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	England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> Peekay Intermark Ltd & Anor v Australia and New Zealand Banking Group Ltd. [2005] EWHC 830 (Comm) (25 May 2005) URL: http://www.bailii.org/ew/cases/EWHC/Comm/2005/830.html Cite as: [2005] EWHC 830 (Comm)

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IN THE HIGH COURT OF JUSTICE
QUEEN=S BENCH DIVISION
COMMERCIAL COURT

		2004 Folio No. 733 Royal Courts of Justice Strand, London, WC2A 2LL
		25th May 2005

RICHARD SIBERRY QC :

Introduction

1. This is a case about the alleged mis-selling of an emerging markets investment product. The First Claimant, Peekay Intermark Ltd. ("Peekay"), claims damages under section 2(1) of the Misrepresentation Act 1967 for alleged misrepresentations as to the nature of an investment product being marketed by the Defendant, Australia and New Zealand Banking Group Ltd. ("ANZ") in early 1998. Peekay invested US$250,000 in the product in question, in February 1998. The investment decision was taken by the Second Claimant, Mr Harish Pawani, a director and controlling shareholder of Peekay. The Claimants contend that the alleged misrepresentations were made by a representative of ANZ who introduced the product to Mr Pawani, that the misrepresentions induced Mr Pawani to make this investment on behalf of Peekay, and that he would not have made it had he been aware of the true nature of the product. Peekay claims damages in the sum of US$244,081.94, being the difference between the sum invested and the amount ultimately realised by the investment in circumstances which I shall describe below. Mr Pawani makes no independent claim for relief.
2. ANZ denies the alleged misrepresentations, and contends that the product was correctly described in Final Terms and Conditions ("the FTCs") which it sent to Mr Pawani together with a generic Emerging Markets Risk Disclosure Statement ("the Risk Disclosure Statement"). Mr Pawani initialled each page of the FTCs and the Risk Disclosure Statement, except the last page of the latter, which he signed. He returned these documents to ANZ at the same time as he made the necessary arrangements for payment of the US$250,000 to be invested. ANZ contends that these documents formed part of the investment contract between Peekay and ANZ, and that in the light of the contents thereof, Peekay is not entitled to rely on any alleged pre-contractual representations which may have described the product differently.
3. The Claimants for their part conceded, in their closing submissions, that no contract had been concluded prior to Mr Pawani's receipt, initialling, signature and return of the FTCs and the Risk Disclosure Statement. However they contend that the misrepresentations as to the nature of the investment product were continuing ones, which were never corrected, and that they were not nullified or superseded by the FTCs (which they say did not in any event accurately record the transaction between Peekay and ANZ), or by the Risk Disclosure Statement. Their case was that Mr Pawani had done no more than glance through these documents.
4. ANZ has not sought to contend that the alleged misrepresentations, if made, were made otherwise than negligently so as to bring itself within the statutory defence provided for in the concluding words of section 2(1) of the Misrepresentation Act 1967. Nor has it sought to contend that, if it is indeed liable to Peekay under section 2(1), Peekay's damages should be reduced under section 1 of the Law Reform (Contributory Negligence) Act 1945 on account of contributory negligence by Peekay

The parties and the key players

5. Mr Pawani is and has since 1996 been permanently resident in Dubai. He has at all material times been a director and one of the controlling shareholders of Peekay, which is a company registered in the Isle of Man. Peekay has a branch in Umm Al Qiwain, United Arab Emirates, and trades using an address in Dubai. Peekay is a vehicle for investments, the decisions in relation to which are made by Mr Pawani and his co-directors.
6. Mr Pawani has considerable investment experience, and is clearly a man of substantial means. He was described by Mr Gordon Wood, formerly of ANZ and one of the Claimants' witnesses (see further below) as "a sophisticated individual and an experienced trader." He has, for example, traded in bullion since 1984. Mr Pawani gave evidence that Peekay's investments would typically include instruments such as bonds, bills, emerging market instruments, bullion, currencies and derivatives with major international banks. He first started investing in emerging market instruments with ANZ in 1996.
7. At all material times ANZ had an investment banking division which traded as ANZ Investment Bank, from offices in Minerva House, Montague Close, London SE1. The departments or groups within ANZ Investment Bank included a Structured Products Group, headed by Mr Paul Doust, a Structured Products Sales Team, headed by Mrs Ginette Porteous, a Local Currency Desk, headed by Mr Seamas Dawes, and a General Sales Team, headed by Mr John MacMahon, and which included Mr Wood, who was at the time in charge of private client and institutional investment business emanating from the Middle East. These various departments or groups were regarded, for internal accounting purposes, as having separate accounts within ANZ. Mr Doust and Mrs Porteous were called as witnesses on behalf of ANZ. Mr Dawes was also to have been called as an ANZ witness, but he was on business abroad during the trial, and his two short statements were put in, without objection, under the Civil Evidence Act 1995. Mr Wood was called as a witness on behalf of the Claimants. The investment product in question was developed by ANZ Investment Bank, as described in more detail below.
8. Grindlays Private Banking ("GPB") was the business name used by the private banking business carried on at the material time by various entities within the ANZ Group. These included ANZ itself, from its office at 13 St James's Square, London SW1 ("GPB London"), which was the Head Office of GPB, and ANZ's then subsidiary, ANZ Grindlays Bank Ltd. ("ANZ – GBL"), from (among other places) its branch in Dubai ("GPB Dubai"). Among the employees of GPB London were Mr Jonathan Sibley and Mr Sandip Aggarwal. Mrs Ranjita Balasubramanian ("Mrs B") was a Regional Manager of GPB based at GPB Dubai. Although employed by ANZ-GBL, she reported to GPB London.
9. Mr Pawani first met Mrs B in about 1996. Their meeting arose out of a relationship between Mr Pawani/Peekay and ANZ which had begun a year or so before. Thereafter during the period up to January 1998, Mr Pawani regularly invested in emerging market instruments with ANZ, through Mrs B and, on occasion, Mr Wood, whom Mrs B introduced to Mr Pawani as an expert on emerging markets. Russia was one of the emerging markets in which Mr Pawani invested through ANZ.
10. At the beginning of February 1998, Mrs B contacted Mr Pawani by telephone, to see if he was interested in investing in a product then being marketed by ANZ through GPB. In the course of these telephone conversations, to which I shall refer in more detail below, Mrs B is alleged to have made the representations, as to the nature of the product on offer, on which the Claimants rely to found Peekay's misrepresentation claim. It was following these telephone conversations that the investment in question was made. Mrs B was called as a witness on behalf of the Claimants. Thus, somewhat unusually, both the individual representor and the representee were called as witnesses by the party making the misrepresentation claim. It was accepted by ANZ that (subject to its arguments in defence of the misrepresentation claim) it was responsible for any misrepresentations made by Mrs B.

The investment product

11. In 1997 and at least the early part of 1998, the Russian Treasury issued bonds known as Gosudarstvenniye Kratkosrochniye Beskuponniye Obligatsio, or GKOs. These were short term (7-364 days), non-interest bearing bonds, denominated in roubles. They were quoted at a discount to their face value. The discount depended on the perceived strength or weakness of the rouble, and the time to maturity. GKOs were apparently issued on a weekly basis, and were quoted on the Moscow Interbank Currency Exchange — MICEX.
12. The right to hold GKOs was confined to 22 banks which held so-called 'S' Accounts. 21 of these banks were Russian, and the other was Credit Suisse First Boston Moscow branch ("CSFB"). These banks were known as Category 1 dealers. There was a second category, of authorised dealer, but these Category 2 dealers had to deal in GKOs through Category 1 dealers. Mrs Porteous, who gave the fullest account of the nature of GKOs and the restrictions to which trading in them was subject, did not know whether or not ANZ was a Category 2 dealer. It was certainly not a Category 1 dealer. GKOs had, as she put it, been "dematerialised" — that is to say, a holder of GKOs did not receive a paper bond or other certificate evidencing his title: records of holdings of GKOs were kept by MICEX. Mr Doust added that GKOs were "divisible as much as you want".
13. Because GKOs were, at least during late 1997 and early 1998, issued and traded at substantial discounts to their face value, they were thought to present an interesting investment opportunity, albeit one with significant attendant risk. CSFB developed a product described as "USD Currency protected High yield Notes linked to Russian GKO Bonds," and also as a "1 yr. Note giving GKO Returns Hedged back In USD." This was a derivative investment product, the risk and returns of which were linked to the performance of GKOs, but with the benefit of a US dollar ("USD") hedge. The GKOs themselves would be held by CSFB, not by the investors who bought in to the product. This CSFB product was marketed by GPB London to certain of its clients. Mr Aggarwal wanted ANZ to develop a similar product itself, so as to 'cut out the middleman.'
14. Thereupon ANZ Investment Bank set about developing such a product. By 27th November 1997, the Structured Products Group had obtained the approval of ANZ Investment Bank's compliance department for Indicative Terms and Conditions ("ITCs") for at least one version of this new product. A copy of these ITCs was disclosed by ANZ. They were headed "USD Hedged Russian Treasury Bill", and the product was described therein as "Structured 'USD Hedged Russian Treasury Bill' Deposit". The product was structured as a USD deposit to be made by a depositor with ANZ, the performance of which was to be linked with the returns on and performance of a so-called "Reference Obligation", namely a GKO with a specified maturity date. ANZ would hedge against the risk of depreciation of the rouble in the period to maturity of the GKO by means of a USD forward purchase contract with a major Russian bank. The rate of return to the depositor would be calculated by reference to the discount to face value at which the GKO was being traded at the time of the investment, and the cost of the USD hedge. The rate of return was to be expressed as an annualised percentage "Deposit Rate". The depositor would receive payment, in USD, a few days after the maturity of the reference GKO. The depositor would be exposed to risks such as default of the Russian Central Bank in making payment on maturity of the GKO, and default of the hedging bank. In the event of default by the Russian Central Bank, ANZ was to pay the depositor an amount equal to the market value of the Reference Obligation, and provisions were included for calculation of such market value. These ITCs were the precursors to the FTCs used in February 1998, as described below.
15. Mrs Porteous gave evidence that an alternative version of this product, structured as a Note rather than as a deposit, was also developed and approved. The Note would be issued by an A+ rated Issuer, and would be tradeable. No ITCs for this alternative product were disclosed, but a single-page GPB indicative term sheet was prepared in about November 1997 which appears to relate to this alternative Note product. It was this indicative term sheet ("the GPB Indicative Term Sheet") that was initially sent to Mr Pawani when the investment product was introduced to him, as explained in more detail below. However, the FTCs that he was subsequently sent, that he initialled, and that he returned to ANZ, were those developed for the structured deposit, not for the structured Note. It is clear that Peekay's investment was treated by ANZ as an investment in the structured deposit version of the product.

