1. Student’s notes – educational purposes only
No responsibility assumed
Lead manager liability – “negligent misstatement”
Negligent misstatement is the main heading of liability for the
lead manager in a syndicated loan. It is a remedy under the tort
of negligence, which was admitted by the House of Lords
inHedley Byrne v Heller. In order for the lead bank to be held
liable, the lender has to prove that the lead bank has provided to
him information about the borrower (which is normally done
through a “selling document” called Information Memorandum
- IM), and that the information so provided had been influential
for the lender to have joined the syndicate and advanced funds
and later proved to be inaccurate andmisleading. The
information, although is has to havebeen influential, does not
necessarily have to have been the sole determinant factor
inducing the lender to join the syndicate and this will be
objectively tested, ie considering a reasonable person under
similar conditions as the actual lender was. Notice that the
burden of proof is on the lender, the aggrieved syndicate
member.
Following the decision in Hedley Byrne v Heller, a duty
of care emerges where there is a “special relationship” between
the parties, especially when one relies on the particular
knowledge and skills demonstrated by the other. The negligent
misstatement should fall within the scope of the duty of care
and this failure to act reasonably within the scope of the duty of
care should result in actual damage to the claimant. It is also
necessary to evidence reliance by the part of the claimant on the
information provided by the defendant, otherwise another factor
other than the failure to act within the scope of the duty of care
will have provoked the loss and not the defendant’s failure
itself. Where all these requisites have been fully proven, the
defendant may be held liable for the foreseeable loss. In the
Transfield Shipping case, it was held that damages should be

2. limited to cover only losses the lender was regarded as having
assumed responsibility. Any contributory negligence by the
part of the claimant will reduce the damages owed to it by the
defendant accordingly (Law Reform (Contributory Negligence)
Act 1945).
In order to evidence the duty of care, there are mainly two
consecutive tests: a) the “voluntaryassumption of responsibility”
test: has the defendant assumed responsibility towards the
claimant regarding the information provided to him? (Spring v
Guardian, White v Jones, William v Natural Life and other
cases); and b) “the threefold test”, which, in fact, limits the
scope of the duty of care, since that, in order for a duty of care
to arise, there must have occurred, as a result of the defendant’s
failure to comply with his duty of care, a loss which is
foreseeable; the relationship between the parties must have
been one of sufficient proximity, and it has to be just, fair and
reasonable to impose liability (Caparo v Dickman). In
Caparo v Dickman, an auditorcompany was found not liable to
members of the public that could have relied on accounts
assessed by the auditor because there was no proximity between
the auditor and a member of the public at large and losses in that
situation would not have been foreseeable. Indeed, according to
Hadley v Baxendale, the lender is liable for losses that arise
naturally from the breach or which might reasonably have been
foreseen as likely to arise from particular circumstances of
which the lender was aware at the time the contract was
executed.
The scope of the duty of care may be reduced even more
or totally demolished by a disclaimer inserted in the IM. In the
disclaimer, the lender will make clear that he has not carried out
an independent verification of the information; that the
information has beenprovided to him by the borrower, and he
has not checked them out before making them available to
prospective lenders; that he has not made any representation etc.

3. The disclaimer will only effectively exclude potential
liabilities where it does not contravene the “reasonableness
test” under s. 11 of the Unfair Contract Terms Act 1977. In
general, a disclaimer will be upheld where the parties are
commercial parties or sophisticated parties, having both equal
bargaining power and access to legal advice. Also, common law
rules demand a clear and not ambiguous disclaimer, otherwise it
will end up being interpreted against the party it was initially
supposed to benefit. Moreover, a disclaimer cannot prevent
liability arising from a “fundamental breach” of the contract.A
disclaimer was held valid in IFE Fund v Goldman Sachs,
therefore reducing the scope of the duty of care. It was
considered that the parties were sophisticated parties doing
business “in the specialised world of syndicate finance”.
Goldman won the case because a disclaimer said it had not
made any representation as to the accuracy of the information
provided to him by the borrower, and that it would not check or
update any information.
However, even with a disclaimer, the scope of the duty of
care may be wider in particular circumstances. InNatwest
Australia v Tricontinental, an Australian case,Tricontinental
(the arranger bank) was held liable because Natwest Australia –
after taking the IM containing financial information about the
borrower (Pro-Image) but before it had signedup for the
agreement and advanced funds – directed an specific query
about a detail of the transaction to the arranger and
Tricontinental replied to the question. It was held that Natwest
had shown reliance on the information provided to it by
Tricontinental and that Tricontinental had assumed
responsibility in responding to the question: the lead manager
had assumed a duty of care as to make sure that the answer was
correct. Therefore, the specific inquiry acted as extending the
scope of the duty of care in that particular situation.
Besides the disclaimer in the IM, there will be included in
the contract itself a clause whereby the arranger will attempt to

4. prevent any duty of care or fiduciary duty from arising. The
parties to the agreement will agree that they did not rely on any
representation or information provided by the arranger and that
the arranger has not made any representation at all. The parties
may even state that they had carried out their own investigations
before joining the syndicate. This will act as a contractual
estoppel, which means that the syndicate members will be
saying, through signing up for the agreement, that they did not
rely on any information provided to them by the arranger, and it
does not matter whether this is true or not. What matters is that
they said in the contract that they had not relied on the
information. The arranger, in turn, will not need to prove that its
counterparties effectively did their own due diligence nor that it
would be unfair for the other parties to resile from the agreed
terms of the contract (Peekay v Australia and New Zealand
Banking Group). A similar reasoning is found in JP Morgan v
Springwell, where “experienced investors” agreed that the
plaintiff would not rely on the information. Afterwards, the
claimant could say that it actually had relied on that information,
contrary to what he had previously asserted in the contract.
Following the principle of freedom of contract and contractual
certainty, “the parties are free to agree that a certain state of
affairs should form the basis of a transaction” (even if this is not
the case). In RaiffeisenZentralBank, for similar reasons, a “no
representation” clause was upheld.