Australia: The Arrium Series (#3) - Do you owe a lender a duty of care?

In brief

The Arrium Series

Welcome to issue #3 of our Arrium Series, where senior members of the Baker McKenzie team involved in the successful defence of proceedings against the former CFO, Treasurer and other employees of the Arrium Group consider key issues arising in those and related insolvent trading proceedings and from the judgment handed down on 17 August 20211

A summary of the relevant background, some key terms and the key issues to be considered in this Arrium Series can be found in issue #1 here. Issue #2, which considers solvency in the context of large debts due in the relatively distant future, can be found here.


Contents

Today's issue - do you owe a lender a duty of care?

As discussed in issue #1, the Anchorage plaintiffs' claims included that:

  • Arrium's Treasurer and/or Treasury or Finance employee(s) negligently completed and signed drawdown and rollover notices containing personal misrepresentations in breach of a duty of care they personally owed to lenders.
  • the CFO had breached a personal duty of care allegedly owed to lenders by directing that all available monies under the various facilities be drawn down or by failing to ensure representations contained in the drawdown and rollover notices were accurate.
  • if, in the alternative, the representations in the drawdown and rollover notices were made by the Arrium borrowers (rather than by the employees personally) then those Arrium entities negligently made misrepresentations in breach of a duty of care they owed to lenders which was "procured" by the CFO because he had directed the monies be drawn down and/or by both the CFO and Treasurer because they had failed to prevent that occurring.
  • the Treasurer had also separately made negligent misstatements in the course of a telephone discussion with one lender concerning the accuracy of representations made in a particular drawdown notice and the progress of the sale of Arrium's Mining Consumables business.

Ultimately, for the many reasons discussed below, the Court found that no duty of care was owed to lenders by either the Arrium entities, the CFO, the Treasurer or the other Arrium employees save for that single telephone discussion between the Treasurer and that one lender, where the Court held that there was no breach of that duty.

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1 Anchorage Capital Master Offshore Ltd v Sparkes (No 3); Bank of Communications Co Ltd v Sparkes (No 2) [2021] NSWSC 1025

Related alerts from the Arrium Series

Australia: The Arrium proceedings - something important for everyone

Australia: The Arrium Series (#2) - Determining solvency where current debts are being paid but large debts are due in the relatively distant future

Australia: The Arrium Series (#4) - When may company officers and employees be personally responsible for representations?

Australia: The Arrium Series (#5) – Interpretation and application of Material Adverse Change clauses

Australia: The Arrium Series (#6) - Lender reliance and loss causation

Australia: The Arrium Series (#7) - Novel assessments of loss for negligence, misleading conduct and insolvent trading

Australia: The Arrium Series (#8) - Secondary debt trading - Assignments of debts and rights of recovery


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