Events leading to Peekay's investment of US$ 250,000

16. As indicated above, both Mr Pawani and Mrs B gave evidence of the events leading to the US$250,000 investment by Peekay to which these proceedings relate. Although these events occurred more than seven years ago, Mrs B said she was reasonably certain that her memory of them was "not bad", though she relied on the documentation where her memory was not clear. She said she remembered this investment because of all the time she had had to spend dealing with the complaints of her clients (including Mr Pawani) and trying to sort them out with senior managers.
17. One of Mrs B's clients, a Mr Kapur, had invested in the CSFB product (referred to in para 13 above) through GPB in December 1997. At the end of January 1998, Mr Aggarwal at GPB London telephoned Mrs B and told her there was an interesting opportunity for clients to invest in a similar product, which he described as a GKO with a USD hedge. He told Mrs B that a tranche of US$2 million was available to investors, mentioned an indicative return in USD of 16-17% per annum, and inquired whether any of her clients might be interested. He sent her a copy of the GPB Indicative Term Sheet. This was entitled "High yield Note linked to Russian GKO Bonds hedged into USD". It began with a brief summary of the state of the GKO market, which included the following:

"The current 6 month Rouble yield on GKO's is close to 27% (as per the last auction on 19 November 1997). If one could source a forward at a reasonable rate of around 8-10% with a reasonable bank this would make US Dollar yields around 17%. We believe that Rouble rates will top at 30% and therefore a US Dollar yield of around 18 to 20% would be deemed a good level to buy hedged GKOs."

After two short paragraphs dealing with the Russian political situation and economic data, the GPB Indicative Term Sheet continued as follows:

"Brief Overview of Risk

• The investor takes the following event risks: default, Sovereign, currency contract, tax related, custodial and currency convertibility event risk associated with GKOs and the USD hedge.

• The Principal could be at risk if the Russian government were to default.

• In addition there is currency contract, sovereign or convertibility risk. If any of these events were to occur, the forward contract is suspended and the investor receive payment in Roubles. The forward is done with one of the top five Russian banks as a counterparty. The client is exposed to the default risk of the Russian bank with respect to its forward contract transaction.

• ANZ Private Banking makes no guarantee whatsoever that the full Redemption proceeds will be made by the Issuer and received by ANZ.

• These investments carry a high degree of risk and investment should be made by investors who understand such risks and who realise they may lose their entire investment.

• The minimum traded size is 100,000 USD Nominal and liquidity will be provided on request.

TERMS & RETURNS

• Approx 3-month Note linked to a Russian GKO (Treasury Bills)

• USD Composite

• Estimated USD yield 16-17% Per Annum.

• This is one of the highest yielding Dollar plays in Europe

• ANZ takes a front end fee of 50 b.p.

• A + rated issuer (Short term A1 rating)."

The GPB Indicative Term Sheet concluded with a note, in small print, in the following terms:

"PLEASE NOTE

Terms are indicative, based on FX rates and GKO yields on 21.11.97. Every effort will be made to maintain the pricing. In the event that the variables should change, it is possible that yield of the Note will change. Before entering into any transaction, clients should ensure they fully understand the potential risks and rewards and that they independently determine that the transaction is appropriate for them given their objectives, experience, financial and operational resources and other relevant circumstances. Approved by Australia and New Zealand Banking Group Ltd., regulated by IMRO and SFA. Past performance cannot be taken as a guarantee of future success."

18. As is evident from the content of the GPB Indicative Term Sheet, the estimated USD yield given was based on foreign exchange rates and GKO yields for late November 1997. To that extent at least, the GPB Indicative Term Sheet was out of date by late January 1998. It was also an indicative term sheet for the Note product, not for the structured deposit product to which Peekay's investment was in fact booked. It was an inappropriate marketing tool for that product, as Mrs Porteous recognised.
19. Mrs B said she relied on experts at ANZ to explain the nature of investment products and any risks associated with them. In this instance she obtained some further explanation of the product on offer, either from Mr Aggarwal or from Mr Wood (who said that Mrs B would have called him to ask him what he thought about the product, given his greater experience in emerging markets, but who had no specific recollection of any such conversation).
20. Mrs B understood from what she was told that her clients could not hold GKOs — they had to be held by an institution. Her evidence was that her understanding, as a result of the explanation given to her and her perusal of the GPB Indicative Term Sheet, was that GKOs would be purchased by ANZ and held in the bank's name, but on behalf of clients; that clients would have a beneficial interest in the GKOs, which would be documented; and that the GKOs would have the benefit of a USD hedge. As she put it in the course of her evidence, "The product would be a GKO held by the bank on behalf of clients, with a US dollar hedge." She understood that the references in the heading to the GPB Indicative Term Sheet, and in the "Terms & Returns" section, to the Note being "linked to" GKOs, had the connotation that, because clients could not hold GKOs in their own names, the GKOs would be held by ANZ on behalf of clients, and that the product was "structured" in that limited sense. In the event of a sovereign default, she understood that the client would end up holding roubles, and would have the right to participate in any debt restructuring option (though she appreciated that there was a risk that none might be offered). She was firm in her evidence that it was not explained to her that - as was in fact the case - the product on offer to investors was what she described as a "synthetic" product, that is, a derivative product linked to a reference obligation, or that in the event of default in repayment of the reference GKO, clients would be given no say in how their investments were to be liquidated, and no opportunity to participate in any restructuring option. She said that if her clients had been told that ANZ would decide how their investments would be liquidated, without the clients having any say, in all probability they would not have invested.
21. Mrs B telephoned various of her Dubai clients, including Mr Pawani, to see if any were interested in this investment opportunity. In para 15 of her statement, she described her first call to Mr Pawani as follows:

"To the best of my recollection, one of the telephone calls about the Hedged GKO Note from my office to Harish Pawani was around Sunday, February 1 1998 [a working day in Dubai]. What was offered was in accordance with

(a) the description given by phone to me from London ie. a short term GKO Hedged in US Dollars and

(b) as described in the indicative term sheet "High yield Note linked to Russian GKO Bonds hedged into USD" [ie. the GPB Indicative Term Sheet] — which in all probability would have also been faxed to him."

Mr Pawani confirmed that the GPB Indicative Term Sheet was indeed faxed to him.

22. In the course of her cross-examination, Mrs B expanded on the content of her discussions with Mr Pawani about the product and its attendant risks, which took place in the course of at least 2 telephone conversations between them on 1st and/or 2nd February 1998. She said that she told him he would have a GKO with a USD hedge. Although it had been explained to her that clients could not themselves hold GKOs, she would not necessarily have explained that to Mr Pawani, because she understood that ANZ would be buying and holding the GKO on behalf of her clients, who would have the beneficial interest in the GKO. As she put it, "The end result for clients was that they would hold a GKO and a hedge". She said she probably would not have gone through and explained the title to the GPB Indicative Term Sheet word for word, and in particular (and contrary to the evidence of Mr Pawani – see para 26 below) that she probably did not discuss with Mr Pawani, or explain her understanding of, the expression "linked to". Nor did she use the expression "deposit structured note" (a phrase used in the Claimant's Particulars of Claim, as to which Mr Pawani gave some conflicting evidence – see below). She discussed with Mr Pawani risks as outlined in the GPB Indicative Term Sheet, and told him that in the event of a sovereign default, he would end up holding roubles (as the GPB Indicative Term Sheet indicated). She thought she would also have pointed out the risk, in the event of default, that there would be no restructuring option on offer. She did not tell Mr Pawani that the product was a structured deposit linked to a GKO reference obligation, or that in the event of sovereign default investors would have no control over liquidation of their investments, for the simple reason that that was not how she understood the product (see para 20 above).
23. Mr Pawani's account of how this investment opportunity was presented to him by Mrs B, in paras 18-21 of his witness statement, reads as follows:

"18 . . . . . on or about the 1st or 2nd February of 1998 I was contacted by [Mrs B] on the phone, as she typically would, to inform me that she had an instrument in which I may be interested in investing.

