Liability of Asset Managers by Danny Busch & M.Jur. & Deborah A. DeMott & David F

Author:Danny Busch & M.Jur. & Deborah A. DeMott & David F.
Language: eng
Format: epub
Publisher: Oxford University Press
Published: 2012-10-16T04:00:00+00:00

2. Duties of the asset manager prior to the asset management contract

A. Pre-contractual duty of care re statements

11.28 The interaction between an asset manager and a potential client prior to conclusion of the asset management agreement will usually be characterized by exchange of information. The investor will provide information to the asset manager about that investor’s situation and objectives, and the manager will provide the investor with information about the services and options that are available.

11.29 Under English law, the manager will be required to use reasonable care when making such pre-contractual statements, in the absence of which the manager’s statements may give rise to an action for misrepresentation.41 This duty of care may be based on the Misrepresentation Act 1967, as well as on the general tortious principles of negligence or fraud. As a general matter of the law of misrepresentation, an investment manager is responsible for providing information that is correct, that is to say, the manager must not provide information unless there are reasonable grounds to believe that it is correct. It ought not to be difficult for the investor to establish that statements of fact made by the investment manager, if material to the appointment,42 were relied on reasonably in connection with the appointment of the investment manager.43 Should the statements be false, and should that be due to the manager’s carelessness, then that would be an actionable misrepresentation.44

11.30 Notwithstanding the responsibility of the maker of a statement for its content, the recipient’s sophistication acts as a counterbalance by limiting the scope of what is considered to be justifiable reliance. The investor’s sophistication will be relevant both in relation to the question whether the representation, in the circumstances, should be considered to be false or misleading, as well as whether the recipient, in the circumstances, should be considered to have relied on that statement. Mance J in Bankers Trust v Dharmala Sakti Sejahtera45 noted ‘the conspicuously obvious truth’ of this point.46 On the facts and the decision of Mance J in Dharmala it may well be argued that in a commercial context, there is a presumption of sophistication so that the professional client who ought to be ‘able to understand and evaluate complicated proposals would be expected to be able to do so, whatever his actual abilities’.47 Further support for that presumption may be found in the regulatory framework.48

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