The Commercial Court has recently considered whether a guarantor should be held liable under a facility agreement for over US$35 million.
Barclays Bank Plc (the “Claimant”) acted as an agent and offshore security trustee of a syndicate of lenders, including Barclays Capital (the “Syndicate”). The Syndicate lent US$45 million to Svizera Holdings BV (“the First Defendant”) pursuant to a facility agreement dated 24 September 2007 (the “Facility Agreement”). Maneesh Pharmaceuticals Limited (the “Second Defendant”) was the parent company of the First Defendant and acted as guarantor under the Facility Agreement.
The relationship between the parties was prescribed by the Facility Agreement, a separate mandate letter, fee letter and notification letter. These documents expressly excluded any fiduciary or advisory relationship from existing between the Claimant and Defendants.
The First Defendant defaulted under the Facility Agreement and on 21 February 2012 the Claimant served a demand on the Second Defendant. The Second Defendant failed to honour that demand and the Claimant issued proceedings, claiming in excess of US$35 million. The Defendants counterclaimed, alleging that the Claimant had represented that it could and would obtain an INR/USD currency swap for the First Defendant at ordinary commercial rates, to be entered into at the same time as the Facility Agreement. The Defendants further alleged that the Claimant owed the Defendants a fiduciary duty by virtue of the relationship between parties and had breached this duty by providing negligent advice.
On the facts, the Claimant was not found to have made any representation to the Defendants that the Claimant would obtain an INR/USD currency swap. In addition, Mr Justice Flaux considered the Defendants’ allegation that the Claimant owed a fiduciary duty to the Defendants and was in breach of this duty as “utterly hopeless”. He went on to state that, notwithstanding the contractual documentation which expressly stipulated that the Claimant was not acting in a fiduciary or advisory capacity, the Defendants’ allegation “completely misunderstands and misstates the nature of the relationship between a bank and its customer which save in special circumstances (not present here) is not a fiduciary one”. Accordingly, Mr Justice Flaux gave primacy to the contractual documentation which expressly excluded any fiduciary duty or advisory relationship from arising between the parties. The Defendants’ counterclaim was therefore dismissed and the Claimant was found to be entitled to recover US$35,555,064.80 from the Defendants.
This decision of the Commercial Court is welcomed by lenders as it confirms that primacy will be given to the contractual terms of a facility agreement. Mr Justice Flaux made it clear in his judgment that the relationship between bank and borrower is, save for special circumstances, between principal and principal.
For further information, please contact Georgina Squire or the Partner with whom you usually deal.