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21st November 2013

Lessons for lenders : Market standard clauses absolving agents upheld


21st November 2013

Lessons for lenders : Market standard clauses absolving agents upheld

High Court confirms limited duties of agents in structured finance.

The High Court has ruled that an agent in a structured finance transaction relying on standard clauses in syndicated facility agreements and intercreditor deeds will invariably not owe a duty to disclose to the other lenders information concerning a borrower’s default together with its general financial information. The case serves to remind lenders more generally to secure and rely on their own information and risk assessment.


In 2006 The Royal Bank of Scotland plc (RBS) refinanced a property portfolio owned by Dunedin Property Industrial Fund (Holdings) Limited (“Dunedin”). RBS had initially provided 100{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} of the financing, but it subsequently sold, amongst other pieces, its participation in part of the mezzanine debt to the Claimants (“Torre” and “Torre II”, respectively). RBS continued to act as agent for all lenders in the finance structure and the claims of each lender were regulated by an intercreditor deed which RBS was a party to, amongst other capacities, in its capacity as agent.

Dunedin then encountered difficulties which resulted in it entering administrative receivership in September 2008. The realisation from the receivership amounted to less than half of the senior debt and unfortunately, the junior and mezzanine creditors received nothing.

The Claimants, as mezzanine creditors, brought a claim against RBS and the court was asked to consider a number of market standard clauses in a facility agreement and an intercreditor deed which related to an agents duty to notify other lenders of an event of default and the circulation by it of financial information.

The Decision:

The court considered the standard clauses and held that:

  • even where an agent (acting in another capacity as a lender) had participated in events which constituted events of default, it was not under a duty to notify the other lenders of those events, and
  • although RBS had been provided with concerning financial information by Dunedin, it had not been given that information expressly for the purpose of circulating it to the other lenders. It was not therefore obliged to share the information with other tiered lenders

In summary, RBS owed Torre no duty of care beyond what had been set out in the finance documentation.


This case illustrates the very limited range of the duties owed by an agent to lenders in financial transactions where the documentation makes it abundantly clear that the agent is acting in a manner which is “administrative and mechanical in nature”. less…


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