investors unable to sue banks for heavy losses

Although banks are perhaps today’s public enemy number one the courts do try to act fairly and in one recent case of importance (JP Morgan Chase Bank v Springwell Navigation Corporation 2008 EWHC 1186) the High Court backed the bank against the investor’s claim for poor investments that returned losses where significant gains were expected.

 

Accordingly it should not be expected that investors who have lost in the stock market debacle should be able to sue for losses on account for breach of duty, though each matter will vary from case to case.

 

Here it was significant that the investor was the wealthy Polemis family that had created Springwell as its investment vehicle. Such an operation was a sophisticated investor having its own legal team and advisers and the contract in question disclaimed liability.

 

The High Court felt in the circumstances it was fair and reasonable to do so on the circumstances as here:

 

·        The investor knew well the risks of investing.

·        The disclaimers appeared consistently throughout the documentation.

·        The client stated in the contract that it had a level of knowledge and expertise.

·        The disclaimers were negotiated or brought to the specific attention of Springwell.

·        The contracts specified clearly the scope of bank responsibilities re the investment and strategies adopted.

·        As exclusion clauses the disclaimers were reasonable in scope and sufficiently certain.

 

As such the duty of care owed by the bank was limited and the exclusion clause was reasonable in scope.

 

The decision followed IFE Fund SA v Goldman Sachs International 2007 EWCA Civ in which it was held the scope of services restriction did not amount to an exclusion but even if it did the disclaimers were reasonable given the parties’ commercial standing, sophistication and bargaining power.

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