Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386

Peekay invested US$250,000 in a Russian GKO-linked structured deposit through ANZ after a bank employee gave a misleading description. The Court of Appeal held Peekay was not induced by that misrepresentation, as the final terms and signed risk disclosure statement clearly described the actual product.

Facts

Peekay Intermark Ltd, an investment vehicle controlled by Mr Pawani, an experienced emerging markets investor, invested US$250,000 through Australia and New Zealand Banking Group Ltd (ANZ) in what was described as a Russian GKO-linked investment with a US dollar hedge. In telephone conversations on 1 and 2 February 1998, Mrs Balasubramaniam of ANZ’s Dubai private banking arm described the product to Mr Pawani in a ‘rough and ready’ manner, giving him the impression that Peekay would acquire a proprietary interest of some kind in an underlying GKO and would have control over how the investment was liquidated in the event of sovereign default.

On 4 February 1998, Mrs Balasubramaniam sent Mr Pawani the Final Terms and Conditions (FTCs) and an Emerging Markets Risk Disclosure Statement. The FTCs in fact described a structured deposit (a derivative) under which Peekay obtained no proprietary interest in any GKO, and under which ANZ had sole discretion to determine default events and market value in the event of Russian sovereign default. Mr Pawani merely glanced at the documents, signed them, and returned them under cover of a letter instructing that US$250,000 ‘should be utilised to buy the Russian Hedged GKO Note as per the attached document.’

Following the Russian government’s August 1998 moratorium, GKO No. 21110 became virtually worthless and Peekay recovered only US$5,918.06. Peekay sued ANZ under section 2(1) of the Misrepresentation Act 1967. The Deputy Judge found for Peekay, holding Mrs Balasubramaniam had misrepresented the nature of the product and that Mr Pawani had been induced thereby. ANZ appealed.

Issues

The principal issues were: (1) whether Mrs Balasubramaniam had made an actionable misrepresentation; (2) whether any such misrepresentation was ‘corrected’ or rendered non-operative by the terms of the FTCs which Mr Pawani signed without reading; (3) whether Peekay had been induced to enter the contract by the misrepresentation; and (4) whether Peekay was contractually estopped, by virtue of signing the Risk Disclosure Statement, from asserting that it had not understood the nature of the transaction.

Arguments

For ANZ (appellant)

Mr Pymont QC submitted that whatever Mrs Balasubramaniam had said earlier, any misrepresentation was dispelled by the terms of the FTCs, of which Mr Pawani must be taken to have been aware by virtue of his signature, whether or not he had read them. ANZ also sought permission to amend to argue that Peekay was contractually estopped by its signature of the Risk Disclosure Statement from alleging it had been induced by misrepresentation.

For Peekay (respondent)

Mr Railton QC accepted that a misrepresentation can be nullified if a correction is effectively brought to the representee’s attention before contracting, but submitted this was a question of fact and that nothing short of actual knowledge of the truth would suffice. He relied on Redgrave v Hurd, Assicurazioni Generali v Arab Insurance Group and Flack v Pattinson. Mr Pawani’s failure to read the FTCs did not displace the inducing effect of the earlier misrepresentation.

Judgment

The Court of Appeal (Moore-Bick LJ, with Chadwick LJ and Lawrence Collins J agreeing) allowed ANZ’s appeal.

Moore-Bick LJ accepted that Mrs Balasubramaniam’s description implicitly carried a representation that the investment would give Peekay a proprietary interest of some kind in a GKO, and that this was capable of supporting a claim under section 2(1). However, the FTCs clearly described a fundamentally different product (a structured deposit/derivative) and these terms appeared on the face of the documents, not buried in small print.

The court reviewed Redgrave v Hurd (1881) 20 Ch D 1, Assicurazioni Generali v Arab Insurance Group [2002] EWCA Civ 1642 and Flack v Pattinson [2002] EWCA Civ 1762, observing that while inducement is ordinarily a question of fact, none of those cases concerned a misrepresentation corrected by the express terms of the very contract being signed. The court reaffirmed the principle in L’Estrange v Graucob [1934] 2 KB 394 that a person who signs a contractual document is generally bound by its terms whether read or not.

Moore-Bick LJ held that the judge’s finding of inducement was a secondary inference from primary facts which the appellate court could review. The correct conclusion was that Mr Pawani was induced to enter the contract not by what Mrs Balasubramaniam had told him, but by his own assumption that the documents he signed corresponded to her earlier description. The FTCs were the only formal description he would receive of the investment, and only by reading them could he verify the product. His failure to do so meant the cause of his entering the contract was his own assumption, not the prior misrepresentation.

Contractual estoppel

Although not necessary for the decision, Moore-Bick LJ (with whom Chadwick LJ expressly agreed on this point) held that there is no reason in principle why parties cannot agree that a certain state of affairs forms the basis of their transaction, giving rise to a contractual estoppel as recognised in Colchester Borough Council v Smith [1991] Ch 448. By signing the Risk Disclosure Statement confirming he had read and understood its terms, Mr Pawani (on Peekay’s behalf) contracted on the basis that Peekay understood the nature of the transaction and had satisfied itself of its suitability. Peekay was therefore precluded from asserting that it did not understand the nature of the transaction described in the FTCs, and hence could not contend that it had been induced to contract by misunderstanding derived from Mrs Balasubramaniam’s earlier statements.

Chadwick LJ added that Mr Pawani’s own addition of the words ‘as per the attached document’ to the instruction letter demonstrated that he himself regarded the FTCs as important and was not content to rely on the ‘rough and ready’ oral description.

Implications

The decision is significant for two principal reasons. First, it illustrates the limits of the rule in Redgrave v Hurd: while a representee need not normally check the accuracy of a representation, where the true position is set out on the face of the very contractual document the representee signs, a court may properly infer that the representee was induced by his own assumption rather than by the earlier misrepresentation. This is particularly so where, as here, the representee is an experienced investor who knew that the documents contained the definitive terms of the investment.

Second, and more importantly, the judgment is the leading authority recognising the doctrine of ‘contractual estoppel’. Moore-Bick LJ’s reasoning establishes that properly drafted non-reliance or acknowledgement clauses can, by the parties’ agreement, preclude a party from asserting a state of affairs contrary to that recorded in the contract, independently of estoppel by representation (which requires the usual elements of reliance and detriment). This has considerable practical significance for banks, investment firms and other commercial actors who rely on risk disclosure statements, non-reliance clauses and similar acknowledgements in standard documentation.

The decision does not purport to overrule or undermine Redgrave v Hurd; it remains the case that a mere opportunity to discover the truth is not sufficient to defeat a claim for misrepresentation. The court’s reasoning is tied to the specific circumstances where the true position is expressed in the contractual documents themselves and where the representee is an experienced party who appreciated the importance of those documents. Nor did the court resolve whether a non-reliance clause could be challenged under the Misrepresentation Act 1967 or the Unfair Contract Terms Act 1977, Moore-Bick LJ noting that such a challenge was possible in principle but did not arise on the facts.

Verdict: Appeal allowed. The Court of Appeal set aside the judgment in favour of Peekay, holding that Peekay was not induced to enter into the investment contract by Mrs Balasubramaniam’s misrepresentation but by Mr Pawani’s own assumption that the signed documents corresponded to her earlier description; further, Peekay was contractually estopped by the Risk Disclosure Statement from asserting that it had not understood the nature of the transaction.

Source: Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386