Caveat emptor - Institutional investor due diligence tips (No.2)

The uncertain state of English law has been clarified; institutional investors should find the bringing of misselling claims in the English Courts less daunting in the future

Introduction

Previous newsletters in this series have focused on the substantial obstacles faced by institutional investors wishing to bring fraudulent misrepresentation claims in the English courts.

A recent decision of the United Kingdom's Privy Council has done much to remove those obstacles and clear away the convoluted legal hurdles that have defeated institutional investor claims in recent times.

The subject matter of this bulletin (and its recent predecessors) will be of direct relevance to any commercial entity that enters into transactions where any subsequent dispute may be subject to the jurisdiction of the English courts.

Credit Suisse Life (Bermuda) Ltd v Ivanishvili

The decision of the Privy Council (November 2025) in Credit Suisse Life (Bermuda) Ltd v Ivanishvili  [2025] holds out the promise for investors bringing mis-selling claims in English courts that they will more readily be able to prove reliance on, and loss caused by, the fraudulent breach of an implied representation.

Previous decisions of the English courts had imposed upon the claimant in similar circumstances a requirement to have actually considered, at the outset, the possibility of such fraudulent behaviour - in effect, to have adopted, at the outset, an attitude of suspicion towards its counterparties.

The Court in the Ivanishvili case ruled that:

1    Reliance and awareness

It should no longer be an absolute requirement that a claimant alleging the deceitful breach of a implied representation be able to show that it was aware, at the outset, of that implied representation. The judgment includes the following passage:

    "It is an everyday feature of human experience that people form and act on beliefs without any conscious awareness or thought. If someone takes advantage of such unconscious mental processes to deceive another person and cause her to act to her detriment, there is no reason why a claim for damages should not lie. The mischief is no less than in a case involving conscious awareness."

2    Representations and assumptions

A claimant should be able to make and rely upon assumptions as to facts not specifically disclosed by the defendant.  The Court said:    "It is possible, and indeed common, for a person to act on the basis of an unconscious assumption and in reliance on a representation."

It is possible then for an assumption to form the basis of an implied representation.  However, the judgment went on to add this qualification:

    "What matters is whether, in a case where the claimant has acted on an assumption, the assumption was one which the claimant would naturally be expected to make in response to the defendant’s words or actions or whether it was one made independently by the claimant. If the claimant has acted as a result of an erroneous belief not caused by the defendant, the defendant will not be liable."

Accordingly, if a claimant is to make an allegation of fraud in the context of a securities misselling claim and base that claim on an assumption as to the true state of affairs at the time of sale, then it will need also to show that the assumption had been based on the conduct of the defendant and not on some independent assessment of that true state of affairs.

3    Misrepresentation and non-disclosure

In many of these implied representation cases, an international institutional investor might reasonably ask: "Why can’t I base my claim on a failure by the issuer to disclose material information?"   The answer simply is that there is no general duty of disclosure in English contract law. And so, the investor must fall back on a claim of misrepresentation.

The Court explained as follows:

    "The distinction turns on whether the defendant (1) has done something to cause the claimant to hold a false belief on which the claimant has acted to its detriment or (2) has merely failed to inform the claimant of a material fact or to correct a false belief which the claimant independently holds."

Conclusion

Securities investors will need to remain vigilant when purchasing new issues of securities where any dispute may become subject to the jurisdiction of the English Courts.

1    Read and rely on Prospectus representations

The rule set out in the Allianz case (described in our recent bulletins) remains in effect with respect to express representations.  In order to succeed in a claim for breach of an express representation (whether made orally or in writing) it will be necessary for the investor to

“prove that they read or heard the representation, that they understood it in the sense which they allege was false and that it caused them to act in a way which caused them loss”. 

2    Addressing the "conduct" of the defendant

As explained above, it will be necessary for any claimant alleging fraudulent breach of an implied representation to show that it had been the conduct of the defendant that had given rise to the assumption that now forms the basis of the alleged implied representation.  In non-complex commercial interactions, such a requirement might not be too difficult to satisfy.  However, further thought on this particular requirement may be needed in more complex commercial transactions, and specifically in the case of investments in any type of structured finance deal or novel or esoteric securities issues.

Any institutional investor in the international capital markets wishing to receive further background on this subject, should contact us here.