court rejected any assertion that JA had misrepresented the currency risk as AP was found to have been well aware of the currency devaluation risks involved with the GKOs.

The Court also found that references to the investments being conservative or liquid could not amount to actionable misrepresentations or negligent misstatements. JA was merely giving his opinions on the investments as a salesman rather than stating any facts. Further, AP was a sophisticated investor who was well aware of the potential risks involved. The Court also held that the relationship between JA and AP did not in itself give rise to an implied representation that there was a reasonable basis for the opinions given by JA. In any event, the Court concluded that the contractual terms, as discussed below, enabled Chase to exclude liability for any actionable representations which fell within the Misrepresentation Act 1967 and for claims of negligent misstatement.

(ii) Contractual estoppel

Chase relied on provisions in the contractual documentation governing the relationship with Springwell (the "Relevant Provisions") in asserting that it did not owe an advisory duty or a duty of care to Springwell and that the Relevant Provisions precluded Springwell from relying on any actionable representation that Chase might have made.

In accordance with an earlier English Court of Appeal decision of Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] 2 Lloyd's Rep 511, the Court upheld the principle of contractual estoppel. This principle allows parties to agree that a certain state of affairs should form the basis of their transactions even if they know that this is not the case at the time the contract is made. By signing the contractual documentation, the Court concluded that Springwell must be taken to have read and understood them and was contractually bound by its acknowledgement 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 JA and was precluded from claiming reliance on them. The Court also found that the Relevant Provisions, which were held to be reasonable, prevented any claims being made against Chase under the Misrepresentation Act or for negligent misstatement.

The Post-Default claims

Springwell also claimed for loss under the terminated forward currency contracts which formed part of the financial structure of the GKOs (the "FC Contracts"). Springwell alleged that pursuant to the terms of the GKOs, Chase was guilty of "gross negligence" or "wilful default" in the actions it took or failed to take in relation to the FC Contracts.

During the moratorium, Russian banks (including Chase's subsidiary in Russia with which Chase had entered into the FC Contracts ("Chase Russia")) were prohibited from performing FC contracts with non-Russian counterparties such as Chase. Legislation was also introduced in Russia during the moratorium which made it impossible to place new roubles into a specially designated account, a step which Chase was required to take in order to perform the FC Contracts. As a result, not only had the GKOs lost their value in the default, but the FC Contracts had also become, in principle, impossible to perform.

Springwell contended that the Chase group decided voluntarily to release Chase Russia from its obligations under the FC contracts, purporting to do so in the "wider interests" of the Chase group. The Court found, however, that that it was "entirely reasonable and contractually appropriate" for Chase Russia to terminate the FC Contracts when it did.

Springwell also alleged that Chase breached it obligations under the terms of the GKOs which required Chase to maximise recovery of the transaction for the noteholder. First, Springwell alleged that Chase and Chase Russia ought to have set up separate negotiating teams within each entity to deal with the FC contracts because the two committees set up by Chase to deal with what was termed "the Russian situation" were inadequate. Second, as Chase’s approach was "energetic" in recovering on FC contracts with other counterparties, Chase’s actions or inactions should be judged against what it did in relation to those other counterparties.

With regard to the first contention, the Court held that as Chase was under a duty to Springwell to maximise recoveries under the FC Contracts, it should perhaps have pushed for arms-length negotiations between it and Chase Russia to discuss the possibility of recovery. However, the Court held that even if such negotiations had taken place, Chase could not perform its obligations under the FC contracts (due to the Russian government’s default and the legislative prohibitions). Further, Chase Russia’s obligations had not arisen under the FC contracts because roubles had not been delivered to it by Chase. As such, any arms-length negotiations would have been, in the Court's words, "pointless".

Second, the Court held that Chase's approach to recovery with other counterparties was irrelevant. The question was whether Chase could obtain any value from the FC contracts with Chase Russia. If there was no value to obtain, and no argument on which value could be obtained, then that was the end of the matter. The Court also found there was no basis for alleging that there had been gross negligence or wilful negligence on the part of Chase.


Courts remain reluctant, in claims by sophisticated investors, to impose general advisory duties on banks where there are contractual provisions precluding them.

However, it must be recognised that Springwell's sophistication and the events of the Russian financial crisis formed the backdrop of this case. These circumstances played a significant part in assisting the court to reach its conclusions. As we have seen time and again in mis-selling cases, everything which is said and done must be considered in context and against the particular facts of the case.

Nevertheless, this judgment will be at the forefront of the authorities relied on by banks in future mis-selling cases.

Contact Angus RossFai Hung CheungSimon ClarkeAmanda Seto, Jennifer Maughan

On 10 December 2010, we will be hosting a seminar on the key implications of the Springwell judgment on financial institutions. Further details of the seminar will be provided to you in due course.