Agent status in structured asset finance

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The recent case of Torre Asset Funding v RBS [1] reiterates that the contract is king, especially in the context of complex structured asset finance facilities.


As part of a six-tiered finance facility put together by the defendant (RBS), the claimant (Torre) loaned money to Dunedin Property Industrial Fund (Holdings) Ltd (Dunedin) to acquire a portfolio of industrial units in late 2005/mid 2006. Dunedin gave market standard contractual covenants to the lenders, including an interest cover covenant regarding the relationship between the income for Dunedin from the portfolio and the interest payments due to be made by Dunedin to the various levels of lender; and a loan to value covenant regarding the relationship between the value of the properties in the portfolio charged as security for the loans and the loan amounts outstanding. Breach of either of those covenants would allow Torre (subject to the priority of other, more senior lenders within the structure) to call in the loans.

In addition to being one of the lenders, RBS acted as agent for Torre, responsible for the flow of certain financial information from Dunedin.

The portfolio did not increase in value. In fact, in July 2007, Dunedin and RBS reviewed cashflows as against those projected in the original business plan and realised that the financing could not be fully serviced. RBS sought consent from Torre to reschedule interest payments by rolling them up to maturity. The reason given was to enable Dunedin to incur expenditure to improve the estate – the fact that the financing could not be serviced was not mentioned. Torre gave consent to the restructuring, but other lenders refused and the restructuring never took place.

In July 2008 a valuation report revealed that all levels of the financing structure were in default. Dunedin appointed administrative receivers and Torre received no funds from the receivership.


Torre claimed that RBS had been in breach of its duty as agent by failing to report that there had been an event of default as per the relevant contractual covenants and that RBS had been in breach of its duty as agent by failing to pass on to Torre the 2007 cashflow statement. Torre also sued RBS for negligent misstatement in respect of the inaccurate reason given for the interest rescheduling request.


Although the court agreed that there had been a breach of covenant when the 2007 cashflow statement revealed problems, it rejected Torre’s argument that RBS’ failure to report was actionable. The court looked at the contractual arrangements overall and considered that the contractual agency duties which RBS had assumed to Torre were precisely defined and limited. There was therefore no scope for extending those duties by implying general duties from the common law of agency. Similarly, the court found that the 2007 cashflow statement was not one of the specific financial information documents that RBS had contracted to supply to Torre and so, again, RBS was not in breach.

In relation to the negligent misstatement claim, the judge found that RBS had assumed a duty of care when seeking Torre’s consent to the rescheduled interest arrangements and offering reasons as to why the amended arrangement was required. RBS had breached that duty by failing to take reasonable care to give accurate information. In fact, the judge said that RBS’ reasoning was “materially inaccurate and misleading”. Nevertheless, because other lenders within the scheme had refused consent and the rolling-up of interest payments did not happen, RBS’ breach did not have any relevant impact and did not cause Torre to suffer loss.

WM Comment

There are a number of messages that banks and other financial institutions can take away from this case. The first is, of course, the importance of tightly drafted contracts within complex asset finance arrangements. It is notable that, within the context of a carefully structured contractual framework overall, the court was willing to construe RBS’ duties narrowly (to the bank’s distinct advantage).

The case also highlights the potential risks that a bank can face when it is involved in multi-level lending, and that a clear division of the role of agent from that of lender is essential. This division should be clear both on the face of the contractual documentation and on a practical level, with different departments and staff dealing with the different roles at all times.

Finally, even despite the most well drafted and well deployed agency arrangements, it is important to note that where any arrangements invest an agent with an element of discretion (such as, here, the discretion to give reasons for the amended interest arrangement request), that discretion must be exercised with “honesty, good faith and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused” [2].


[1] Torre Asset Funding Ltd & Anor v The Royal Bank of Scotland Plc [2013] EWHC 2670 (Ch)
[2] Socimer International Bank Ltd v Standard Bank London Ltd [2008] EWCA Civ 116 at [60]-[66], as per Mr Justice Sales (Torre Asset Funding) v RBS at [35].