Banks involved in syndicated credit facilities will be reassured by a recent case that the court will respect decisions made by the syndicate members to allocate responsibility and risk. The extent of an arranging bank’s duty to disclose is highlighted by the case. It also sheds light on the implied representations a bank makes when providing syndicate information memoranda.
The case suggests that where the Syndicate Information Memorandum (SIM) has been issued but a recipient has not yet acted on it, arranging banks are under a duty to disclose if they have actual knowledge that the information is misleading. They would not be under such a duty if they honestly believed the error was of no importance.
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Banks involved in syndicated credit facilities will be reassured by a recent case that the court will respect decisions made by the syndicate members to allocate responsibility and risk. The extent of an arranging bank’s duty to disclose is highlighted by the case. It also sheds light on the implied representations a bank makes when providing syndicate information memoranda.
The case suggests that where the Syndicate Information Memorandum (SIM) has been issued but a recipient has not yet acted on it, arranging banks are under a duty to disclose if they have actual knowledge that the information is misleading. They would not be under such a duty if they honestly believed the error was of no importance.
The main points arising in the case were:- IFE purchased bonds and warrants from Goldman Sachs as part of syndicated credit facilities provided to the bond issuer to enable it to acquire Finelist PLC. IFE suffered loss when Finelist became insolvent.
- IFE sued Goldman Sachs for misrepresentation and negligence. It complained that it had been induced to enter into the transaction by information provided by Goldman Sachs which presented a misleading picture and which Goldman Sachs did not correct after it had cause to doubt its reliability.
- Goldman Sachs provided IFE with a SIM. Later, the investigating accountants produced further reports. Two of these reports were produced before the transaction’s completion date, but were not provided to IFE.
- IFE argued that if it had seen the reports at the time they were produced, it would not have gone ahead with its investment. IFE also argued that Goldman Sachs had impliedly represented that it did not know the information it had provided was incorrect.
The Court decided no such representation was implied and that an implied representation of the scope contended by IFE would require Goldman Sachs to carry out an evaluation that was inconsistent with the wording of the SIM.
The Court did, however, find that there was an implied representation that in supplying the SIM, Goldman Sachs was acting in good faith and not knowingly putting forward information likely to mislead. The Court found that this was a continuing representation. This meant that if after the SIM was issued, but before a recipient acted on it, Goldman Sachs became aware that the information it had supplied was misleading, it was under a duty to disclose this, unless it believed the error was of no importance.
The Court also said there was a difference between having actual knowledge that information previously supplied was misleading and acquiring further information which merely gave rise to the possibility that previously supplied information was misleading. In the latter instance, Goldman Sachs would not be under a duty to investigate or advise further, given the terms of the SIM.
The Court also held that Goldman Sachs did not owe IFE a duty of care.
Law:
Contribution was also made by Nathalie Hurley.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 13/12/2006.
