Australia: The role of the security trustee in a syndicated loan transaction

Shipping newsletter - Legalseas
Last Updated: 5 August 2014
Article by Charlotte Winter

Shipping newsletter - Legalseas

In the April edition of Legalseas we considered the recent English High Court decision in Torre Asset Funding v The Royal Bank of Scotland plc. This case looked at the scope of an agent's role and potential liabilities in a structured finance transaction.

In this issue we move on to consider the role of the security trustee and the interplay between its fiduciary and contractual duties.

The security trustee, being a trustee rather than an agent, does in principle owe a fiduciary duty to the beneficiaries of the trust property, namely the lenders in a syndicated loan. A fiduciary is someone who has undertaken to act for another in circumstances which give rise to a relationship of trust and confidence. The fiduciary will subordinate its own interest to that of the principals and must act in good faith.

However, typically a syndicated loan transaction will involve sophisticated parties who have chosen to govern their relationship through arm's-length commercial contracts. Accordingly, the English courts recognise that the scope and nature of the duties owed are shaped by the terms of the contract.

While the contractual and fiduciary relationships co-exist, it is the contract that is fundamental because it regulates the basic rights and liabilities of the parties. The fiduciary duties will not be superimposed on the contract so as to alter its operation. As a result, while the parties cannot exclude fiduciary duties completely, they can regulate the scope of those duties. Most financing arrangements will limit the scope of the security trustee's role in the same way that they would limit the scope of the agent's role.

While a security trustee does have fiduciary duties, this does not mean that a security trustee will always be a fiduciary in every element of its role. The case of Saltri III Ltd v MD Mezzanine SA SICAR1 looked at this issue and set out a number of points of general significance to security trustees acting under English law documentation. The case confirmed the established principle that:

"A fiduciary is not subject to a fiduciary duty because he is a fiduciary; it is because he is subject to them that he is a fiduciary"

In other words, while a security trustee is a fiduciary in some respects, and so will owe fiduciary duties, the trustee does not necessarily have a fiduciary role in relation to everything it does. In order to determine whether a security trustee is subject to a particular fiduciary duty, it is necessary to consider the particular duty in conjunction with the contractual scope of the duty.

Saltri arose out of the restructuring of a group of companies known as the Stabilus Group, a global market leader in the manufacture of gas springs and hydraulic vibration dampers. Two JP Morgan entities participated, one as a senior lender and the other as security trustee.

There was an inter-creditor agreement which provided for the security trustee's ability to enforce the transaction security at the request of the senior majority lenders. The agreement provided that in doing so, the trustee had to take reasonable care to obtain a fair market value.

Following severe financial difficulties, the lenders looked to enforce their security initially by selling the group but ultimately this was achieved by way of a restructuring. The mezzanine lenders had proposed a restructuring which would enable them to retain some equity, so were unhappy that the restructuring that was ultimately achieved wiped out their interest. They challenged the validity of the restructuring and made a number of allegations of breach of duty by the security trustee. The following interesting points arise from the decision:

  • The judge found that the scope of the duty owed in the context of enforcement in this case was not as fiduciary to principal but as a mortgagee to mortgagor.
  • Where a participant is involved in a transaction in more than one capacity (i.e. as security trustee and as senior lender) it should be careful to maintain proper separation to avoid conflicts of interests and to be aware that it owes duties to all the beneficiaries, not just the senior lenders.

The relevant duty in the context of this case related to enforcement. The contract provided that the duty on enforcement was to take reasonable care to obtain a fair market value. This did not mean that there was an absolute obligation to market the asset but the security trustee did have to take reasonable care to achieve the appropriate market value. The duty was not a fiduciary one but equivalent to that of a mortgagee to a mortgagor. While there were some criticisms of the sale process and the valuation, the actions were not "plainly on the wrong side of the line" and therefore the judge found there was no breach of this particular duty.

In any event, the judge found that even if a full marketing and sale process had taken place, there was no realistic prospect of a return in excess of the senior liabilities, so the position would have been no better than the actual restructuring. In effect, there was no loss on the part of the mezzanine lenders and accordingly no claim.

While the conduct of the security trustee was not on the wrong side of the line, the judge was critical of its failures to (i) maintain separation of its roles in different capacities; and (ii) disseminate information appropriately, and found that there was a breach of fiduciary duties to the mezzanine lenders in this regard.

Although the breach was not causative of any loss in this case, and so did not give rise to a liability, care should be taken by security trustees where a potential conflict of interests might arise. A security trustee should not only take account of the scope of the duty it owes, but should also be conscious of the parties to whom it owes that duty.


1[2012] EWHC 3025 (Comm)

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions