IFE Fund SA v Goldman Sachs International

In a sophisticated commercial financing transaction, an arranger’s provision of information did not imply that it knew of no facts which might make that information materially inaccurate. The disclaimers, read as a whole, defined the scope of the representations rather than merely excluding liability. The arranger did, however, represent that it was acting in good faith and not knowingly supplying misleading information. That continuing representation could require disclosure of known misleading information, but it did not impose a duty to investigate information which merely raised a possibility of error. Contractual documentation also militated against imposing a wider duty of care in negligence.

IFE invested €20 million in bonds and warrants issued in connection with the acquisition of Finelist by Autodis. Goldman Sachs arranged and underwrote the mezzanine financing and supplied IFE with a syndication information memorandum and earlier reports by Arthur Andersen.

IFE alleged that Goldman Sachs had impliedly represented that it knew of no facts undermining the information supplied and had a duty to disclose later information, including Arthur Andersen reports dated 19 and 26 May 2000. It claimed damages for misrepresentation under the Misrepresentation Act 1967 and negligence. Goldman Sachs denied liability and relied additionally on contractual terms and a later Bondholders’ Agreement.

1. The claim was dismissed. Goldman Sachs neither made the wide implied representations alleged by IFE nor owed the alleged duty of care. The claim was also barred by clause 16.4 of the Bondholders’ Agreement.

2. The SIM had to be read as a whole and in the context of a specialist market involving financially sophisticated participants. Its statements that Goldman Sachs had not independently verified the information, would not review Finelist’s affairs and accepted no responsibility for later information went to the scope of the representations being made. They were not merely contractual exclusions of liability.

3. Supplying the SIM nevertheless carried an implied representation that Goldman Sachs was acting in good faith, meaning that it was not knowingly putting forward information likely to mislead. That representation continued until the recipient acted on the information. If Goldman Sachs became aware that information supplied in good faith was misleading, it would generally have to disclose that fact. Mere information giving rise only to a possibility of error created no duty to investigate or advise.

4. The statutory controls in section 3 of the Misrepresentation Act 1967 and section 2 of the Unfair Contract Terms Act 1977 did not determine whether the alleged representations or duty existed. The relevant wording concerned the substance and scope of the parties’ relationship, rather than excluding liability for an established representation or duty.

5. The contractual structure made it inappropriate to superimpose a negligence duty beyond the carefully defined obligations. Goldman Sachs acted for the sponsors, not as IFE’s adviser, and had not assumed responsibility for providing the information alleged.

6. Clause 16.4 plainly covered the claim. IFE’s reservation did not alter the agreement because the other parties had not accepted its proposed interpretation. Under the agreed French-law principles, IFE also possessed sufficient knowledge of the essential facts for the clause to operate as an effective waiver.