Andrew Seager

Andrew Seager

Senior adviser

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Andrew Seager

Andrew Seager

Senior adviser

Read More

6 mars 2018

Golden Belt: a cautionary tale on virtual completions?


In this case the arranger of a sukuk issue was held liable to purchasers of the sukuk certificates for failure to ensure the valid execution of a promissory note which formed a key part of the sukuk documentation.

The liability arose despite a disclaimer in the offering circular for the issue.


The defendant bank acted as arranger of a sukuk issue by Golden Belt, a special purpose vehicle incorporated in Bahrain (the SPV). A sukuk is an Islamic financing transaction involving the issue of tradeable certificates with the same economic effect as a bond issue. The SPV would lease real estate from an individual and sub-lease to a Saudi limited partnership (SAAD) of which that individual was a general partner (the GP). Payments under the certificates would be funded by rent payable under the sub-lease.

A key part of the documentation was a promissory note in the sum of USD 650 million which was required to be signed by the GP on behalf of SAAD. The payee would be the SPV which acted as trustee for the certificate holders. At the time of the issue SAAD was considered to be a very substantial company with an investment grade credit rating. The promissory note was intended to be a direct credit enhancement of the certificates which would offer a more straightforward means of recourse in Saudi Arabia than would be available through the lease structure.

The law of Saudi Arabia required the promissory note to be signed with a 'wet ink' signature.

Following a default by SAAD under the lease structure an attempt was made to enforce the promissory note in Saudi Arabia.

The promissory note appeared to have been signed by the GP in the presence of two witnesses but the signature was found to be a laser-printed signature. This was apparent only on microscopic examination of the document. There were no arrangements for the promissory note to be signed in the presence of the arranger's lawyers or members of its staff.

The attempt to enforce payment under the promissory note in Saudi Arabia was not successful because of the failure to execute it with a 'wet ink' signature.

Legal opinions obtained by the arranger at the time of the issue gave no comfort or assurance as to the validity or due execution of the promissory note.

Two funds which had purchased certificates after the default but before failure of the proceedings to enforce the promissory note brought proceedings against the arranger to recover losses on the basis that the arranger had been negligent in not taking steps to ensure that the promissory note was properly executed.


The issues in the case were whether the arranger owed the purchasers a duty to take reasonable care to ensure that the promissory note was properly executed and whether a disclaimer in the offering circular was effective to exclude any liability to the purchasers.

The court seems to have had no difficulty in concluding that such a duty of care was owed to the purchasers on the following basis:

  • the functions of arrangers invariably include arranging for execution of documents
  • the importance of the involvement of a first class international bank in this role in giving confidence to investors
  • the fundamental nature of the promissory note in the structure
  • the inability of the purchasers to check the quality of the arranger's service independently

This duty extended to purchasers of the certificates on the secondary market.

The offering circular contained a disclaimer by the arranger and other lead managers of any responsibility for the accuracy and completeness of the information in the offering circular and requiring purchasers of the certificates to make their own independent investigation of the financial condition of SAAD and the SPV together with warnings about other risks applicable to the transaction.

The court held that the risk of the promissory note being invalid was not within the scope of the disclaimer for the contents of the offering circular in the absence of clear terms to this effect.


The case shows that absent a clear disclaimer an arranger has a duty to ensure due execution of transaction documents although the Judge hinted that this may extend to other matters such as the capacity of the parties and due authorisation of entry into the documents.

This may have implications for banks performing the function of agent or arranger under syndicated loan transactions particularly where they are executed through 'virtual' closings.

Where syndicated loans are based on documents published by the Loan Market Association agents, arrangers and security agents have a much wider range of protections than was the case in Golden Belt.

The arranger has the benefit of a number of protections which include provisions to the effect that:

  • except as specifically provided it has no obligations of any kind under or in connection with the Finance Documents (i.e. the loan agreement and other key documents)
  • neither it nor the agent has any responsibility or liability for the legality, validity, effectiveness, adequacy or enforceability of any of the relevant documents or security.

In addition there is an exclusion of liability and an indemnity from the lenders for liability incurred in acting as agent which optionally extend to negligence on the part of the agent but do not extend to gross negligence.

The agent is responsible for notifying the syndicate lenders that the documents delivered to it as conditions precedent are in form and substance satisfactory to it but does not need not to do so unless authorised by the Majority Lenders. Furthermore, the agent is specifically exonerated from any liability for giving such notification.

Agents are entitled to rely on advice from their lawyers but legal opinions about the validity of the relevant documents are given on the basis of assumptions about the genuineness of all signatures.

Agents, arrangers and their legal advisers will need to consider whether the protections mentioned above are sufficient to negative liability in circumstances where documents are not signed in the presence of employees of the arranger or agent or their legal advisers. However, the courts have been willing to give effect to such provisions in Torre Asset Funding v Royal Bank of Scotland [ 2013 ] EWHC 2670 (Ch) and IFE Fund SA v Goldman Sachs International [ 2006 ] EWHC 2887 (Comm). It may well be that the outcome of a similar claim against a syndicated loan arranger would be different where the arranger has the benefit of the standard Loan Market Association protections.

Golden Belt 1 Sukuk Company BSC ( c ) v BNP Paribas; FCOF II UB Securities LLC and others v BNP Paribas [ 2017 ] EWHC 3182 (Comm)

Andrew Seager, Senior Associate

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