Cassa Di Risparmio Della Repubblica Di San Marino Spa v Barclays Bank Ltd

For a claim under the Misrepresentation Act 1967, a credit rating and accurate scenario analysis do not, without more, represent that a complex financial product has a very low real-world default risk. Default risk is an estimate rather than an ascertainable fact. Pricing-model expected loss based on credit spreads is not necessarily comparable with historical default data used for ratings.

Contractual estoppel depends on construction. Clear wording that the purchaser understands investment risks may bar a claim based on misunderstanding those risks, but clauses confined to advice, recommendations or the formal terms of the notes do not necessarily bar misrepresentation. The claims failed because no actionable purchase representations or requisite inducement were proved, and no fraud or implied term was established.

CRSM purchased four structured notes containing CDO-squared instruments from Barclays for an aggregate nominal value of €406 million. It alleged that Barclays had induced the purchases by fraudulent misrepresentations or, alternatively, misrepresentations actionable under section 2(1) of the Misrepresentation Act 1967. It also claimed that Barclays had made further misrepresentations when restructuring the instruments in June 2005, and that an implied contractual term had been breached.

Barclays denied the alleged representations and relied on contractual non-reliance, understanding and terms-and-conditions provisions. The central issues were whether the documents and communications represented that the notes had a very low default risk, whether the restructuring descriptions were misleading, whether CRSM relied on any actionable representation, and whether the contractual provisions created a contractual estoppel.

The claim was dismissed.

1. Under section 2(1) of the Misrepresentation Act 1967, CRSM had to prove a representation, falsity, inducement and loss. The court accepted that the representation was to be construed objectively in context, having regard to the reasonable representee’s known characteristics. A statement of opinion was not ordinarily a statement of fact, and qualifications and disclaimers were relevant to whether reliance was intended.
2. The references to an AAA rating, the structure of the notes and the scenario analyses described the expected characteristics and performance of the instruments on stated assumptions. They did not amount to a general representation that the notes had a very low risk of default. The scenario analyses were accurate, and CRSM had been told to assess the likelihood of defaults for itself. Default risk was a matter of estimation. Expected-loss figures derived from credit-spread inputs in a pricing model were not a reliable measure of real-world default probability and could reasonably be regarded as incomparable with historical default data used for rating purposes.
3. No fraud was established. Neither Mr Agresta nor Mr Ferrario understood that the alleged purchase representations had been made, intended to mislead CRSM, or lacked reasonable grounds for belief. CRSM relied on the AAA rating and the information supplied, but did not prove reliance on a representation by Barclays as to default risk.
4. The restructuring representations also failed. “Cost zero” meant that CRSM was not required to make an upfront cash payment or accept a reduced coupon; it did not represent that Barclays would make no profit. Barclays’ stated selection criteria and use of the Scaramanga model were not shown to involve deception. CRSM relied on some of those matters, but the necessary misrepresentation was not proved.
5. Following Peekay v Australia & New Zealand Banking Group [2006] 2 Lloyd’s Rep 511 and Springwell Navigation v JP Morgan Chase Bank [2010] EWCA Civ 1221, clause 6 created a contractual estoppel in relation to the purchase claim because CRSM had agreed that it understood and accepted the risks. Clause 5 was confined to advice and recommendations, while clause 8 identified the formal terms of the notes. Neither clause 6 nor its equivalent barred the restructuring claims.
6. No implied term could be inserted requiring Barclays not to structure the notes so as to produce a risk materially different from that indicated by the anticipated rating. The proposed term lacked clear expression, was unnecessary, conflicted with the agreed allocation of risk and would undermine the caveat emptor basis of the transactions.
7. Conditionally, the court held that transaction-date damages would not appropriately measure any loss: the instruments were illiquid, bought to hold, and CRSM remained substantially locked in. The court rejected the separate claim for lost return because it was supported only by general portfolio evidence.