19. She described the instrument as a short term hedged GKO ie. that Peekay would have a holding of GKOs that would be hedged in US Dollars ('USD') to lock in a USD return. I was made aware by [Mrs B] that other investors were also being approached by her to ascertain whether they were interested in investing in the instrument to complete the minimum tranche of US$2 million. I indicated my interest to the tune of US$250,000/-.

20. If I had not fully understood the instrument as described by [Mrs B], I would have requested [Mrs B] to explain any point in relation to it. Had she not understood, I am certain, she would not have contacted me without having an expert from ANZ to explain the product in detail.

21. An indicative term sheet pertaining to the GKOs, more specifically identified as 'HIGH YIELD NOTE LINKED TO RUSSIAN GKO BONDS HEDGED INTO US DOLLARS' was faxed by [Mrs B] to me….The reference in this document to the investor receiving payment in Roubles if the forward contract was suspended, only makes sense if the investor were contracting to receive an interest in or right to the GKO underlying the note and this is precisely what I understood both from what [Mrs B] told me on the telephone and from my reading of the High Yield Note document. I had no knowledge of the existence of or the need for an S account ….. or therefore its consequences if any on buying the investment."

This evidence is entirely consistent with that of Mrs B as to what she told Mr Pawani.

24. In cross-examination, Mr Pawani confirmed that the GPB Indicative Term Sheet was the only document he had at the time of his telephone conversations with Mrs B. He realised that this only gave indicative terms and conditions, as the note at the end of the GPB Indicative Term Sheet stated, but said he understood that the final product would be based on these indicative terms and conditions. He said that he asked Mrs B about the references in the GPB Indicative Term Sheet to the product being "linked to" GKOs, and that she told him that he would be buying a GKO hedged into dollars to lock in the USD return. He reiterated that Mrs B told him that the product was a short term GKO hedged into USD. He was not aware of any restrictions to which trading in GKOs was subject. However, he understood that the GKO would be for a minimum of US$2 million, so that he would have only a pro rata share therein if he decided to participate, in which event ANZ would be buying the GKO on his behalf and that of other interested investors. He understood that, on maturity (and barring default), ANZ would receive roubles on behalf of its clients, who would, by virtue of the USD hedge, be paid in dollars by ANZ.
25. Mr Pawani gave evidence that he also discussed with Mrs B the "Brief overview of Risk" in the GPB Indicative Term Sheet, and what were the risks in the event of default or suspension of the forward hedge. In the light of these discussions he understood that, in the event of default in repayment of the GKO, the investors would end up with the GKO paper, and would be able to take advantage of any restructuring option on offer – though there was no discussion at the time of any default mechanism, and he did not consider how, in the event of default, the position would be resolved between the participating investors. However, he testified that the fact that he would, as he thought, have an interest in the GKO and therefore at least some say in what was to be done in the event of default, was very important to him (see further para 58 below).
26. At one point in his cross-examination, when confronted with an allegation in the Claimants' Particulars of Claim to the effect that Mrs B represented that the product "comprised a deposit structured note", Mr Pawani said that he asked Mrs B what this meant and she gave the explanation that it would be a short term GKO with a USD hedge. Later in his cross-examination, however, he said there was no discussion about the product being a deposit.
27. Mr Pawani and three other clients expressed serious interest in the proposed investment, and Mrs B passed on this good news to Mr Aggarwal by telephone when GPB London opened, at around 1 pm. Dubai time on Monday 2nd February 1998 (Dubai was 4 hours ahead of London). Later that afternoon, around 5pm Dubai time, Mrs B received another call from Mr Aggarwal, in which he told her that the indicative return for this investment opportunity was 21.5% per annum, and that it would mature around mid-October 1998. He sought speedy confirmation that Mrs B's clients wished to go ahead in the light of this indicative return and maturity, because he had been told that ANZ needed to do the trade immediately.
28. Mrs B passed on this information by telephone to Mr Pawani and her other interested clients. In para 22 of his witness statement, Mr Pawani described this further conversation with Mrs B as follows:

"On 2nd February, 1998, sometime in the afternoon, [Mrs B] phoned me again to advise me that ANZ was able to secure a return of 21.5% with maturity in mid-October, provided a commitment was made immediately to secure the participation. I confirmed an investment of US$250,000 with her. At this point I may have faxed a signed copy of the Indicative Term Sheet [ie. the GPB Indicative Term Sheet] to her but after all these years I cannot remember for sure whether I did so. In any event, I considered myself contractually bound to the investment as per the terms & conditions described by [Mrs B] to me and Risk as highlighted in the Indicative Term Sheet."

29. It was the Claimants' pleaded case that a contract was concluded in the course of this further telephone conversation, when Mr Pawani confirmed that he wished to invest US$250,000, and that later documentation from ANZ, in particular the FTCs and the Risk Disclosure Statement, was contractually irrelevant. However, in recognition of the fact that what had been communicated to Mr Pawani by this stage was still only an indicative rate of return, the Claimants abandoned this contention in their closing submissions. Mr Pawani acknowledged that, following this telephone conversation, he expected to receive a documentary record of the transaction, including terms and conditions, as he had on previous transactions with ANZ (see further para 37 below).

30. Mrs B's other clients also confirmed their interest in the investment, to a total (inclusive of Peekay's US$250,000) of US$2.75 million. Mrs B duly reported this continuing client interest to GPB London by telephone in the late afternoon/early evening Dubai time on 2nd February 1998.

31. GPB London in turn emailed Mrs B, first ITCs, and then about an hour later on 2nd February, FTCs, for the transaction. The covering email for the ITCs stated that settlement would be "T + 7", ie. by 9th February 1998. The FTCs confirmed an

Effective Date of 9th February 1998, and a rate of return of 21.50%, and specified a Maturity Date of 16th October 1998, in line with the indicative terms communicated by Mrs B in her telephone calls to clients referred to in para 28 above. I shall describe the content of these FTCs in more detail shortly. By the time these emails arrived, Mrs B's office was closed, as Mr Aggarwal would have appreciated. She was out at a management meeting all day on 3rd February 1998, and did not read the emails until she returned to her office on 4th February 1998. I shall describe what then happened below, but first I must record what ANZ did on Mrs B's confirmation of continuing client interest.

29. Even though Mr Pawani did not become contractually bound as a result of confirming his interest in his further telephone conversation with Mrs B (and in all probability nor did the other investors when they likewise confirmed their interest), ANZ went ahead with at least the internal transactions which were intended to give effect to the proposed investments of Mrs B's clients. These were as follows:

(1) Mr Aggarwal on behalf of GPB signed a sale confirmation dated 2nd February 1998 whereby GPB undertook to place what was described as a "Structured 'USD Hedged (Western Bank) Russian Treasury Bill' Deposit" of US$2 million with ANZ Investment Bank, effective 9th February 1998, on attached FTCs dated 2nd February 1998 which were identical to the FTCs sent by email to Mrs B. The reference in this sale confirmation to the hedging bank as "Western Bank" was a typographical error, and should have been to "Russian Bank". This documentation recorded the internal "sale" of a structured deposit product by ANZ Investment Bank to GPB London;

(2) The purchase by Structured Products from the Local Currency Desk of an interest in GKO 21110, with a face value of 15,190,000 roubles, maturity 14th October 1998, at 77.95% of face value (equivalent to 11,840,605.00 roubles), was booked with a trade date of 2nd February 1998;

(3) In order to "pay" for this interest in GKO 21110, a spot purchase of 11,840,605.00 roubles by Structured Products from the Local Currency Desk, for US$1,966,551.24, was booked with a value date of 3rd February 1998;

(4) A forward "sale" of 15,190,000 roubles representing the face value of the GKO, for US$2,293,053.89, value date 14th October 1998 to match the maturity date of the GKO, was also booked, this being the internal record of the USD hedge. This sum of US$2,293,053.89 would, barring any default, represent the USD proceeds of the US$1,966,551.24 used to purchase roubles to pay for the interest in the GKO. The balance of the original US$ 2 million, namely US$ 33,448.76, would represent ANZ's profit on the deal.

