The recent judgement in the Bell Group litigation handed down by the W.A. Court of Appeal on 17 August 2012 affirms many of the positions outlined in Owen J’s first instance judgment in the W.A. Supreme Court in 2008. This market update deals solely with the imputation of an agent’s knowledge to each bank in a lending syndicate.

The key point is that both banks and agents must be active in communicating with each other during a transaction and that there should be structured reporting obligations on the agent during negotiations with the borrower. Banks are not able to hide behind their agent in respect of decision making in financial transactions, particularly in relation to companies in distress or in questionable solvency situations.


In 1990, a syndicate of 20 banks (the Banks ) (consisting of an Australian group of 6 banks (the Australian Banks ) with Westpac as agent, and a European syndicate of 14 banks (the Lloyds Syndicate ) with Lloyds as agent) agreed to refinance and extend unsecured loans given to the Bell Group in exchange for, among other things, first ranking security over the Bell Group's publishing assets. Shortly thereafter the directors appointed a provisional liquidator and the Banks appointed a receiver who realised the secured property and distributed the proceeds to the Banks.

In 2008 the Bell Group liquidator brought a successful action to recover the funds, claiming the directors had breached their fiduciary duties in allowing the security to be granted when they knew the Bell Group was insolvent or close to insolvency. 

Owen J held (among other things) that the Banks had received trust property as knowing recipients of the breaches because Westpac and Lloyds, as agents of the Australian Banks and the Lloyds Syndicate respectively, knew of the breaches and such knowledge was imputed to the Banks. 

Appeal decision

In relation to the agency issue, the Banks appealed the judgment on the grounds that Owen J had erred in finding that they were the knowing recipients of trust property, arguing that Westpac and Lloyds could not be said to be the respective agents of the Australian Banks and the Lloyds Syndicate when Westpac and Lloyds sought legal advice and information about the refinancing, because neither of them had the capacity to affect the legal relations of any of the Banks with the Bell Group. Accordingly, the knowledge of the agents when seeking the legal advice and other information in respect of the refinancing could not be imputed to each of the other Banks.

In broadly upholding the decision of Owen J, the Court cited the well-established principle of law in Australia that where an agent has authority to receive information on behalf of a principal, information received by the agent is deemed to be also received by the principal whether or not the agent actually passes on the information.

Notwithstanding any language limiting the agency relationship within the relevant finance documents, through the actions of the Banks, Westpac and Lloyds were taken to be the respective agents of the Australian Banks and the Lloyds Syndicate for the purpose of obtaining legal advice in connection with the Bell Group refinancing discussions from the moment that each of Westpac and Lloyds were charged with task of doing so. Westpac had the authority of each of the Australian Banks to " create legal relations between itself and those banks and the solicitors it retained " and did, in fact, do so, and its authority to obtain and pass on information extended to information it received from Lloyds and Lloyds' solicitors. A similar finding was made in respect of Lloyds and the Lloyds Syndicate.

The implication of the Bell Group decisions on agency in a banking scenario

The appeal decision reaffirms the position that despite any express language in writing to the contrary, an agency relationship can still be implied as a result of conduct or actions. Owen J in the original decisions noted,

  Although the written agreement is relevant, the court must determine the legal relationship between the parties by looking at all the circumstances and the way in which the parties have, in reality, dealt with each other.

Whilst not all agency relationships may involve an imputation of knowledge of the agent to the principal, it is open to the Court to determine that an agency relationship is of the type where the principal will be presumed to know everything that the agent knows.

Lessons for banks: important points to consider going forward

Banks involved in syndicated or club-style financings should consider amongst other things:

  •  That notwithstanding express provisions in the finance documents stating otherwise, a principal and agency relationship may still arise at law. For example, if the agent is asked to perform an action or duty on behalf of the banks.  
  • Any information an agent is asked to receive or gather on behalf of the banks can be imputed to the banks even if that information is not passed on. Accordingly, banks should consider whether a positive obligation on an agent to pass on any or certain information should be expressly set out in the documents.  
  • When an agent is asked to perform additional duties, serious consideration should be given to whether a new agency agreement or an appropriate amendment (which sets out clear limitations on the agent's authority or discretion) should be entered into. However, as noted, the Court will look at all the circumstances of the relationship, not just whether a contractual agreement is in place or the contract itself, when considering whether an agent/principal relationship exists.  
  • It is strongly advised that where banks do act through an agent there should be regular updates from, and clear channels of communication with, the agent to the wider group, particularly when a transaction involves financial distress or suspected insolvency on the part of the borrower.