The High Court of Hong Kong held that, on the construction of terms similar to LMA standard terms, minority lenders were unable to pursue individual action following an event of default by the borrower. We have examined and commented on the practical implications of Charmway Hong Kong Investment v Fortunesea (Cayman)[2015] HKCFI 1308 (28 July 2015).


In December 2007, Rightway China Real Estate Limited (‘Rightway’), entered into a secured syndicated loan, arranged by Goldman Sachs with 16 original lenders totalling $547,812,590.60 for the purpose of the acquisition and development of 3 real estate projects in mainland China. The agreement was restructured on 31 March 2011. The facility agreement (the ‘Agreement’) was largely (but not entirely) based on the standard form Multicurrency Term and Revolving Facilities Agreement of the Loan Market Association (‘LMA’) and was subject to Hong Kong law.

Following the restructuring, Rightway defaulted on their next three payments due June 2011, December 2011 and June 2012. In early 2013, the prescribed majority of lenders (‘Majority Lenders’) instructed the security agent, DB Trustees (Hong Kong) Limited (‘DBT’), to appoint receivers over the assets and shares of Rightway and the 3 guarantor companies and to make a demand on the guarantor companies. By mid-2013, the composition of the lenders had changed and the new Majority Lenders, the claimants, instructed DBT to terminate the enforcement action. The minority lenders, the defendants, disputed the validity of those instructions and issued proceedings in Hong Kong and winding up proceedings in the British Virgin Islands and the Cayman Islands.

The claimants disputed these actions as they felt that on the construction of the Finance Documents no individual lender could bring an action to enforce repayment of its proportionate share of the syndicated loan.

The decision

As he considered that none of the finance documents dealt directly with individual lenders recovering their share of the loan, Harris J of the High Court of Hong Kong commented that “the task for the court is to consider the various clauses which touch on this issue and determine what, when they are read together, they establish the intention of the parties was.”

The defendants claimed that their right to pursue action derived from clause 2.2 of the Agreement which states that “unless all the Finance Parties agree otherwise: … (d) the rights of a Finance Party under the Finance Documents are separate and independent rights; (e) a Finance Party may, except as otherwise stated in the Finance Documents, separately enforce those rights; and (f) a debt arising under the Finance Documents to a Finance Party is a separate and independent debt.”

Harris J was not persuaded of this as just because “such a debt may arise does not mean that it does … The Credit Facility Agreement does not state that each advance by a Lender constitutes a separate and aliquot loan.”

Clauses 7.1 (Unlawfulness), 7.3 (Change of control) and 7.9 (Right of repayment/cancellation) of the Agreement dealt with particular circumstances in which an individual lender was given a specific and clearly independent right to recover his portion of the loan demonstrating how and when clause 2.2 operated.

The Agreement contained various provisions, which either gave the Administrative Agent a role in recovering payment from the Borrower or specified cooperative measures to be taken by lenders. For example clause 19.18 provided that in the event of default the Administrative Agent may, and must if so instructed by the Majority Lenders, cancel all or any part of the Cash Loan or declare all or any part of it immediately due and payable. It followed that no individual lender could do this.

On balance, Harris J felt that the Agreement created an aggregated loan rather than aliquot shares and that, this being so, in the absence of an express provision giving individual lenders a right to take independent enforcement proceedings it was for the Majority Lenders, acting in good faith, to decide what enforcement proceedings to take.

Derek Hrydziuszko says:

This decision has caused surprise in some quarters. The LMA has concluded that an English court would be unlikely to follow the Hong Kong judgment’s approach and reasoning. They have, however, produced drafting to further emphasise the individual nature of a lender’s right to payment of all amounts due. This wording has now been incorporated into their facility documentation.