30. It was these internal transactions, and any associated external transactions, that enabled ANZ to confirm the rate of return to GPB's customers of 21.5% per annum. ANZ went ahead with these transactions on the basis that their client investors were committed, but the transactions could have been unwound if their money had not been forthcoming. However ANZ did not disclose any documentation relating to any external transactions relevant to this trade: no documentary evidence was produced to evidence purchase of an interest (whether direct or derivative) in GKO 21110, or of the purchase of a USD hedge from a Russian bank. Mrs Porteous thought ANZ would have acquired some interest in the GKO, because the Local Currency Desk was not authorised to take a position (ie. to go short) on such a trade. However, she did not know the nature of the interest acquired by ANZ, and, as she put it, "maybe they did it synthetically", that is, by acquiring some sort of derivative interest. She thought there would have been a hedge, but had seen no documentation. Mr Doust for his part indicated that ANZ could have taken a position in relation to the GKO, and was under no obligation to hedge. In the light of this evidence, I am unable to make any findings as to what if any interest ANZ acquired in GKO 21110, or whether in fact it obtained an external USD hedge in relation to the transaction. This does not, however, prevent me from reaching conclusions on the various issues relevant to Peekay's misrepresentation claim.
31. A similar transaction, in respect of which ANZ disclosed no external documentation but similar internal documentation (apart from the fact that the sale confirmation was missing), was entered into on 3rd February 1998, in view of the fact that there had been client interest exceeding the sum of US$ 2 million mentioned on 2nd February 1998. Due to adverse movement in GKO rates, the profit to ANZ in respect of this second transaction would (assuming all had gone well) have been minimal. Mr Doust thought it was to this 3rd February 1998 transaction that Peekay's investment was booked, but that is unlikely, given that Mr Pawani was sent FTCs showing a trade date of 2nd February 1998.
32. As indicated above, Mrs B opened Mr Aggarwal's 2nd February 1998 emails on 4th February 1998. She gave evidence that she would not have bothered to look at the ITCs, as these had obviously been superceded by the FTCs, which she did open and print out. It was, however, clear from her evidence that she did not herself read the FTCs, at least in any detail. Mrs B said that she would have worked on the basis that if the FTCs had contained any material changes from the investment product as previously described to her, this would have been drawn to her attention by GPB London, so that she could in turn draw such changes to the attention of her clients. But no changes were drawn to her attention. Accordingly, she assumed the FTCs correctly reflected what she had explained to her clients that the investment product would be. She realised that GPB London would require clients to sign and return the FTCs, but she regarded this as essentially a matter between her clients and GPB London, and in the circumstances her office acted as no more than a post office in relation to the FTCs.
33. Mrs B accordingly sent the FTCs, and the Risk Disclosure Statement that had accompanied them, to Mr Pawani (and to her other 3 clients). Her office also prepared and sent Mr Pawani draft letters of instruction for transfer of the necessary funds to make the investment. These went out under cover of a letter in Mrs B's name dated 4th February 1998. One of these draft letters was addressed to GPB London. It instructed the bank to "utilise a total of US$ 250,000/- to buy the Russian Hedged GKO Note". This letter supports Mrs B's evidence as to her understanding of the nature of the investment product: it indicates that she did indeed believe that Mr Pawani/Peekay was buying an interest in a GKO, which would come with the benefit of a USD hedge.
34. Mr Pawani duly received the FTCs, the Risk Disclosure Statement, and the draft letters of instruction. He knew from his previous dealings with ANZ that there would be terms and conditions that he would be required to sign, and so receipt of such documents came as no surprise to him. However, he regarded them as "just a mere formality". He assumed, based on the considerable confidence he placed in ANZ as his bank, that the documents would reflect what he had discussed earlier with Mrs B. Accordingly, he said he briefly looked over them, but did not read them. He did, however, notice that the FTCs were headed "USD Hedged Russian Treasury Bill" – a heading which he regarded as consistent with the description of the product that he had been given by Mrs B. He initialled each page of the documents (except the last page of the Risk Disclosure Statement, which he signed). He also instructed one of his employees, Mr Ramesh Shah, who was an authorised signatory for Peekay, to do likewise, which Mr Shah duly did. Although it was suggested to Mr Pawani that he must have digested some at least of the content of these documents as he turned the pages, to initial or sign them, his evidence that he did not read the documents was not seriously challenged.
35. The FTCs were, as I have mentioned, headed "USD Hedged Russian Treasury Bill." They identified ANZ (London Branch) – ie. ANZ Investment Bank - as Deposit Taker, and ANZ Private Bank – ie. GPB London - as Depositor. The product was described therein as "Structured 'USD Hedged Russian Treasury Bill' Deposit — Russian Bank". The Deposit Amount was stated to be US$ 2 million. The Trade Date, Effective Date and Maturity were given, respectively, as 2nd February, 9th February, and 16th October 1998, the last of which was also given as the Payment Date. A "Reference Obligation" was identified as "GKO no 21110 Maturity 14th October 1998", and the "Reference Forward Counterparty" – ie. the hedging bank – was stated to be International Moscow Bank. The deposit rate was specified as 21.50% per annum, "Paid in USD, Subject to Provisions in Appendix 1". ANZ was to be the "Calculation Agent".
36. Appendix 1 to the FTCs identified certain non-payment events, including default by the Central Bank of Russia, the Russian Ministry of Finance, or MICEX, in making payments in respect of "the underlying Reference Obligation." Appendix 2 set out the Settlement Procedures. Clause (1) thereof specified the procedures in the event of default by the Russian Central Bank, as follows:

"In the event of Default, the Deposit Taker will pay an amount to the Depositor equal to the Market Value of the Reference Obligation and the Deposit Taker's obligations with respect to the Deposit will then irrevocably cease."

A footnote (in small print) referred to in clause (1) of Appendix 2 read as follows:

"Market Value will be the bid value of the Reference Obligation inclusive of accrued interest, on the day after the Default is deemed to have occurred, as determined by the Calculation Agent by reference to at least two dealers. The Market Value will then be converted into USD at an exchange rate determined by the Calculation Agent, and paid to the Depositor, as soon as the Calculation Agent determines it is practicable to do so (after the deduction of any amounts determined to reflect the cost to the Deposit Taker)."

37. The fourth and final page of the FTCs contained an "Important Notice" which included the following provision upon which ANZ relied:

"It is an express term that you may enter into [sic] with ANZ Bank that you are not relying on any communication (written or oral) made by ANZ Bank as constituting either investment advice or a recommendation to enter into this transaction."

38. As Mr Pawani pointed out in the course of his evidence, the FTCs made no mention whatsoever of Peekay – as mentioned above, the Depositor and the Deposit Taker were respectively identified as GPB and ANZ London Branch. Moreover, they referred to a Deposit Amount of US$ 2 million, the total of the first tranche invested by GPB. The FTCs were on any view not an appropriate record of Peekay's investment of US$250,000.
39. The Risk Disclosure Statement, which as indicated above was a generic document not specific to this investment, contained a number of statements emphasising the risk of investing in emerging markets instruments, and stating that such investments should only be made by sophisticated investors or experienced professionals. In particular there was a capitalised statement, upon which ANZ relied, that:

"Before making any investment in an emerging markets instrument, you should ….ensure that you fully understand the nature of the transaction and contractual relationship into which you are entering and the nature and extent of your exposure to risk of loss…."

40. Mr Pawani returned the initialled FTCs and the initialled and signed Risk Disclosure Statement under cover of a letter addressed to GPB London which was in similar terms to those of the draft that had been provided by Mrs B, except that his letter concluded: "A total of US$250,000/- should be utilised to buy the Russian Hedged GKO Note as per the attached document". Mr Pawani had added the words that I have italicised to Mrs B's draft. He accepted that they referred to the FTCs and Risk Disclosure Statement.
41. The product in fact on offer to Mr Pawani was not a "Russian Hedged GKO Note" – the description given by Mrs B in her draft instruction letter, and adopted by Mr Pawani in the letter he sent. Indeed, it was not a Note at all. It was a structured deposit. Mrs Porteous did not see Mr Pawani's letter. She said that if she had, the final sentence would not have sent alarm bells ringing: she would have looked to and drawn comfort from what was said in the "attached document" - ie. the FTCs and Risk Disclosure Statement, and would have regarded the customer's misdescription of the product as a "Note" as a "little wrinkle". However, when asked whether her comfort would have been shaken if she had also noticed the description in the FTCs of the Depositor as GPB and the Deposit as one of US$ 2 million, she conceded that she would have asked for a new confirmation to have been sent out.
42. ANZ also issued an undated Contract Note in respect of Peekay's investment. It was not clear on the evidence exactly when this Contract Note was received by Mr Pawani, but I find that it is likely to have been shortly after 4th February 1998. It recorded the Bargain and Settlement Dates as 3rd and 9th February 1998 respectively. This Contract Note was, as Mr Pawani pointed out, the only document issued by ANZ which either named Peekay or correctly recorded the amount of its investment. It was, by the end of the trial, common ground that the Bargain Date was not 3rd February 1998, as nothing material happened on that day, and as Mr Pawani had not received, let alone initialled and returned, the FTCs by then. But that was not the only inaccuracy in this Contract Note, insofar as it was intended to record what it was that Peekay's investment had bought, so far as ANZ was concerned. The Contract Note was addressed to Peekay. It included the following,

"WE are pleased to advise that we have PURCHASED on your behalf:

Oct.USD GKO 03/02/98 Maturity 14.10.98….

Amount of Stock 250,000

@ price 1.00000

Consideration USD 250,000

…..

We have debited your US Dollars Account with the sum of USD 250,000 at an exchange rate of 1.642000."

