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Reliance on a representation can be based on an unconscious assumption, but there must be a causal link between the defendant's words/actions and the assumption made (rather than being made independently by the claimant)
The Board of the Privy Council has held that it is not a legal requirement of a claim for deceit that the claimant was consciously aware of a representation made by a defendant or understood it to have been made: Credit Suisse Life (Bermuda) Ltd v Bidzina Ivanishvili & Ors (Bermuda) [2025] UKPC 53.
One of the key questions considered in misrepresentation claims over the past few years has been the extent to which a representation must operate on the claimant's mind at the time it is made. This is often referred to as the "awareness requirement". It arises in the context of numerous different types of claims against financial services firms, including traditional financial product mis-selling cases.
On an appeal from the Bermudian Court of Appeal, and in the context of a claim in the tort of deceit, the Privy Council (Lord Hodge, Lord Briggs, Lord Leggatt, Lord Richards and Lady Simler) held that there is no legal requirement for a claimant to show that it was consciously aware of representations made by the defendant. The decision clarifies that claimants may be able to prove reliance on a representation where they have acted on an unconscious assumption. However, claimants will need to prove: (i) that the assumption was reasonable, ie "one which the claimant would naturally be expected to make in response to the defendant's words or actions"; and (ii) that there was a causal link between the defendant's words or actions and the assumption made by the claimant (if the claimant's assumption was not caused by the defendant, the defendant will not be liable).
Prior to the Privy Council's decision, there were a number of conflicting authorities as to whether there was a requirement of awareness. See for example: Leeds City Council & Ors v Barclays Bank plc & Anor [2021] EWHC 363 (Comm) (see our blog post), Crossley & Ors v Volkswagen Aktiengesellschaft & Ors [2021] EWHC 3444 (QB) (see our blog post), Loreley Financing (Jersey) No 30 Limited v Credit Suisse Securities (Europe) Limited & Ors [2023] EWHC 2759 (Comm) (see our blog post) and Farol Holdings Ltd v Clydesdale Bank plc & Anor [2024] EWHC 593 (Ch).
As an opinion of the Privy Council this decision is not binding on the English court. However, the judgment specifies that this represents the law of England and Wales as well as Bermuda, and it is likely to be persuasive in future cases before the English Court, given that the members of the Board of the Privy Council also sit in Supreme Court.
We consider the decision in further detail below.
Background
The dispute arose from a long-standing private banking relationship between Mr Ivanishvili (the first claimant) and Credit Suisse AG (the Bank). In 2011 and 2012, on the advice of the Bank, Mr Ivanishvili invested in two Bermuda-based life insurance policies issued by the defendant (CS Life), a wholly owned subsidiary of the Bank. These were not conventional life insurance policies, but rather investment funds or asset portfolios managed by the Bank for the benefit of the policyholders. Mr Ivanishvili transferred approximately US$750 million to CS Life, as premiums for the life insurance policies.
In 2015, Mr Ivanishvili discovered that his relationship manager at the Bank had been fraudulently mismanaging the policy assets. Mr Ivanishvili (together with other policyholders and members of his family), commenced proceedings in Bermuda against CS Life. They alleged breaches of contractual and fiduciary duties arising under the policies and later added a claim for fraudulent misrepresentation. The claims sought damages to restore the position the claimants would have been in had the assets been professionally managed in accordance with the agreed investment alternative.
The claims succeeded at first instance, and the Bermuda Court of Appeal largely upheld that decision, save for the misrepresentation claim. CS Life appealed to the Privy Council, challenging the findings on liability and damages, while the policyholders cross-appealed on misrepresentation.
Decision
The Board of the Privy Council held that it is not a legal requirement in a claim for deceit that the claimant was consciously aware of a representation or understood it to have been made. The court made other findings in respect of the breach of contract and fiduciary duty claims, but this blog post will focus on the Privy Council's conclusions in respect of the misrepresentation claim.
The misrepresentation claim
The misrepresentations on which this claim was based were made by the relationship manager at the Bank to Mr Ivanishvili. At trial in Bermuda, the Chief Justice found that:
- By recommending investment in the policies, CS Life (including the relationship manager himself) impliedly represented to Mr Ivanishvili that the Bank did not intend to manage the policy assets fraudulently.
- These representations were false and known to be so by the relationship manager and were intended to (and did) induce the plaintiffs to enter into the policies.
On appeal, there was no challenge to these findings.
It was common ground that the misrepresentation claim would only succeed if the misrepresentations were actionable under both the law of Bermuda (where the relevant law is the same as the law of England and Wales) and the law of Georgia. The only issue in dispute under Bermudian/English law was whether the claim should fail because there was no finding that Mr Ivanishvili understood the relationship manager to be making the implied representations on which the claim was based. The claimants' case was advanced solely on the basis that awareness and understanding of the representation is not a legal requirement.
