IFE Fund SA v Goldman Sachs International

A clear disclaimer in a syndication information memorandum may define the limited scope of any representation made by its arranger. Where it states that the arranger has not verified the information, undertakes no review, and undertakes not to advise participants of later information, it does not imply a representation that the information will be updated or that the arranger lacks knowledge casting doubt on it.

An implied representation of good faith may continue until completion. It is breached only where the arranger actually knows that information previously supplied is misleading; later information creating only a possibility of inaccuracy does not require investigation or disclosure. A clear non-assumption of responsibility also defeats a free-standing duty of care for negligent misstatement.

IFE Fund SA bought bonds and warrants from Goldman Sachs International after receiving a syndication information memorandum concerning the acquisition of Finelist plc. The memorandum included an Important Notice stating that Goldman Sachs had not independently verified the information, accepted no responsibility for it, and would not review it or advise participants of later information.

Before IFE completed its purchase, Goldman Sachs received two later Arthur Andersen reports which IFE alleged should have been disclosed. IFE also challenged the effect of a later Bondholders’ Agreement containing a waiver of proceedings. Toulson J dismissed the claim in the Commercial Court: [2006] EWHC 2887 (Comm). IFE appealed on implied and continuing misrepresentation, negligence, exclusion clauses, inducement, and the French-law effect of the waiver.

1. The appeal was dismissed unanimously. Waller LJ gave the leading judgment. Gage LJ agreed, adding reasons on misrepresentation, and Lawrence Collins LJ agreed with both judgments.
2. The Important Notice governed the objective scope of any representation made by supplying the memorandum. It precluded the alleged representations that Goldman Sachs had no knowledge that the financial information or Arthur Andersen reports might be materially inaccurate, and precluded any representation that it would update the information after the memorandum’s date.
3. The only implied representation was one of good faith. A continuing representation can require correction where the representor actually knows that its earlier information is misleading. Here, however, the later reports showed at most that the earlier reports might have been inaccurate. They did not establish actual knowledge by Goldman Sachs that the earlier material was misleading, and IFE alleged no dishonesty or bad faith.
4. The court also rejected a free-standing duty of care. The unequivocal statement that Goldman Sachs assumed no responsibility to recipients prevented any assumption of responsibility for negligent misstatement. The commercial relationship gave no basis for imposing a contrary duty.
5. Under section 2(1) of the Misrepresentation Act 1967, IFE first had to establish a representation of fact, its continuance until contracting, and its falsity. Only then would Goldman Sachs bear the burden of proving reasonable grounds for belief.
6. The court upheld the finding that clause 16.4 of the Bondholders’ Agreement barred the claim. IFE signed under an unlimited power after its proposed reservation had been rejected and then performed the agreement. It had sufficient knowledge of the undisclosed, more negative 19 May report for the waiver to be valid on the French-law basis advanced at trial.

Waller LJ additionally indicated, obiter, that the Important Notice was likely contractual when IFE accepted and relied on the memorandum.

• Court of Appeal (Civil Division): dismissed IFE’s appeal in [2007] EWCA Civ 811.
• Commercial Court: Toulson J dismissed IFE’s damages claim in [2006] EWHC 2887 (Comm).