The recent English High Court decision in Torre Asset Funding v The Royal Bank of Scotland plc puts into the spotlight the role and duties of a facility agent in a syndicated loan.
The case concerned a loan agreement based on the LMA standard form. Since many shipping loans today incorporate LMA standard terms, this decision will be of particular interest to shipping banks. The LMA form sets out the duties of the facility agent and clearly states that they are “solely mechanical and administrative in nature”.
The court in Torre was asked to impose additional common law obligations on the facility agent – specifically, an obligation to pass on information concerning the borrower. The court declined to do this. It effectively said that that it was not appropriate to impose additional duties on the facility agent where the loan agreement itself already clearly defined the facility agent’s role. At the same time, the court upheld the standard LMA exclusion of liability clause, saying that it extends to omissions and, therefore, would have been effective to protect the facility agent in this case.
Although the court refused to impose an obligation to pass on information, the judge (of his own volition) did question whether an obligation might arise (i) from the facility agent’s express power to pass on information concerning the borrower, and (ii) on the basis that the facility agent had a duty to exercise that power in the best interests of the lenders. The end result was that the court found that there was no obligation, but there was a warning, that a facility agent cannot just assume that its role is purely administrative and that it does not need to apply any qualitative analysis to information it receives.
Agent banks under LMA style documents will welcome this decision. They can continue to regard their role as “mechanical and administrative” and limited by the particular wording of the loan agreement. However, this case may encourage lenders to negotiate harder on agency provisions, so as to impose greater express obligations on the facility agent to pass on information.