43. Mrs Porteous said that when she first saw this Contract Note (apparently in the course of these proceedings), she was "mystified, shocked and perplexed all in one". She described it as "a very sloppy operational effort", and "completely bizarre", adding, "It's got wrong written all over it", and that it should never have gone out to the customer. These trenchant criticisms of this particular example of ANZ's documentation of this transaction were entirely justified. There was no such thing as a USD GKO. The maturity date of Peekay's investment was intended to be 16th, not 14th October 1998. It was wholly inappropriate to describe an investment in a structured deposit as a purchase of "stock", or the resultant deposit as a holding of 250,000 units of Oct. USD GKO. And the reference to what was obviously a sterling/dollar exchange rate was inapposite, as Peekay's investment was made from USD accounts.
44. Mr Pawani regarded the terms of this Contract Note as being "entirely consistent with a contract which had already been entered into for the purchase of a holding of GKOs". In view of the description of the product, and the reference to purchase of stock, this was in my judgment a reasonable interpretation of the document.
45. For reasons that are not entirely clear but may be due to the fact that the first set of documents went astray within ANZ, Mr Pawani appears to have been sent, and to have initialled/signed and returned, a second copy of both the FTCs and the Risk Disclosure Statement, the former being dated 14th February 1998. In this instance the documents were also initialled and in the case of the latter, countersigned, by Mr Mahesh Pawani, another director of Peekay, but nothing turns on these documents: it was not, for example, suggested that the contract was not concluded until they were initialled/signed and subsequently returned.
46. Some months later, Mr Pawani received from GPB a "Safe Custody Statement as at 30 June 1998", which purported to confirm a holding of "250,000 Oct.USD GKO 03/02/98 Maturity 14.10.98", categorised as "Miscellaneous Paper". This was also consistent with his understanding that he had purchased a holding of GKO bills with a USD hedge. Mrs Porteous acknowledged that the phrase "Miscellaneous Paper" suggests some sort of security holding. Like the Contract Note, this safe custody statement was inconsistent with a structured deposit investment. Neither Peekay nor Mr Pawani ever received any document confirming the setting up of a US$250,000 structured deposit on Peekay's behalf.

The Russian default and subsequent events

47. In mid-August 1998 the Russian government announced a moratorium on certain of its debt obligations, including those arising under GKOs. Mrs B spoke to all 4 of her clients on 18th August 1998, and discussed the likely impact of this development on their GKO investments, and what they agreed was the distinct possibility of a default by the Russian hedging bank on the forward currency contract that was believed to constitute the USD hedge. Mr Pawani's evidence was that it seemed highly probable to him that Peekay would end up holding roubles, instead of getting paid in USD on maturity of his investment. He told Mrs B that he had no trouble with that. Mrs B confirmed that that was the substance of her conversation with him.
48. The maturity date of the GKO underlying Peekay's investment was 14th October 1998. Upon the default of the Russian Government in making repayment of this Reference Obligation, ANZ Investment Bank put into operation the default procedure prescribed in Appendix 2 of the FTCs. They secured two bids in respect of the Reference Obligation, and accepted the higher of the two, which resulted in a return of about 5% of the face value of the GKOs. In doing this, ANZ acted strictly in accordance with the FTCs – the contrary was not suggested.
49. Mr Aggarwal advised Mrs B of what had happened by email on 16th October 1998. He explained that "This action was dictated by the nature of the note as it was a) a structured deposit that may or may not have had an underlying physical GKO position and b) due to the fact that the [FTCs] stipulated how the settlement should occur and required this action". It is clear from this email that Mr Aggarwal was concerned that the FTCs had left "no leeway for any other action".
50. Mrs B's evidence was that this was the first time she had been informed that the investment may not have had an underlying physical GKO, or that the FTCs stipulated how settlement should occur. In her reply to Mr Aggarwal on 20th October 1998, she observed that "With the rescheduling package not yet determined, the closure is definitely not in the client's interests." She added that "the product was clearly offered as a hedged GKO, ie. that there would be a holding of GKOs which would be hedged with one of the 'top three' Russian banks into USD", and she complained that at no time were the risk factors arising from the closure provisions highlighted to her, so she could explain them to clients. In a memo to his colleague Mr Sibley dated 23rd October 1998, Mr Aggarwal echoed these complaints about the default mechanism and the lack of warning or prior explanation to clients.
51. The first time Mr Pawani was formally advised of the fate of his investment was on 9th December 1998, when he received, via GPB Dubai, a letter from GPB London addressed to Peekay, bearing the date 22nd October 1998. This letter read as follows:

"Option Maturing 14.10.98

We refer to your holding of:

USD 250,000.00 Oct USD GKO 03/02/98 Maturing 14.10.98,

and advise that this option has matured at 2.36722%.

The sum of USD 5,918.06 has been credited to your account…."

Mr Pawani was understandably shocked and surprised by the description of Peekay's investment as an "option". On no view could Peekay's investment be properly described as an option, and I found ANZ's attempt to explain this away as a reference to the fact that a number of choices arose in the event of default, wholly unconvincing. Mr Pawani expressed his shock and surprise in a letter to GPB London dated 15th December 1998, in which he wrote that it had been explained to him "that the funds were to be invested in GKO with a US dollar hedge to avoid the exchange risk", and that he awaited the reinstatement of the original contract as presented to him.

52. ANZ/GPB received written complaints from the other investor clients of Mrs B as well as from Mr Pawani. It appears that the other clients had also been under the impression that they were buying GKOs hedged into USD, and that they were unaware of the possibility that ANZ might liquidate their investments without awaiting any restructuring package.
53. Mr Pawani received no substantive written response to his letter from ANZ for a considerable time. There were, however, a number of meetings between Mr Pawani and senior managers of ANZ over the following months, in the course of which Mr Pawani received various assurances that his complaints were high on ANZ's agenda, and the bank was working towards a satisfactory resolution of them.
54. It was not until 19th March 2003, in a letter from ANZ Investment Bank's in-house solicitor written in response to a letter before claim dated 17th January 2003 from the Claimants' solicitors Nelsons alleging misrepresentation, that ANZ first clearly set out its position that the transaction involved, as described in the FTCs, "a deposit, not an option (or any other form of derivative)", and that it had been subject to the settlement procedures in Appendix 2 to the FTCs.
55. Mr Pawani gave evidence that Peekay would not have made the investment in question if he had realised that it gave Peekay no interest in the underlying product, the GKO. The absence of such an interest meant that he had very little flexibility if a problem occurred, as it did with the Russian default. He said if Peekay had had such an interest, then even if its value on maturity was negligible, that was unlikely to remain the case. He said he would have been prepared to hold on and wait for the position to improve, as he had with other Peekay investments affected by the Russian default. In the event, Russia offered restructuring options to holders of GKOs, but because Peekay had, as it transpired, no interest in the GKO which constituted the Reference Obligation, and because Peekay's investment had been liquidated by ANZ in accordance with the provisions of Appendix 2 to the FTCs, Peekay had not been able to take advantage of any of those restructuring options.

The commencement of proceedings and the changes in the Claimants' pleaded case

56. The Claimants commenced these proceedings on 30th January 2004, shortly before expiry of the 6-year limitation period. In their original Particulars of Claim, served on 25th May 2004, the Claimants pleaded, in para 9, that:

"In or about the first week of February 1998 Mr Pawani was telephoned by [Mrs B] and she informed him that he could make an additional investment in emerging market and that:

(a) The Bank had a product which was being marketed, a US$2m Russian "hedged treasury bill note" known as a "Hedged GKO" ("the Note");

(b) the Note comprised a deposit structured note by which Russian roubles were hedged by a strong foreign bank, the International Moscow Bank.

(c) the Note was short term, yielding 21.5% and maturing in October 1998.

(d) that by reason of the Note having a US dollar hedge exchange risk would be avoided;

(e) the total amount which could be invested in the Note was US$2m;

(f) a number of other Dubai businessmen known to Mr Pawani, were either interested in or had already invested in the Note.

Mrs Balasubramaniam gave to Mr Pawani on behalf of Peekay Intermark a document entitled "USD Hedged Russian Treasury Bill."

The reference in the last sentence of para 9 was to the FTCs. In para 10 it was pleaded that in reliance on these representations Mr Pawani on behalf of Peekay invested the US$ 250,000. The case on misrepresentation was summarised in paras 19 – 22, as follows:

"Misrepresentation

19. By reason of the statements referred to in paragraph 9 hereof [Mrs B] represented to Mr Pawani on behalf of Peekay Intermark that the instrument sold by the Bank to Peekay Intermark was a GKO Note, the terms of which were as represented.

20. Peekay Intermark relied on the said representation in entering into the Transaction.

21. The said representations were false and made negligently in that the investment purchased under the GKO Transaction was an option, further not as represented.

Loss and Damage

22. If Peekay Intermark had been made aware of the true nature of the GKO Transaction they would never have entered into it."

There followed particulars of loss claimed, namely the difference between the original investment and the sum realised.

57. In response to an application by ANZ for summary judgment in January 2005, the Claimants sought and obtained permission to amend their Particulars of Claim. The only amendment to para 9 which I need record was to the final sentence, where a reference to the GPB Indicative Term Sheet (defined therein as "the GKO Documentation") was substituted for the original reference to the FTCs. This apparently arose from disclosure of a copy of the GPB Indicative Term Sheet by ANZ. Para 10 was, however, completely recast, to read as follows:

"10.In reliance upon [Mrs B's] representations set out in paragraph 9 hereof and the GKO Documentation, Mr Pawani on behalf of Peekay Intermark understood and was entitled to understand in particular that :

a. investment in the GKO Note would give Peekay Intermark

i. a commensurate share in and right to the GKO instrument underlying that note and

ii. the corresponding right to payment in Roubles on the maturity thereof:

b. such investment was protected from currency exchange risk by a US dollar hedge; and

c. such hedge, in the event of default or suspension, would give Peekay Intermark the right to conversion of those Roubles to US dollars at some time in the future.

and accordingly agreed on 2nd or 3rd February 1998 to invest US$250,000 in the Note ("the GKO Transaction").

