Raiffeisen Zentralbank Osterreich AG v The Royal Bank of Scotland Plc

An implied representation depends on what a reasonable representee would understand from the words and conduct used in their full commercial context. A sophisticated participant in a syndicated loan cannot treat an information memorandum as necessarily complete where it and a confidentiality agreement expressly state that the arranger gives no representation as to accuracy or completeness.

For inducement, a misrepresentation must be an effective cause of contracting. The claimant must establish that it would not have contracted on the same terms had the representation not been made. A factor which merely supports or encourages the decision is insufficient.

Commercial parties may agree the factual basis on which information is supplied. A clear basis clause can prevent an actionable representation arising, rather than exclude liability for one already made.

RBS arranged and initially funded a £138.5 million senior credit facility for its special-purpose vehicle, RBSFT. The facility enabled Enron Europe Ltd to monetise its economic interest in Enron Teesside Operations Ltd. Enron provided a total return swap that made the senior facility an Enron credit risk.

RBS also invested equity in RBSFT. Enron gave RBS strong oral assurances that it would make RBS whole on that equity, but the court found that those assurances were intentionally non-contractual. RBS syndicated part of the facility to RZB, which advanced £10 million. After Enron's collapse, RZB alleged that the invitation materials and information memorandum made four false implied representations and that RBS had acted fraudulently.

The central issues were whether any actionable representation was made or understood, whether it induced RZB's participation, and whether the contractual disclaimer provisions precluded the claim.

1. The claim was dismissed. RZB did not establish that RBS made, or that RZB understood RBS to make, the alleged implied representations.

2. The information memorandum was directed principally to the senior debt and explained why lenders took Enron credit risk. It did not necessarily represent that RBS's separate equity investment had no support of any kind. A reasonable sophisticated lender would understand that the memorandum selected information considered relevant to the syndicated debt. The express qualifications in the memorandum and confidentiality agreement reinforced that conclusion.

3. Neither the reference to monetisation nor the transaction materials represented that the accounting treatment complied with United States accounting principles, or that the transaction was lawful and proper in all respects. Such assurances would ordinarily require an accountant's or lawyer's opinion. RZB's witness did not understand RBS to be making the alleged representations.

4. In any event, Enron's assurances to RBS were deliberately non-contractual. RBS's equity therefore remained at risk. The pleaded representation was substantially true, and the proposed unwinding arrangements were materially as described.

5. RZB also failed on inducement. An actionable misrepresentation must be an effective cause in the but-for sense. RZB would have participated in the Enron-backed senior facility even if it had known that RBS had received a strong but non-binding relationship assurance concerning its equity.

6. The relevant provisions created a contractual estoppel. They defined the basis on which confidential information was supplied: RBS did not represent its accuracy or completeness and RZB was to make its own assessment. They did not, in substance, exclude liability for a prior actionable representation and so did not engage section 3 of the Misrepresentation Act 1967. If they had done so, they were reasonable between these sophisticated commercial parties.

7. RZB did not prove fraud. The court found that RBS did not know or suspect that Enron's non-contractual assurances invalidated the proposed accounting treatment, and that no RBS employee dishonestly made or concealed a representation.

not stated in the judgment.