Lloyd's Maritime and Commercial Law Quarterly

Professor Francis D Rose

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SYNDICATED LOANS, RECOVERY OF THIRD-PARTY LOSS AND THE RES INTER ALIOS ACTA PRINCIPLE

Nelson Goh*

It is not uncommon for lenders in a syndicated loan to sue professionals involved in the transaction for negligence in the provision of material information. According to a line of cases involving syndicated loans, where the transfer of an interest in the loan by the arranger to a secondary lender is considered to be collateral to the original transaction, or res inter alios acta, the arranger, qua lender, may sue and recover for itself losses suffered by the secondary lender. This paper suggests that the application of the res inter alios acta principle is problematic. It should rarely be possible for an arranger to be awarded damages in full from a negligent professional where its risk (or part thereof) has been passed on to a participant bank. Three broad points are advanced. First, the res inter alios acta principle is conceptually problematic and should be applied with care. In particular, consideration ought to be given to cases involving avoided losses, the area of law in which the principle primarily operates. Second, the current application of the principle neglects key considerations pertaining to situations of third-party loss, such as the possibility of a legal black hole or a potential windfall for the claimant. This may be rectified by interposing the framework which has emerged in Panatown. Finally, in the light of the foregoing, a broad rubric to deal with claims by lenders against negligent professionals in the context of syndicated loans is proposed.

* Adjunct Research Fellow, Centre for Banking and Finance Law, National University of Singapore. I wish to thank the Centre for its support and am grateful to participants at a presentation of this paper. In addition, I am indebted to Associate Professor Christopher Hare, Oxford University, and an anonymous referee, for their insightful comments on an earlier draft. I also thank Soon Choo Hock (Rajah & Tann LLP) and Aloysius Ng (Allen & Gledhill LLP) for very helpful discussions on the topic. All errors and omissions remain mine.

The following abbreviations are used in the footnotes:

Banking Litigation: Charles Hewetson and Nicholas Elliot (eds), Banking Litigation, 3rd edn (Sweet & Maxwell, London, 2011);

CRTPA: Contracts (Rights of Third Parties) Act 1999;

Ellinger: P Ellinger, E Lomnicka and C Hare (eds), Ellinger’s Modern Banking Law, 5th edn (Oxford University Press, Oxford, 2011);

Furmston & Tolhurst: M Furmston and GJ Tolhurst, Privity of Contract (Oxford University Press, Oxford, 2015);

LMA: Loan Market Association;

LMA Facility Agreement 2015: LMA Senior Multicurrency Term and Revolving Facilities Agreement for Leveraged Acquisition Finance Transactions (15/01/2015);

McGregor: Harvey McGregor (ed.), McGregor on Damages, 19th edn (Sweet & Maxwell, London, 2014);

Mugasha: Agasha Mugasha, The Law of Multi-bank Financing: Syndicated Loans and the Secondary Loan Market (Oxford University Press, Oxford, 2015);

Paget: Ali Malek and John Odgers (eds), Paget’s Law of Banking, 14th edn (LexisNexis Butterworths, London, 2014);

Rhodes: Tony Rhodes (ed.), Syndicated Lending: Practice and Documentation, 3rd edn (Euromoney Books, London, 2000);

Unberath: Hannes Unberath, Transferred Loss: Claiming Third Party Loss in Contract Law (Hart, Oxford, 2003).

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