A new para 10A referred to the receipt and terms of the Contract Note, and a new para 11 pleaded that the GKO transaction was concluded on or by 3rd February so that the FTCs received on 4th February 1998 were contractually irrelevant. The summary of the case on misrepresentation was repleaded as follows:

"Misrepresentation

17. By reason of the statements referred to in paragraph 9 hereof [Mrs B] represented to Mr Pawani on behalf of Peekay Intermark that the instrument sold by the Bank to Peekay Intermark was a GKO Note, the terms of which were represented as aforesaid.

18. Peekay Intermark relied as aforesaid on the said representations in entering into the Transaction.

19. The said representations were false and made negligently in that the investment purchased under the GKO Transaction:

a. gave Peekay Intermark no interest in the GKO;

b. was not protected by a hedge whether on

i. the International Moscow Bank

ii. or at all.

Loss and Damage

20. If Peekay Intermark had been made aware of the true nature of the GKO Transaction and, in particular, that it

a. acquired no interest in the GKO, and

b. did not benefit from any hedge of its currency risk then it would not have entered into it."

The particulars of loss followed, as before.

The main issues

58. The two main issues at trial were: (1) what was said by Mrs B to Mr Pawani as to the nature and characteristics of the investment product in question in the course of their telephone conversations on 1st and/or 2nd February 1998, and what was he reasonably entitled to understand based on what he was told; (2) were any misrepresentations as to the nature of the product nullified or superseded by the FTCs and the Risk Disclosure Statement, and Mr Pawani's initialling/signature and return thereof.
59. There was, as indicated above, originally also an issue as to whether the investment contract was concluded in the course of Mr Pawani's final telephone conversation with Mrs B on 2nd February 1998, as the Claimants contended until they conceded in the course of final submissions that there was no contract before Mr Pawani received the FTCs. Other pleaded issues included an issue as to whether Peeekay had relied on the alleged misrepresentation in making the investment, and whether Peekay suffered loss as a result of the alleged misrepresentation. Certain other pleaded issues fell by the wayside in the course of the trial.

The Claimants' submissions

60. Mr Majumdar on behalf of the Claimants very realistically recognised that Mr Pawani's evidence had been less than satisfactory in some respects, notably in relation to whether he had been told by Mrs B that the investment involved a "deposit structured note" as alleged in para 9(b) of both original and amended Particulars of Claim, and if so whether he had discussed the meaning of this expression with her (see para 26 above) - though he submitted that some inconsistencies in the evidence were not surprising, given the passage of time since the events in question. He submitted, however, that Mrs B was a very different kind of witness from Mr Pawani, and that her evidence as to what she had been told about the product, what she understood its nature to be, and what she told Mr Pawani about it, was clear, consistent with the Claimants' case, and not seriously challenged. In short, Mrs B told him that he would have a GKO with a USD hedge. But this was incorrect, as the product on offer was in fact a deposit linked to the performance of a GKO Reference Obligation, and gave the investor no interest whatsoever in any underlying GKOs. It followed that the nature of the product was misrepresented by Mrs B on behalf of ANZ.
61. Mr Majumdar accepted that the GPB Indicative Term Sheet did not in fact describe an investment in which investors would have any legal or beneficial interest in GKOs. However, he submitted that it was clear on the evidence that both Mrs B and Mr Pawani believed it was consistent with their understanding. Indeed, it contained a number of provisions which indicated that investors would have an interest in the GKOs – notably the reference to investors receiving payment in roubles in the event of default, but also the reference in the first paragraph to "a good level to buy hedged GKOs", and the statement in the final bullet point of the "Brief Overview of Risk" that "liquidity will be provided on request", which suggested an ability to sell the investment. The fact that, as Mr Pawani knew, Peekay would be only one of several participants in an investment of US$ 2 million, was also compatible with this understanding. Mr Pawani understood that he would have a pro rata share in the holding of GKOs, which were in any event, according to the evidence (of Mr Doust), infinitely divisible.
62. There was, Mr Majumdar submitted, no challenge to the Claimants' case on inducement – that is, to Mr Pawani's evidence that he would not have made the investment had he realised it was a deposit-linked structure which gave Peekay no interest in GKOs and no control over the liquidation of the investment in the event of default.
63. As mentioned above, Mr Majumdar accepted that there was no contract before Mr Pawani received the FTCs. Given that they formed at least part of the contractual documentation, it did not matter precisely when the contract was made. As to their effect, he submitted that the misrepresentation as to the nature of the product, a misrepresentation which went to the very nature of the transaction being entered into, was a continuing one which could in practice only have been corrected by Mrs B, by pointing out that the FTCs did not reflect what she had discussed with Mr Pawani. She did not do this, because she expected the FTCs not to be materially different to what she had been told, and had in turn passed on, as to the nature of the product. That was a reasonable assumption for her to make, and if it was reasonable for her, it was likewise reasonable for Mr Pawani, who was entitled to assume that what she had said would be faithfully reflected in the FTCs.
64. In support of his submission that any divergence should have been specifically drawn to Mr Pawani's attention, Mr Majumdar relied on Arinson v. Smith (1888) 41 Ch. 348, which concerned the question of whether a misrepresentation in a prospectus was corrected by a circular issued after shares had been allotted to investors who had relied on the prospectus. The Court of Appeal held it was not, and that what would have been required was a clear statement in the circular calling attention to the fact that there was a serious error in the prospectus – see per Lord Halsbury LC at p. 370.
65. The FTCs were in any event, he submitted, unclear. The heading itself, "USD Hedged Russian Treasury Bill", was not apt to correct Mr Pawani's misapprehension as to the nature of the product. The FTCs did not even mention Peekay, or the amount of its proposed investment. The "non reliance" provision on page 4 of the FTCs was inapplicable because Mrs B's description of the product did not constitute investment advice or a recommendation. And the provision in the Risk Disclosure Statement about the investor ensuring he fully understood the contractual relationship did not assist ANZ.
66. Accordingly, so Mr Majumdar submitted, the FTCs did not nullify or supercede the misrepresentation. Inducement having been established, Peekay was entitled, in accordance with the decision of the Court of Appeal in Royscott Trust Ltd. v. Rogerson [1991] 2 QB 297, to the fraud measure of damages, viz. to be put in the financial position it would have been in if the investment contract had not been made; and the correct measure of damages was the difference between the amount invested and the amount subsequently realised on liquidation of the investment, this being the loss directly flowing from the transaction – see Smith New Court Securities Ltd v. Citibank NA [1997] AC 254.

