Springwell Navigation Corporation (A Body Corporate) v (1) Jp Morgan Chase Bank (A Body Corporate) (Formerly Known as the Chase Manhattan Bank) (2) Jp Morgan Europe Ltd (Formerly Known as Chase Manhattan International Ltd) and Others
| Jurisdiction | England & Wales |
| Judge | Lord Justice Aikens,IX,Lord Justice Rimer,Lord Justice Rix |
| Judgment Date | 01 November 2010 |
| Neutral Citation | [2010] EWCA Civ 1221 |
| Docket Number | Case No: A3/2009/0702; A3/2009/0703; A3/2009/0704 AND A3/2009/0705 |
| Court | Court of Appeal (Civil Division) |
| Date | 01 November 2010 |
[2010] EWCA Civ 1221
Mrs Justice Gloster DBE
Before: Lord Justice Rix
Lord Justice Rimer
and
Lord Justice Aikens
Case No: A3/2009/0702; A3/2009/0703; A3/2009/0704 AND A3/2009/0705
IN THE HIGH COURT OF JUSTICE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Mr Michael Brindle QC, Mr Andrew Baker QC and Mr Jonathan Davies-Jones (instructed by Reynolds Porter Chamberlain LLP, London) for the Appellants
Mr Mark Hapgood QC, Mr Adrian Beltrami QC and Ms Catherine Gibaud (instructed by Clifford Chance LLP, London) for the Respondents
Hearing dates: 14 th, 15 th, 16 th, 17 th, 18 th, 21 st and 22 nd June 2010
Approved Judgment
| INDEX TO JUDGMENT OF AIKENS LJ | Paragraph |
| Section A: Introduction to the Appeal | |
| I. History of the Case so far | 1–9 |
| II. The Parties and the personalities involved, particularly JA and AP | 10–17 |
| III(A): The claims put forward by Springwell before Gloster J: the “Pre-Default claims” and “Post- Default claims” | |
| The Pre-Default Claims | 18–24 |
| The Post-Default Claims | 25–33 |
| III(B): Chase's defences to the Pre-Default and Post- Default claims before Gloster J. | |
| Defences on the Pre-Default claims | 34–38 |
| Defences on the Post-Default claim | 39 |
| IV(A): The principal conclusions of the judge on the Pre-Default Claims | 40–60 |
| IV(B): The principal conclusions of the judge on the Post-Default Claims | 61–74 |
| Section B: The arguments of the parties and the issues that arise on the appeal. | |
| V(A) The Parties' arguments on the Pre-Default Misrepresentation Appeal. | 75–87 |
| Chase's arguments | 88–91 |
| The Principal Issues on the Pre-Default Misrepresentation Appeal | 92 |
| V(B) The arguments of the parties and the issues on the Post-Default Appeal | |
| Springwell's arguments | 93–97 |
| Chase's arguments | 98–100 |
| Section C: The Pre-Default Appeal | |
| VI. Pre-Default appeal: Principal Issue (1): Was the judge correct in her findings on what representations (if any) were made by JA to AP in relation to the GKO LNs (“the representations issue”) | 101 |
| The “conservative” representation: the evidence relied on by Springwell on appeal | 102–108 |
| The “liquid” representation: the evidence relied on by Springwell on appeal | 109–110 |
| The “Currency Risk” representation: the evidence relied on by Springwell on the appeal | 111 |
| Can Springwell impugn the judge's findings on the representations made? | 112–115 |
| VII. Pre-default Appeal: Principal Issue (2): Was the judge correct in her conclusion on whether the alleged representations were actionable, apart from the Relevant Provisions? | 116–126 |
| VIII. Pre-default Appeal: Principal Issue (3): The effect of the Relevant Provisions | 127–131 |
| Sub-Issue (a): The GKO LN Note terms: to whom does the term “Holder” apply? | 132–140 |
| Sub-Issue (b): The GKO LN Terms and Conditions: the effect of Sections 6(c) and 5(e): the “ Lowe v Lombank” issue | 141–171 |
| Sub-Issue (c) The construction of the terms of the DDCS letters | 172–173 |
| Sub-Issue (d): do the DDCS Letters apply to the purchase of the GKO LNs at all? | 174–175 |
| Sub-Issue (e): can CMSCI rely on the terms of the DDCS letters? | 176 |
| Sub-Issue (f): Does Chase have to establish that it would be “unconscionable” for Springwell to resile from the contractual estoppel before it can rely on either Sections 5(e), 5(f) and 6(c) of the GKO LN Terms and Conditions or clauses 4 and 6 of the DDCS letters? | 177–178 |
| Sub-issue (g): Are the terms of the GKO LN Terms and Conditions and the terms of the DDCS letters caught by section 3 of the Misrepresentation Act 1967 and so subject to the regime of the UCTA? | 179–180 |
| The DDCS Letters paragraphs 4 and 6 | 181 |
| The GKO LN terms Section 6(c) | 182 |
| “Reasonableness” | 183–184 |
| Sub-issue (h): Given the conclusions so far, what is the effect of the Relevant Provisions? | 185–186 |
| The terms of the GMRA | 187 |
| IX: Pre-Default Appeal: Principal Issue (4): Reliance and causation of loss | 188–189 |
| X: Conclusions on the Pre-Default Appeal | 190 |
| Section D: The Post-Default Appeal | |
| Introduction | 191–193 |
| XI: The Post-Default Appeal: Principal issue (1) were the S-account forward currency contracts “deliverable” in the sense found by the judge? If so, what are the consequences? | 194–207 |
