Raiffeisen Bank International AG v Asia Coal Energy Ventures Ltd & Anor

A representation is construed objectively in its documentary and commercial context, having regard to its purpose and the effect it would have on a reasonable representee. A document presented as a marketing summary may imply that statements about security remain accurate when provided, even if dated earlier. A misrepresentation need only be one inducing cause of the contract. Rescission is not barred by affirmation unless the representee makes an unequivocal declaration or performs an unequivocal inconsistent act. An alternative arrangement under a contractual escrow clause must serve the same commercial purpose of securing completion and payment. Where no realistic prospect of such an arrangement remains, the related holding obligation ends.

RBI agreed to sell ACE a portfolio of defaulted loans and related security. The transaction included a separate sale of shares in Asia Resource Minerals plc. RBI supplied a BORN Summary describing the collateral, including vessels, land security and shares. ACE alleged that the summary contained false representations and rescinded the loan sale agreement. RBI sought specific performance or damages against ACE and pursued Ashurst in respect of funds held in its client account under a solicitor’s confirmation. The issues included the construction, falsity and reliance on the representations, affirmation and equitable bars to rescission, the scope of an indemnity, and whether Ashurst breached its confirmation or caused a recoverable loss of chance.

1. Claim against ACE dismissed. The BORN Summary was a marketing document and the only overview of the collateral. Applying the objective approach in IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 (QB) (Comm), Jaffray v Society of Lloyd’s [2002] EWCA Civ 1101 and Cassa di Risparmio della Repubblica di San Marino SpA v Barclays Bank Ltd [2011] EWHC 484 (Comm), its statements were construed in context and as at the date it was placed in the data room.
2. There were false representations that 57 vessels existed, that security over 15 remaining vessels was ongoing and pending, that no substantive difficulties were envisaged in perfecting that security, that three land certificates were being reissued or renewed, that no substantive difficulties were envisaged in perfecting the land security, and that the pledge over the Samudra Shares was perfected. The representation concerning perfection over 42 vessels was true.
3. ACE relied on the representations and was induced to enter the SPA. The statements concerned the security interests being purchased, not merely the existence or valuation of underlying assets. Reliance on a representation as one of several inducing causes was sufficient.
4. ACE did not affirm the SPA. Neither the 28 June email nor the 13 July letter was an unequivocal declaration to proceed, and negotiations and preparatory work were not unequivocal acts inconsistent with rescission. Delay and inability to return the ARM shares did not make rescission inequitable because the share and loan transactions had been separately structured and the collateral had not been transferred. ACE validly rescinded the SPA.
5. ACE’s indemnity claim failed. The professional and valuation expenses claimed were not liabilities which the SPA required ACE to incur and were therefore damages rather than recoverable restitutionary indemnity.
6. Claim against Ashurst dismissed. The alternative arrangement contemplated by clause 4.2 of the SPA had to provide a mechanism securing completion and payment against transfer of the loans. It was not confined to use of funds in Ashurst’s account. However, by 7 July 2015 there was no realistic prospect of agreement. The parties’ positions were fundamentally opposed, and there was no recoverable loss of chance even if Ashurst had retained the funds.