ANZ's submissions

67. Mr Russen for ANZ submitted that changes in the Claimants' case were indicative of its suspect nature. He drew attention to the fact that the Claimants had not originally relied on the GPB Indicative Term Sheet until a copy was disclosed by ANZ, and that Mr Pawani had retreated from reliance thereon in the course of his cross-examination. He invoked an unsuccessful application by the Claimants in the course of the trial to amend to plead a representation that Peekay would have a free-standing interest in a USD hedge, as justifying a lack of confidence in the Claimants' case as to what representations were made. He also pointed to the changes in the Claimants' case as to when the contract was made. He suggested that Peekay's real complaint was that it had not been given the restructuring options open to the holder of a GKO, and that it was the Claimants' perception that that complaint had merit that had led them to construct a case that a holding of GKOs was promised at the outset.
68. He submitted that Mr Pawani's testimony was both unsatisfactory and in conflict with that of Mrs B. It was unsatisfactory in particular in respect of his changing attitude to the GPB Indicative Term Sheet, and of his inconsistent evidence as to whether there was any discussion with Mrs B of a deposit-linked structure. It was in conflict with that of Mrs B in relation to whether and if so to what extent the description of the product in the GPB Indicative Term Sheet, and in particular the reference "linked to", was discussed. He submitted that as Mrs B knew that a private investor could not hold GKOs, it was extremely unlikely that she would have conveyed the message that clients would receive an interest in GKOs; and that I should find that she did little more than forward the GPB Indicative Term Sheet, with very little if any explanation, knowing as she did that her clients would receive detailed written terms and conditions for the investment from GPB London. The GPB Indicative Term Sheet provided no basis for an understanding that investors would acquire a GKO or a share therein, and the only safe conclusion to be drawn from the evidence was that by the end of 28th February 1998, so far as the Claimants were concerned, the terms of the proposed investment remained to be formulated (as regards the nature of the product) and confirmed (as regards rate of return and maturity).
69. As to the FTCs, Mrs B regarded them as a matter between her clients and GPB London, in which she did not become involved. Mr Pawani was expecting to receive, and be required to sign and return, written terms and conditions. It was common ground that the FTCs were the only applicable ones, and without them the transaction would have been undocumented and undefined. Mr Russen submitted that, notwithstanding that they did not mention Peekay or the amount of its investment, they did make clear the nature of the product in which Peekay was investing, and thereby corrected and cancelled out any earlier misrepresentation as to its nature. In particular (as Mr Pawani accepted in evidence) they provided no support for any understanding that Peekay was acquiring an interest in GKOs. Mr Pawani had accepted in the course of cross-examination that it would have been a good idea to have read the FTCs, and he knew, as evidenced by his addition of the words, "as per the attached document" to his instruction letter to GPB, that the terms of Peekay's contract were to be found in them.
70. Mr Russen submitted that the fact that Mr Pawani initialled and returned the FTCs, under cover of that letter, showed that he was prepared to contract on the basis of the FTCs, and that accordingly it was clear that he was not induced by any material misrepresentation. In view of his initialling and return of both the FTCs and the Risk Disclosure Statement, and in the light of the reference in the latter to the investor understanding the nature of the transaction and the contractual relationship involved (see para 42 above), Mr Pawani could not be heard to say he had ignored the FTCs. The suggestion that he took no notice of the FTCs was in any event, so Mr Russen argued, simply incredible.
71. Mr Russen confirmed that, in the light of the Claimants' concession that the contract was not concluded before Mr Pawani's receipt of the FTCs, an estoppel case pleaded by ANZ in answer to the contention that the FTCs postdated the conclusion of the contract, fell by the wayside.
72. In his oral closing submissions, supplemented by post-hearing written submissions for which I gave permission, Mr Russen submitted that, as this was a case in which the alleged misrepresentation went to the nature of the product "sold", and as the FTCs described the nature of that product, and were accompanied by a Risk Disclosure Statement which advised the investor to ensure that he fully understood the nature of the contractual relationship on which he was embarking, the doctrine of non est factum, as explained and circumscribed by the House of Lords in Saunders (Executrix of the Will of Rose Maude Gallie, Deceased) v. Anglia Building Society [1971] AC 1004, was relevant. While recognising that Peekay, which was not seeking to avoid the transaction but rather to claim damages for misrepresentation inducing it to enter the transaction, did not need to invoke the doctrine, he referred me to Lloyds Bank PLC v. Waterhouse [1993] 2 FLR 97, a decision of the Court of Appeal in which the inter-relationship between the doctrine and the law relating to misrepresentation was explored, notably by Woolf LJ (as he then was).
73. That case concerned a claim by the plaintiff bank against the defendant under an "all monies" guarantee, to which the defendant raised defences of misrepresentation, non est factum, and negligence or breach of duty by the bank The defendant succeeded on appeal, but for widely differing reasons. Purchas LJ held that the defence of non est factum succeeded, and that the bank was also guilty of negligent misrepresentation. Woolf LJ held that the defence of non est factum failed, principally because the defendant had failed to exercise proper care for his own protection; but that by reason of misrepresentation or breach of duty the bank was not entitled to rely on the guarantee. Sir Edward Eveleigh thought that the guarantee was vitiated by (unilateral) mistake, and also by misrepresentation.
74. In the course of his judgment Woolf LJ said this:

"Normally the plea [of non est factum] is raised by a defendant who is contending that he had been misled (usually because of fraud) by some person other than the plaintiff as to the nature of the document which he has signed. This is not the case here. The defendant contends that he was misled as to the nature of the document by the activities of the bank. In these circumstances, while I do not suggest that the defendant is not entitled to seek to rely on a plea of non est factum, I do not regard the defendant's ability to rely on the plea as being the primary way in which to determine the merits of his defence to the bank's claim. It has clearly been laid down that as a matter of principle the scope of the plea of non est factum should be confined by the courts within narrow limits (see, for example, Lord Pearson in Saunders (Executrix of the Will of Rose Maude Gallie, Deceased) v Anglia Building Society [1971] AC 1004 at p 103A). There are two reasons for this, first of all, confusion and uncertainty would be caused if it was too easy for a person to deny responsibility for what is contained in a contract or deed which he has signed simply by asserting that he did not appreciate what he was signing. This reason is applicable not only to the plea of non est factum but also the other defences such as misrepresentation which can be raised as a defence to a contract in writing. The other reason is that in the words or Lord Reid in Saunders at p 1016B:

'the matter generally arises when an innocent third party has relied on a signed document in ignorance of the circumstances in which it was signed, and where he will suffer loss if the maker of the document is allowed to have it declared a nullity.'

This second reason for the policy is not applicable in a case such as this and so if the ordinary rules which are applicable to non est factum have still to be surmounted by a defendant in the position of the present appellant, this could place an unnecessarily heavy burden upon him. …. However instead of having differing standards or requirements in order to establish a plea of non est factum, I suggest that it is preferable to protect, when appropriate, the position of a defendant who has been misled by the activities of the plaintiff as to the nature of the document which he has signed on the grounds of misrepresentation and breach of the duty not to mislead another party to a written contract as to the nature of that contract."

75. Mr Russen submitted that it followed from this and other passages in Woolf LJ's judgment that a party who disowned his own document – such as a contractual document initialled or signed by him, as here – had to show that misrepresentations were made as to the nature or effect of that document; and that accordingly in the absence of any misrepresentation by Mrs B as to the contents of the FTCs, or any statement by her that Peekay could safely ignore the FTCs, Peekay could not effectively evade the FTCs by relying on the earlier alleged pre-contractual misrepresentation. The FTCs were therefore a complete answer to the misrepresentation case.

The Claimants' written reply submissions

76. The Claimants replied in writing to ANZ's post hearing submissions on the relevance of the plea of non est factum. In his written reply submissions, Mr Majumdar accepted that, whilst the plea of non est factum was theoretically available in situations where no third party was involved, the very stringent requirements to which it was subject were justified by the need to protect innocent third parties, as Lord Wilberforce indicated in Saunders (supra), at p. 1027E; and that as Woolf LJ made clear in Lloyds Bank PLC v. Waterhouse (supra), where a third party was not involved, the law of misrepresentation was a more appropriate tool for protecting the position of a party who had been misled as to the nature of a document that he had signed. He accepted that a plea of non est factum would not in any event have been available to Peekay, as Mr Pawani was under no disability.
77. Mr Majumdar submitted that Woolf LJ was not seeking to lay down any immutable rule of law requiring nothing less than an express representation about the nature or effect of the document itself, and that the question of the effect of a prior oral misrepresentation on a written contract was to be determined on the full facts, without applying artificial and mechanistic distinctions. In a summary of the Claimants' case which it is convenient to quote in full, he submitted as follows:

"(a) Mrs B had told Mr Pawani that the investor would acquire an interest in GKOs.

(b) That was a representation as to the nature of the transaction.

(c) It was obviously implicit in that representation, that the subsequent terms and conditions, which both Mrs B and Mr Pawani contemplated, would at least accord with the essential nature of the transaction as it had been represented to be, whatever else such terms might say.

(d) That, on the evidence, was Mrs B's assumption, indeed she indicated that she would expect any material divergence to have been brought to her attention by [ANZ] and this was of course Mr Pawani's evidence also. Indeed, it was this assumption which led him to initial and/or sign the documents without considering them in any detail.

(e) He might (indeed surely did) take the risk that there might be unexpected or unwelcome subsidiary or ancillary conditions but on the basis of what Mrs B had already said it was not to be supposed that the FTCs would relate to a structured deposit rather than to a holding of GKOs ie an essentially different transaction.

(f) To that fundamental extent, the effect of Mrs B's earlier misrepresentation was indeed that any subsequent terms and conditions would reflect what she had represented. It is in that sense that Mr Pawani regarded (and was entitled to regard) them as a formality.

It is submitted that for all of these reasons Mrs B's misrepresentation was plainly capable of surviving and operating notwithstanding the Claimants' receipt of the FTCs.

If, as the Claimants submit, it is the case that Mr Pawani did not read the FTCs in any detail and did not realise that they described a different investment then this was an understandable consequence of the prior misrepresentation. Moreover, it is not easy to see how the questions of materiality and inducement are affected by receipt and/or signature save to the extent that he can be said to have actual knowledge of the truth."

78. Mr Majumdar further submitted that the FTCs were manifestly inadequate to correct Mr Pawani's misapprehension as to the nature of the transaction, and that crucially there was no explicit correction of the previous misrepresentation. The only document in which there was an unambiguous explanation that the investor acquired no interest in GKOs was a letter from ANZ Investment Bank to GPB London dated 24th September 1998 (which described the restructuring options open to a holder of GKOs), in which it was stated that:

"[u]nder the Terms, the Depositor has no legal, beneficial or fiduciary interest in any GKOs and therefore no entitlement to participate in the exchange,"

This was not a letter that was addressed or even sent to the Claimants.

79. There was no basis for any estoppel based on the wording of the Risk Disclosure Statement. On the contrary, by the concluding sentence of the letter of instruction, which referred to buying a Russian Hedged GKO Note (see para 43 above), Peekay effectively indicated that it continued to be under a false impression as to the nature of the product in which it was investing – a false impression that the FTCs had not dispelled.

