Rouble trouble

The decision handed down by the Court of Appeal in the long-running Springwell dispute reaffirms London as an unattractive forum for claimants bringing mis- selling disputes. 

Michael Brindle QC, Fountain Court.
Michael Brindle QC, Fountain Court.

The ruling given by Lord Justice Aikens in Springwell v JPMorgan Chase on Monday (1 November) brings to an end a hard fought battle that erupted in 1998 during the Russian rouble crisis. Aikens LJ lead the unanimous verdict that went against appellants Springwell.

In early 1998 Springwell, the investment arm of the Polemis shipping group, made significant investments in Russian rouble-denominated sovereign debt (GKOs). The bonds paid a high rate of interest and were repackaged by investment banks with currency swaps to help avoid foreign exchange risk.

However, when the markets plummeted Russia’s economy teetered on the brink of collapse, and in August that year, the government announced that a 90-day moratorium would be imposed on foreign debt repayments and the suspension of all trading on Russian Federation issued bonds.

This left Springwell holding 11 GKO-linked notes with a face value of $95m and facing a loss in excess of $500m.

The company sought to recoup those losses from JPMorgan Chase, which, it claimed, had knowingly mis-sold it the high risk investments contrary to Springwell’s stated policy to keep a low risk profile.

Initially Springwell launched its claim in New York, but the proceedings were halted on jurisdiction grounds.

JPMorgan Chase responded by applying to the English courts for a declaration of non-liability, at which point Springwell retaliated with a counter claim alleging breach of contract, breach of fiduciary duty and negligent misstatement.

The case was finally heard in the High Court in April 2007 by Mrs Justice Gloster. It was a one of the longest hearings of the year, running to 68 days and involved, among other disclosure evidence, thousands of hours of telephone tape recordings.

But Gloster J gave a robust ruling rejecting the claim, describing some elements of it as “commercially unreal”.

When both parties returned for the CoA hearing in June, the appellants case had narrowed significantly focusing on claims of misrepresentation based on comments made by a JPMorgan Chase salesman.

Fountain Court’s Michael Brindle QC, instructed by Reynolds Porter Chamberlain for Springwell, argued that the salesman made negligent misstatements to the company about the liquidity of the GKOs, claiming that this amounted to misrepresentation.

Brick Court’s Mark Hapgood QC, instructed by Clifford Chance for the defendant, countered that as a sophisticated purchaser of such financial instruments the onus was on the client to look at the wider context of the situation. The salesman was right to say the stock was liquid, it was argued, but only by comparison with other possible investments in Russia, which was not a “conservative” investment market at all.

Furthermore, Hapgood argued, Springwell should fail on the reliance issue because it could not show that it relied on the alleged misrepresentations made by the salesman when deciding whether to purchase the stock.

The CoA upheld JPMorgan Chase’s case, and affirmed the first instance judgment given by Gloster J, who found that the context of such discussions was essential and “a word cannot be lifted like a fish out of water”. The mis-selling claim was rejected.

Costs in such a long running dispute were always going to be significant. At the initial costs hearing of the High Court case, JPMorgan Chase argued that Springwell should pay indemnity costs given that its case was based on, among other things, false and exaggerated evidence, and that the claims were weak and insubstantial.

The High Court agreed, stating that claimant investors who bring speculative and extravagant misselling claims against financial institutions may well be required to pay a high price for having done so. “Otherwise, claims for misrepresentation or ’overarching duties of care’ are all too easily made, and, once made, can be deployed as unjustified negotiating tools,” the court said.

No doubt this will be raised again when costs come to be assessed in the CoA case.

When the latest recession hit the UK, there was wide-spread concern about an onslaught of mis-selling claims being brought against financial institutions. This ruling will come as a relief for many of those who thought they could be in the firing line.



Reynolds Porter Chamberlain partner Tom Hibbert instructed Fountain Court’s Michael Brindle  QC, 20 Essex Street’s Andrew Baker QC and 3 Verulam Buildings’ Jonathan Davies- Jones for Springwell Navigation Corporation.


Clifford Chance partner Ian Moulding instructed Brick Court’s Mark Hapgood QC, 3 Verulam Buildings’ Adrian Beltrami QC and Catherine Gibaud, also of 3 Verulam Buildings, for JPMorgan Chase Bank and Ors.