Clifford Chance

Supreme Court Upholds Decision on Arranger's Liability in Syndicated Loan Transactions [Japanese version]

26 July 2013

Since the April 2011 decision of the Nagoya High Court ruling that an arranger in a syndicated loan transaction owed an obligation to provide certain adverse financial information about a borrower to the participating financial institutions (the High Court Decision), there has been some uncertainty in the Japanese lending market about the scope of an arranger's liability to other financial institutions participating in a syndicated loan transaction.

The November 2012 decision of the Supreme Court of Japan (the Supreme Court Decision) has clarified this scope of liability to a certain extent and, although it upheld the High Court Decision, its reasoning differs significantly.  The decision has sparked much debate in the Japanese loan market and could mean further uncertainty regarding an arranger's liability in syndicated loan transactions in Japan.  The practical impact of the Supreme Court Decision is that Japanese financial institutions should:

(i) re-examine their internal rules on how to act when dealing with material information from the borrower when they are acting as an arranger of a syndicated loan; and

(ii) act with care and diligence when acting as a participating financial institution in a syndicated loan, in reviewing information provided by an arranger, since an arranger's liability may be reduced due to contributory negligence of such participating financial institution.

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