Discussion and conclusions

80. I agree that Mr Pawani was an unsatisfactory witness in some respects, notably in relation to his inconsistent evidence about whether the phrase "deposit structured note" cropped up in the course of his discussions with Mrs B – which I find it did not. I also find that he did not raise and discuss with Mrs B the meaning of the phrase "linked to" as it appeared in the GPB Indicative Term Sheet. Moreover, the changes in the Claimants' case, and their late attempt to introduce a further amendment alleging a representation about an independent interest in the USD hedge, have caused me to treat Mr Pawani's evidence with particular caution.
81. However, his evidence on the crucial issue of how the investment product on offer was described to him was consistent with that of Mrs B, whom I found to be a convincing witness. She knew that individual clients could not hold GKOs, and that they would have to be held by an institution. I am entirely satisfied that, based on what she had been told about the products, she understood that ANZ would be buying and holding GKOs on behalf of her clients, who would have the beneficial interest in the GKOs (a beneficial interest which she expected to be documented), and that the GKOs would have the benefit of a USD hedge. I accept her evidence that she told Mr Pawani that he would have a GKO with a USD hedge, and that in the event of a sovereign default, he would end up holding roubles (as the GPB Indicative Term Sheet indicated). That may have been a rough and ready way to describe the situation as she understood it, but it was understandable shorthand for ANZ holding a GKO on behalf of clients who would have the beneficial interest therein. Mr Pawani realised that he would have only a pro rata share in a GKO, but reasonably understood from this that ANZ would acquire and hold the GKO on his behalf and that of other investors, and that he and the other investors would have the right to determine what was to be done with the GKO in the event, for example, of sovereign default. I accept that neither Mrs B nor Mr Pawani thought the GPB Indicative Term Sheet was inconsistent with their understanding that investors would acquire an interest in the GKO.
82. As I have already indicated (see para 36 above), Mrs B's draft instruction letter supports her evidence as to her understanding of the nature of the product Mr Pawani was offered. So does her later reaction to discovery of the true nature of the investment product and the closure provisions to which it was subject (see paras 52-53 above).
83. The true nature of the product was very different from what Mrs B told Mr Pawani. It was a derivative product taking the form of a structured deposit, which gave investors no interest in any underlying GKO, and no say in how the investment was to be liquidated in the event, for example, of sovereign default.
84. Accordingly, on the first main issue I have concluded that the nature of the product on offer was indeed misrepresented to Mr Pawani, in a fundamental respect, and that he reasonably understood from what Mrs B told him that Peekay would be acquiring an interest in a GKO, with a USD hedge.
85. I am satisfied that Mr Pawani did no more than glance through the FTCs and the Risk Disclosure Statement. Having seen and heard Mr Pawani give evidence, I do not find this at all incredible, as ANZ suggested it was. Mr Pawani clearly placed great confidence in GPB as his private bankers, and had evidently had no prior cause to think that the FTCs would contain any nasty surprises. He did notice the heading to the FTCs, "USD Hedged Russian Treasury Bill", which he reasonably regarded as consistent with what he had been told about the product by Mrs B. He did not, however, take in either the fact that the FTCs described a structured deposit, which gave investors no interest, whether legal or equitable, in the GKO defined therein as the Reference Obligation, or the settlement procedures applicable in the event of default. Mr Shah, the countersignatory, did no more than exactly what he was told to do by Mr Pawani, ie. to initial and countersign the documents.
86. In failing properly to read the FTCs Mr Pawani was, as the Claimants accepted, taking the risk that they contained subsidiary or ancilliary terms which were not to his liking. He was unwise not to do so, as he recognised in the course of his testimony. Nothing in this judgment should be taken as an encouragement to investors to ignore written terms and conditions applicable to their investments.
87. However Mr Pawani's initialling/signature and return of the FTCs and the Risk Disclosure Statement did not in my judgment nullify or supercede Mrs B's prior oral misrepresentation as to the very nature of the product being marketed. Mr Pawani had no reason to think that the terms and conditions he was expecting to receive and to be asked to sign and return would relate to a fundamentally different product from that which had been described to him. He assumed, as did Mrs B, that if there was a material change in the FTCs from what had been discussed over the telephone, it would have been pointed out. In the circumstances, Mr Pawani's initialling/signature and return of these documents, under cover of his instruction letter which referred to them, does not, contrary to the submissions of ANZ, show that he was content to contract on the terms of the FTCs irrespective of any prior misrepresentation as to the nature of the product to which they applied, or that he cannot have been induced by and did not rely on any such misrepresentation in making the investment.
88. Whilst I did not find the case on which the Claimants relied, Arnison v. Smith (supra), a particularly helpful analogy, I reject ANZ's submission that an express misrepresentation as to the terms of the FTCs themselves, or a representation by Mrs B that the Claimants could safely ignore the FTCs, would have been necessary in the light of Mr Pawani's receipt, initialling and return of the FTCs. I do not think that Woolf LJ was purporting in Lloyds Bank PLC v. Waterhouse (supra) to lay down any rule of law to the effect that a party who seeks to disown his own document – such as a contractual document initialled or signed by him, as here – has to show that misrepresentations were made as to the nature or effect of that document. But in any event the principles applicable here are those applicable to claims for damages for misrepresentation under section 2(1) of the Misrepresentation Act 1967, not those applicable to a claim to avoid a contract on the grounds of misrepresentation. There is no principle of law which prevents a party to a written contract for the sale of a product (whether an investment product or something more tangible) from claiming damages for misrepresentation where he has been induced to enter into the contract by a pre-contractual misrepresentation as to the nature of the product sold. Whether he has been so induced will be a question of fact in each case.
89. I am satisfied that Mr Pawani was in fact induced to invest US$250,000 in the name of Peekay by Mrs B's misrepresentation as to the nature of the product. I accept his evidence that he would not have made the investment if he had known the true position, namely that Peekay would have no interest whatsoever in any GKO, which would merely be the Reference Obligation for the purpose of a derivative product, and no control over what was to happen in the event of a default in relation to that Reference Obligation. The element of control was important to Mr Pawani, and he would, for example, have wanted at least the opportunity to participate in any restructuring option in the event of sovereign default. This is borne out by the fact that he had retained other investments affected by the Russian default in the hope that their values would recover, as at least some did. Although he realised that he would be one of several investors with an interest (so he thought) in the GKO, and had given no thought to how, in the event of a default, the position would be resolved between the participating investors, he would at least have had some control: the liquidation of the investment would not have been entirely out of his hands, as was in fact the case.
90. The advice to investors in the Risk Disclosure Statement (see para 42 above) is no answer to the misrepresentation claim. In any event, Mr Pawani's instruction letter should have made clear to anyone at ANZ who understood the true nature of the product that, notwithstanding the FTCs, Mr Pawani was still under a misapprehension as to its nature.
91. It is unnecessary for me to determine what would have been required to nullify the misrepresentation, though an accurate description by Mrs B of the nature of the product, before Mr Pawani had committed his/Peekay's funds, would doubtless have sufficed. Given that Mrs B assumed that if the FTCs had contained any material differences from the product as described to her this would have been drawn to her attention, and given that she did not read the FTCs, at least in any detail, taking the view that the provision and return of FTCs was a matter between clients and GPB London in respect of which her office acted merely as a post office, it is not surprising that no correcting statement was forthcoming from her.
92. The Contract Note did nothing to dispel Mr Pawani's misapprehension. On the contrary, it was consistent with his understanding the Peekay had bought an interest in GKOs.
93. It is no part of my task to apportion blame for what happened between the various employees of ANZ and ANZ-GBL involved. Suffice it to say that the present dispute would probably not have arisen if the nature of the product had been properly explained to Mrs B, or (perhaps) if Mr Aggarwal had sent her the ITCs for the structured deposit rather than the GPB Indicative Term Sheet for a different product, or if she had taken the trouble to read the FTCs to ensure that they conformed with what she had told her client. As to this last point, in fairness to Mrs B it is right to point out that she did not regard that as being part of her responsibility. Whether that is a satisfactory position is not for me to decide.
94. What was on any view most unsatisfactory was that there was no documentation correctly recording the terms of Peekay's investment. The FTCs, the title to which was consistent with Mr Pawani's understanding that Peekay would be acquiring an interest in a GKO, were a record of the terms on which GPB deposited US$ 2 million with ANZ Investment Bank. They did not mention Peekay or the amount of its investment, and were on any view an inappropriate record of that transaction. The Contract Note, which did mention Peekay and its US$250,000 investment, was in all other respects wholly inappropriate, as was the Safe Custody Statement, as Mrs Porteous recognised.
95. Peekay was, in effect, locked into its investment from the moment it was made, and in any event did not discover its true nature until after the Maturity Date, 16th October 1998, or indeed until after ANZ had operated the Appendix 2 machinery to produce a return to Peekay of only US$ 5,918.06. In the circumstances, the correct measure of damages under section 2(1) of the Misrepresentation Act 1967 is the difference between that sum and the amount of the investment, namely US$ 244,081.94. In the absence of any plea of contributory negligence, I do not have to consider whether section 1 of the Law Reform (Contributory Negligence) Act 1945 would in principle be applicable to a case such as this (in the light of Gran Gelato v. Richcliff (Group) Ltd [1992] Ch. 560), and if it was, to what extent, if at all, it would be just and equitable to reduce such damages on account of any "fault" on the part of Peekay.
96. Accordingly, there will be judgment for Peekay in the sum of US$ 244,081.94. I will hear counsel on the question of interest and any other consequential orders.