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Representations, reverse engineering, and Russian dolls: a case study in complexity in Loreley v Credit Suisse

Posted: 22/02/2024

Most businesses presume that their counterparts are honest. But can you claim for misrepresentation if that presumption proves wrong?

In Loreley Financing (Jersey) No 30 Ltd v Credit Suisse Securities (Europe) Ltd & Ors [2023] EWHC 2759 (Comm), the court confirmed that the answer, generally, is no. Rejecting the fraudulent misrepresentation claim brought against Credit Suisse, the court held that there is no general ‘implied obligation of honesty’. In this case, there was also no evidence to support the ‘serious and systemic’ fraud alleged beyond isolated documents, which were ‘manifestly inadequate’.

While Loreley’s claim against Credit Suisse failed primarily on limitation grounds, this judgment is a significant one for financial litigation. It develops the increasingly complex law on implied representation and analyses the requirements for pleading fraud in the context of transactions so complicated that even the banking witnesses struggled to explain them.

Key takeaways

Implied representations

  • There must always be a ‘bridge’ between the representation and ‘inducement’ (typically entering into a transaction or contract). Contrary to suggestions in case law and commentary after Leeds v Barclays, this is always required.
  • The ‘counterfactual of truth’ (what the claimant would have done had they known the truth) is no substitute for evidence of the ‘bridge’.
  • The ‘helpful’ test established in Property Alliance Group v Royal Bank of Scotland (namely, whether the reasonable person would have assumed that the true position did not exist and that had it existed, they would have been made aware of it) does not affect the requirement to evidence the ‘bridge’ with clear words or conduct.
  • There is no authority that an implied representation of honesty can be implied generally or in a wide range of cases.


  • Where the fraud found at trial differs from that initially pleaded, the version which sets the limitation clock running will depend on the facts of the case. The Court of Appeal’s ruling in Seedo v Gamal does not mean that in all cases it is the discovery of the fraud actually found by the court which starts the limitation clock running, and not (if earlier) the fraud initially pleaded.


The transaction at the heart of this litigation was likened to a ‘Russian doll’ and the way the claim was put was described as ‘not entirely straightforward’. In simple terms, Loreley alleged that in 2007, Credit Suisse made false representations which induced it to purchase $100 million of notes in a synthetic collateralised debt obligation (CDO) that referenced a portfolio of residential mortgage-backed securities. By 2009, following the financial crisis, Loreley’s investment was worthless.

In 2017, Credit Suisse paid a substantial settlement sum to the US Department of Justice to settle investigations into its conduct in connection with the sale of this type of residential mortgage-backed security. In a press release accompanying the settlement, the Department of Justice stated that an agreed statement of facts described how Credit Suisse had made ‘false and misleading representations’ to investors about the characteristics of the underlying loans in the securities.

Loreley argued that it was not in a position to articulate its claim until that statement was released, and maintained that, but for a series of express and implied false representations, it would not have entered into the CDOs. It claimed in fraudulent misrepresentation for rescission of the notes, and  in deceit for damages.


Loreley’s claim was dependent on establishing that it could benefit from the postponement of the limitation period for fraud provided for in s32 of the Limitation Act 1980. The parties agreed that in a fraud claim, the clock did not start running until Loreley was in a position to properly plead its claim (that is, the ‘statement of claim’ test applied).

But the parties did not agree which was the relevant version of the claim – the one initially pleaded on paper, or the one argued at trial? In Seedo v Gamal, the Court of Appeal suggested that the latter was more appropriate, observing that ‘it seems wrong in principle to ask when the claimant discovered allegations that went nowhere, the question is when he discovered the essential facts of the fraud found proved by the court’.

However, the court held that this was not a point actually decided by the Court of Appeal and was not therefore a binding authority on the issue. It also concluded the fraud set out in the initial letter before claim in this case was ‘essentially the same’ as that ultimately pleaded in any event.

Another key disagreement was the relevant ‘trigger’ for the need to investigate any fraud. The court rejected Loreley’s argument that it would not have been able to establish the precise claim it was now bringing, back in 2012. It was sufficient, it held, that ‘a case of the same nature’ based on ‘essentially the same representations’ could have been brought within the primary limitation period.

The court held that the combination of publicly available information about the CDO mis-selling scandal, claims made by other Loreley companies, and in particular a common interest agreement entered into by Loreley itself in anticipation of litigation, meant that by 2012 at the latest, there was ‘ample material available’ to allow the claim to be brought.

Implied representations

Although the claim was time-barred, Mrs Justice Cockerill analysed the case on implied representations ‘in some detail’. In doing so she referenced the fact that permission to appeal her decision in Leeds v Barclays had been granted but not heard, following a settlement of the claim.

Loreley asserted there had been two kinds of fraud: 1) false representations that Credit Suisse was unaware of any conduct on its part which ‘tainted the credit quality’ of the notes; and 2) false representations in relation to the actual due diligence and compliance steps taken in relation to the notes. On the representations themselves, the court held there was insufficient evidence to establish that they had been made.

Of particular concern, the evidence relied on either pointed to no single individual making the representations, or a very large number of people all making them. Fundamentally, the allegations were not specific or detailed enough, resulting in a ‘fatal lack of clarity and rigour’ in the claim.

Despite concluding that the representations had not actually been made, the court also considered the question of reliance. Loreley claimed that Mr Justice Waksman’s interpretation in Crossley v Volkswagen (a case following Leeds v Barclays in which reliance was established by reference to the counterfactual of truth) meant that reliance could be established without ‘conscious awareness’, or the ‘bridge’ between representation and reliance being crossed.

Mrs Justice Cockerill rejected this possibility. While in a simple case, she accepted that awareness of reliance on a representation might look like an ‘assumption’, she did not accept the suggestion that a ‘quasi-automatic awareness’ would suffice. The law requires a representation (however made) to be actively present in the mind of the recipient when they act on it.

Where next for misrepresentation claims?

The lengthy judgment in this case contains a list of all the representations initially asserted, and the revised representations ultimately pleaded at trial. The list is a long one. Ultimately, while the judgment refines and re-states the law on misrepresentation and limitation, its central message is simple: the claim became time-barred because ‘there was no claim to see’. The court was critical of what it perceived as attempts to ‘reverse-engineer’ representations to ‘dovetail’ with the specific facts of the case and described the claim as a ‘triumph of form over substance… unsupported by contemporaneous documentation’.

Of particular interest for future claims is Mrs Justice Cockerill’s analysis of her earlier decision in Leeds v Barclays. While she acknowledged it may not have been ‘optimally expressed’, she concluded it remained correct. There must be a direct linkage between representation and reliance, particularly where the implied representation is to honesty. Without this safety check, every contract is turned into a contract of utmost good faith. 

The article was co-authored with Harriet Campbell, senior knowledge lawyer.

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