| XII. Post-Default Appeal: Principal Issue (2): Was CMIL entitled to give the force majeure notice to CMBI on 24 November 1998? | 208–210 |
| XIII. Post-Default Appeal: Principal Issue (3): Were the actions/inactions of Chase/CMIL between 18 November 1998 and CMBI's termination notice of the forward currency contracts on 23 March 1998 such that CMSCI was in breach of its obligations under Section 3(c) of the GKO LN terms? | 211–216 |
| XIV. Post-Default Appeal: Principal Issue (4): Did any actions or inactions of Chase/CMIL make CMSCI guilty of “gross negligence” or “wilful default” within the terms of Section 3(c) of the GKO LNs? | 217 |
| XV. Post-Default Appeal: Conclusions | 218 |
| Section E: Disposal | 219–220 |
| Appendix 1 | |
| 1997 Dealings in Developing Country Securities Letter (“DDCS letter”) | |
| Global Master Repurchase Agreement (“GMRA”) | |
| GKO Linked (S Account) Note | |
| (“GKO LN”) | |
| Terms and Condition | |
| GKO Linked (S Account) US$ Note Terms and Conditions (July 15 1998) Risks Disclosure Key Risks to Investors ConfC Confirmation | |
| Appendix 2 | |
| Master Forward Agreement Master Agreement No 1 |
Lord Justice Aikens:
Section A: Introduction to the Appeal.
I. History of the Case so far.
In 1996 the Russian Federation, having recently embraced capitalist methods of state debt finance, came to the international capital markets to help fund its state spending. Between 1996 and mid-1998, investment in Russian sovereign debt and associated derivatives was popular with many professional investors who were keen to take advantage of high yields on instruments based on “emerging market” states, of which Russia was one. But the Russian economy had severe structural problems and the state deficit ballooned in 1998. On 13 July 1998 the IMF announced a “rescue” package of aid for Russia totalling US$ 22.6 billion. Despite this package, on 17 August 1998 the Russian government and Russian Central Bank suddenly declared a 90 day moratorium on foreign debt repayments and a suspension of all trading on Russian Federation issued bonds. These restrictions applied to short-term (3, 6 or 12 months), non-interest-bearing (“zero coupon”) bonds, denominated in roubles, quoted at a discount to face value, and issued by the Ministry of Finance of the Russian Federation. These bonds were known in the markets as “GKOs”. That is an acronym for their full Russian name, which is, transliterated, “Gosudarstvenniye Kratkosrochniye Beskuponniye Obligatsio”.
The appellant company, (“Springwell”) was the “treasury” company for a group of shipping companies owned and controlled by the Polemis family. Springwell was beneficially owned by Adamandios Polemis (“AP”), his brother Spiros Polemis (“ SP”) and their mother, who was the widow of the founder of the current group, the late Mr Leonidas Polemis. Springwell, as the treasury company of the group, had, since 1996, invested heavily and profitably in emerging market securities, including a derivative of Russian GKOs. Derivatives of GKOs were issued by banks such as Chase Manhattan Bank, as the first respondent was formerly known. The derivatives were known as “GKO Linked Notes”, which I shall call “GKO LNs”. This will describe both the derivative generally and the instruments which are the subject of this litigation. In the case of the Chase derivatives, the GKO LNs were issued by Chase Manhattan Securities (C.I.) Limited (“CMSCI”), as the third Respondent was formerly known. The GKO LNs were always traded in US dollars. Because the underlying GKOs were traded in roubles, to avoid the possibility of a currency loss on the GKO LNs at redemption if the rouble/US dollar exchange rate had deteriorated by the time the underlying GKO matured, the GKO LNs contained, as part of their structure, a forward currency contract for the conversion of the GKO rouble proceeds into US dollars at the redemption date of the GKO LNs.
Between April 1996 and July 1998, Springwell made 42 separate purchases of GKO LNs. The sellers of the GKO LNs to Springwell were Chase Investment Bank Limited (“CIBL”) and then Chase Manhattan International Limited (“CMIL”), as the fourth and second Respondents were formerly known. The last purchase was made over a week after the IMF “rescue package” was announced. At the time of the moratorium on 17 August 1998, Springwell still had eleven GKO LNs in its portfolio. Their cost had been US$ 87,837,270. Those eleven GKO LNs were due to mature on dates between mid–September 1998 and January 1999. They constituted about one-third of Springwell's Russian and Russian related investments. The eleven GKO LNs' nominal maturity value, or “redemption amount” was US$95,259,716. The result of the Russian moratorium declared on 17 August 1998 and subsequent Directives of the Russian Central Bank was that the underlying GKOs did not perform and so Springwell's outstanding GKO LNs defaulted. They were ultimately restructured. At the same time, the...
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