Agents for syndicates of financiers can take some comfort from a
recent decision in which the English High Court held that a
syndicate Agent's duties are defined by the contract between it
and the lenders: Torre Asset Funding v Royal Bank of Scotland
plc  EWHC 2670 (Ch) (3 September 2013). The Court
dismissed a claim against Royal Bank of Scotland plc
("RBS") arising out of a
highly-leveraged commercial real estate financing entered into
shortly before the onset of the global financial crisis.
The decision is especially interesting for its analysis of an
Agent's role as being "solely mechanical and
administrative in nature" and the fact that the conclusion was
reached despite RBS having multiple roles in the transaction.
It is not certain that an Australian court would reach the same
conclusion, because of the Australian courts' slightly
different approach to fiduciary duties and conflicts in a
commercial context, and our misleading and deceptive conduct
statutes, but this English decision will nevertheless be of
interest to facility agents.
RBS acted as Agent and a Lender in a series of facilities made
available to a property company, Dunedin Property Industrial Fund
("Dunedin"). The facilities that were
relevant in this case were two of the three mezzanine facilities,
the B1 Facility and the B2 Facility. Torre Asset Funding
("Torre") and RBS were Lenders under the
B1 Facility. All the Facilities contained covenants relating to
interest cover ratios and loan-to-value ratios. The loans were
advanced in October 2006. By mid-2007, it was clear that Dunedin
was not generating as much income as expected and by late 2007,
valuations indicated a decline in the value of the portfolio.
Concerns about the ability of Dunedin to continue to meet its
interest payment obligations led RBS to propose rolling up the B2
Facility's interest until the maturity of the loan. Ultimately,
the proposal stalled when a Lender under the A Mezzanine Facility
declined to approve it. Subsequently, property values dropped
sharply, as did Dunedin's income from lettings, and Dunedin
gave notice of a default in July 2008. Administrators were
appointed and Lenders in several layers of the financing structure
did not recover any of their loans.
Torre made a number of claims relating to the provision of
information by RBS. Torre alleged that the team within RBS managing
the B1 and B2 loans was aware of events that constituted a default
in July 2007 and had a duty to inform Torre of the default but
failed to discharge that duty. Torre argued that, had it known
about the default, it would have sold the loans and avoided the
loss that it eventually suffered.
The judge found that there had, in fact, been a default in July
2007, as a result of Dunedin starting discussions with RBS to
restructure the B2 Facility. Torre's claim failed. The reasons
for this finding were:
There was no general duty at common law on RBS to inform Torre.
Nor was there a relevant express contractual duty. The Facility
Agreement, which was based on standard LMA terms (which are very
similar to those in APLMA documents commonly used in Australia),
circumscribed and limited the scope of the agency and contained the
usual broad exclusion of any fiduciary relationship. The agency
relationship in this case was fully defined by the contract between
No duty should be implied, because it was unnecessary in the
context of complex transaction documents carefully negotiated and
entered into on arms' length terms.
Finally, the judge held that, although RBS owed Torre a duty of
care, Torre's loss was not of a type covered by that duty of
care. In any case, since RBS had not acted with "gross
negligence" or demonstrated "wilful misconduct", the
exclusion clauses in the Facility Agreement protected it.
The case is interesting because it confirms that the English
courts will give effect to the agent-protection provisions of
LMA-based Facility Agreements. This continues a theme in disputes
between agents and syndicate members, as sophisticated parties
engaging at arm's length, of the supremacy of the contractual
framework between them. The judge reviewed several recent decisions
on interpretation of complex financial documents in reaching his
decision, and the message is that, for the English courts at least,
the Facility Agreement means what it says. Whether an Australian
court would reach the same conclusion is less clear, although it is
likely to do so absent behaviour which engages the misleading and
deceptive conduct statutes or provokes closer scrutiny of the
fiduciary and conflict elements of the relationships between the
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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