The important judgment of the Privy Council (the board) in Credit Suisse Life (Bermuda) Ltd v Bidzina Ivanishvili & Ors clarified the test for fraudulent misrepresentation, confirming that the claimant’s awareness of a representation is not an element of the tort of deceit. This is a significant development in the law on fraudulent misrepresentation, overturning an established line of English authority.
Mr Ivanishvili (pictured), a former prime minister of Georgia, transferred over $750m (held on trust for himself and family) in 2011/12, to Credit Suisse Life (Bermuda) Ltd (CS Life), a subsidiary of Credit Suisse AG (the bank) as premiums under two life insurance policies, on the advice of an employee of the bank, Mr Lescaudron. Ivanishvili, members of his family and the companies named as policyholders (the plaintiffs) brought proceedings against CS Life, claiming damages for breach of contractual and fiduciary duties and fraudulent misrepresentation, alleging that Lescaudron (who was later convicted in a criminal prosecution) had been dealing fraudulently with the policy assets.
The plaintiffs succeeded at first instance in Bermuda. CS Life appealed to the Court of Appeal, which dismissed its appeal in relation to the breach of contract and fiduciary duty claims, but allowed it on the misrepresentation claim. CS Life appealed to the Privy Council (as of right) and the plaintiffs cross-appealed in relation to the misrepresentation claim (the focus of this article).
CS Life did not challenge the first instance finding that, by recommending the policies, Lescaudron impliedly represented that the bank was not managing the plaintiffs’ accounts fraudulently and did not intend to manage the policy assets fraudulently; representations which were false and known to be so by Lescaudron, and which were intended to and did induce the plaintiffs to enter into the policies. The plaintiffs did not allege that Ivanishvili was aware of the implied representations. As such, the issue for the board was a pure question of law: is it a requirement of a claim in deceit that the claimant was aware of the representation on which the claim is based (argued on the basis that Bermudan law is the same as the law in England and Wales)? (Spoiler alert: the board held that the answer is no.)
While the essential elements of the tort (D makes a representation which is false; D intends and causes C to believe the representation is true; C acts on it to its detriment) does not include a requirement that C was aware of the representation, CS Life relied on Raiffeisen, in which the court held that C had to show ‘that it understood that those representations were being made’, and the 11 later cases in which Raiffeisen was cited as authority for a requirement of awareness and understanding, including recent judgments in Leeds City Council [2021] and Loreley [2023]. According to the analysis in these cases, if a claimant did not consciously turn their mind to an implied representation, and instead made an assumption as to the true position, then a claim in deceit would fail, raising the bar for establishing fraudulent misrepresentation in respect of implied misrepresentations.
However, as the board held, the scope of a representation for the purposes of the tort is very broad, encompassing any words or acts calculated to cause another person to believe a proposition. While there is no doubt that reliance or inducement is an essential element of the tort and that the representation must operate on the mind of C, it is not the case that C must be consciously aware of the representation at the time when C acts on it. Considering the everyday examples of a person ordering food in a restaurant or hailing a cab (and thus the implied representation that he/she has the means and intention to pay), the board held that ‘it is an everyday feature of human experience that people form and act on beliefs without any conscious awareness or thought. If someone takes advantage of such unconscious mental processes to deceive another person and cause her to act to her detriment, there is no reason why a claim for damages should not lie’.
In reaching its decision, the board held that:
- where the relevant representation is ambiguous, and false only if it bears one particular meaning, C will need to prove his subjective belief in the representation in the sense in which it was false, but that evidential requirement, in particular factual circumstances, is not a necessary element of the cause of action.
- There is no valid distinction between cases where C has relied on a representation and where C has acted on an assumption: what matters is whether the assumption was one which C would naturally be expected to make in response to D’s words or actions.
- A requirement for awareness is not necessary to preserve the distinction between misrepresentation (where D has done something to cause C to hold a false belief) and non-disclosure (where D has failed to inform C of a material fact/correct a false belief which C independently holds): a claim may fall within the first category without C being aware of what D has done; that does not turn the case into one of non-disclosure. The distinction depends entirely on what D has or has not done, and not at all on C’s awareness.
Clare Hennessey is special counsel at Jenner & Block, London
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