Awareness requirement
The misrepresentation claim in the present case was for damages for the tort of deceit. The Privy Council articulated the following separate elements of this cause action, as follows: (1) making a representation of fact (or law) by words of actions; which (2) is false; (3) the maker does not believe to be true; (4) is intended to be believed by the representee; and (5) causes the representee to believe that the representation is true.
The Privy Council acknowledged that statements of the essential elements of a claim in deceit did not traditionally include a requirement that the claimant was aware of the representation relied on and understood it to have been made. The earliest case cited to the Privy Council in which the awareness requirement was said to be an essential element of the cause of action, was Raiffeisen Zentralbank Österreich AG v Royal Bank of Scotland plc [2010] EWHC 1392 (Comm). The Privy Council noted that Raiffeisen was then cited as authority for the awareness requirement in a number of subsequent cases, including Marme Inversiones 2007 SL v NatWest Markets plc [2019] EWHC 366 (Comm) (see our blog post), Leeds v Barclays and Loreley v Credit Suisse.
However, the Privy Council emphasised that there are many examples of cases where it is clear that the claimant was deceived and suffered loss as a result of acting on that false belief without having any conscious awareness or understanding of the representation being made, and in some cases without even being aware of the conduct which gave rise to the representation. The Privy Council gave the example of the decision in Gordon v Selico Ltd (1986) 18 HLR 219, in which the seller of a property deliberately covered up dry rot so that the buyer would not see it. In that case, the buyer's ignorance of the seller's conduct was, in fact, essential to the deceit.
The Privy Council said it had to decide whether cases such as Gordon v Selico were wrongly decided; or reject the theory that the awareness requirement is an essential element of a deceit claim. The Board concluded that there is no requirement for contemporaneous awareness and understanding of the representation in a deceit claim.
In the view of the Privy Council, the awareness requirement had developed from three misconceptions, which are considered below.
Reliance and awareness
The first misconception was that reliance on a representation is impossible without awareness. This reasoning was critical to the High Court's conclusions in Leeds and Loreley. These cases suggested that the awareness requirement was a "logical bridge" between the representation and reliance/inducement.
The Privy Council agreed that reliance and inducement are essential elements of a claim for deceit (or other claim for damages for misrepresentation). It held that there are two aspects to reliance: (1) that a representation must cause a claimant to hold a false belief; and (2) it must cause a claimant to act on that false belief (and suffer loss). In the view of the Privy Council, both aspects of reliance could be satisfied without the claimant being consciously aware of the representation at the time the claimant acts on it.
Accordingly, the Privy Council determined that there was no good reason to insist on the additional requirement of awareness. It said, in principle, there was no reason why a defendant should not be held liable in deceit, even though the claimant was unaware of the representation being made.
Representations and assumptions
The second misconception was that a distinction needs to be drawn between cases where the claimant has relied on a representation and cases where the claimant has acted on an assumption. The Privy Council ruled that the categories of representation and assumption are not mutually exclusive, commenting:
"It is possible, and indeed common, for a person to act on the basis of an unconscious assumption and in reliance on a representation. The waiter who brings food to the table assumes without thinking that the diners who ordered the food intend to pay for it. But that belief has been caused by the conduct of the diners when they sat down at the table and placed their order."
It reasoned that a defendant who intentionally causes a claimant to make (and act on) an erroneous assumption, should be just as much liable for deceit as a defendant whose representation is consciously understood by a claimant.
Accordingly, the Privy Council found that it is possible to prove reliance on a representation where a claimant has acted on an assumption, if the assumption was one which the claimant would naturally be expected to make in response to the defendant's words or actions. In contrast, if the claimant has acted as a result of an erroneous belief not caused by the defendant, the defendant will not be liable.
Misrepresentation and non-disclosure
The final misconception was that the awareness requirement is necessary to preserve the distinction between misrepresentation and non-disclosure.
In the view of the Privy Council, the distinction between cases of misrepresentation and non-disclosure do not depend upon the claimant's awareness or understanding of acts done by the defendant – they depend on the defendant's actions. The Privy Council commented:
"The seller who takes active steps to conceal a defect in order that a buyer should not discover it stands in a different position from the seller who is aware of a defect not apparent to the buyer but does nothing actively to hide it."
Outcome of the Privy Council's decision
Given the reasoning outlined above, the Privy Council found that it was unnecessary for the claimants to show that Mr Ivanishvili had a conscious awareness of the representations made to him. However, while this meant that the fraudulent misrepresentation claim succeeded as a matter of Bermudian/English law, it was not actionable under the law of Georgia. The Privy Council held that it was time-barred because it was brought after the expiry of the three-year period of limitation prescribed by Georgian law.
The claimants succeeded on appeal in respect of their breach of contract claim.
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