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June 2015: Appellate Victory on Contractual Limitation of Liability

June 2015

The firm achieved an important appellate victory in New York for its clients Cointer Chile and Azvi Chile in the Appellate Division, First Department, in their longrunning lawsuit against their former financial advisor, The Bank of Nova Scotia. The Appellate Division’s decision reinstated a claim for breach of contract based on Scotia’s alleged gross negligence that seeks more than $80 million in damages. The lower court had dismissed the claim based on a liability disclaimer in the parties’ contract.

The case involves a botched financial model that Scotia prepared for the plaintiffs—a joint venture comprised of Cointer Chile, Azvi Chile, and S.A. de Obras y Servicios Copasa (who is separately represented by Wilk Auslander)—to support the plaintiffs’ competitive bid for several hundred million dollars to construct and operate what was to be Chile’s longest highway. The plaintiffs alleged Scotia’s financial model contained a critical error that caused their bid to be undervalued by more than $80 million (a fact they did not know until after they submitted their bid), and that Scotia should have caught the error before sending the financial model to the plaintiffs by implementing routine audit procedures. The undervalued bid prevailed, and the plaintiffs were awarded the bid by the Chilean government. If Scotia’s financial model had been correct, the plaintiffs allege, they still would have won the bid, but at a price approximately $80 million higher. Chilean law required the plaintiffs to follow through with their original bid, notwithstanding the error in the model, or forfeit a $10 million bond.

The trial court dismissed the plaintiffs’ breach of contract claim for failing to deliver an accurate financial model on the grounds that Scotia was protected by a liability disclaimer in the parties’ contract, and that the plaintiffs had not adequately pleaded gross negligence. New York law does not permit a party to disclaim liability for gross negligence.

On appeal, the firm persuaded the Appellate Divisionto reverse, successfully arguing that it was premature for the trial court to dismiss the gross negligence-based breachof contract claim on a motion to dismiss. The AppellateDivision also upheld an additional breach of contract claim asserted by Cointer and Azvi that the lower court hadsustained—and which Scotia had cross-appealed—and rejected Scotia’s argument that it should be indemnified for legal fees and other losses incurred in the case.