Bank Liable To Investors For 'Dropping The Ball' In Its Role As Arranger In Securities Offering

In Golden Belt v BNP Paribas [2017] EWHC 3182 (Comm), the Commercial Court found, for the first time, that an arranging bank owed a limited duty of care to investors in a capital market offering.

The case highlights the need to articulate clearly the scope of a bank's responsibilities and corresponding disclaimers in offering documentation.

Background

The 'Golden Belt' case is part of the myriad of global litigation that emerged from the collapse of Saad Group, a major Saudi Arabian conglomerate, in 2009. This claim concerned a Sukuk, an Islamic financing instrument substantially similar to a bond, which was issued by Golden Belt, a Bahraini SPV. BNP Paribas (BNP) was arranger, sole bookrunner and one of the lead managers in the offering, which was intended to raise US$650 million for Saad, as ultimate borrower.

The primary means of enforcing rights under the Sukuk was a promissory note issued by Saad in favour of Golden Belt. Golden Belt's rights under the transaction documents (including the promissory note) were held on trust for investors. In a default situation, it was envisaged that investors could require Golden Belt to invoke its rights under the promissory note, thereby giving investors a relatively straightforward remedy against Saad. However, following default under the Sukuk, it emerged that the promissory note had not been properly executed and was therefore worthless.

BNP was sued in negligence by Golden Belt and distressed debt funds that invested in the Sukuk in the secondary market. Crucially, the funds invested in the secondary market after it became clear that Saad was in financial difficulty but before it emerged that the promissory note had not been properly executed. The existence of the promissory note was a major consideration in their decision to invest.

Should a tortious duty of care be imposed on the Arranger?

BNP was identified on the front cover of the Offering Circular as "Arranger and Sole Bookrunner" but the document was silent as to BNP's role and responsibilities in those capacities. There was therefore no express contractual duty of care to investors in respect of BNP's acts as arranger and sole bookrunner. An important notice in the Offering Circular made clear that the "Lead Managers" (including BNP) made no representation or warranty and accepted no responsibility as to the accuracy or completeness of its contents. However, the risks outlined in the Offering Circular did not include any reference to the...