Purpose(What does it include):
The purpose of a legal opinion in financing transactions is to confirm for the benefit of the
lender or the lead manager and underwriters, the legal validity of the documents which
evidence their agreement with the borrower/issuer. Opinions give the lender/lead manager
some assurance that the relevant legal issues have been addressed and met and there is no
legal obstacle to the transaction. Conversely, a legal opinion may highlight the legal risks and
difficulties of which the lenders should be aware in assessing the transaction. Legal opinions
have their origins in the USA where they were produced to satisfy the auditors of a lending
bank that all necessary legal procedures had been followed in respect of a loan and that the
loan could be enforced against the relevant borrower.
Legal Opinions are one of the conditions precedent to a loan or bond issuein particular when
the loan is unsecured andenforcing would need litigation, it is vital that theborrower can be
sued.They comment generally on the legal validity of the transactionSeparate and additional
legal opinions may be obtained on specific issues, e.g. title to land being mortgaged or impact
of a withholding tax. The opinion will list the documents that have been examined.You will
only start writing the legal opinions once youhave all the documents, so it sort of acts as a
documentsigning off everything required. It will also list the enquiries that have been made,
e.g. searches. The opinion will often be given after the other CP documents have been
supplied, in this way the opinion can give a view on that documentation and can serve as the
“signing-off” of the agreement by the lender’s lawyers.
Scope (What does a legal opinion cover)
They deal with legal validity and enforceability of the agreement, not with whether it is a
satisfactory agreement.They are based on certain express assumptions, which may or may not
turn out to be factually accurate.There will be major exclusions, e.g. validity of the opinion on
bankruptcy of the borrower.The legal opinion is limited to a particular jurisdiction, other
jurisdictions may have an important impact.The opinion is a comment only on the present
law, the law may change in a significant way.
What information does not include (Limitations – what doesn’t cover):
It does not constitute an assurance that a good credit decision has been made in respect of a
particular borrower or guarantee that the borrower will be financially sound or able to repay
the loan. It is not an undertaking that the documents contain the devices necessary to defeat a
borrower in all possible situations that may arise. Also it’s not a confirmation that the
document contains every possible provision which might apply in the future to any
conceivable set of facts or circumstances.
This being so, a legal opinion must be viewed in light of its limitations. An opinion addresses
those issues arising from the transaction as documented and negotiated with the borrower. It
does not purport to predict what effect a change of law will have upon a given transaction.
This is why an opinion should state that it addresses the law concerning a transaction as at the
date on which the opinion is given.
Typical Content of an opinion:
• The borrower is a company duly incorporated and validly existing under the laws of
• The borrower has the corporate power to enter into and perform the agreement
• The agreement has been duly authorised by appropriate corporate action
• The agreement has been duly executed and delivered
• The agreement will be treated by the courts of Ruritania as the legally binding obligation
of the borrower enforceable in accordance with its terms
• All consents and authorisations of all governmental authorities in Ruritania have been
• This agreement does not conflict with any present law in Ruritania, or the constitution of
the borrower, or any order of any court in Ruritania, or any undertaking binding on the
• We know of no material pending or threatened litigation in which the borrower is
involved. But there is generally no registerof such cases until it is complete, so it is far
from acomplete reassurance. This is why it says “we know ofno”.
• No stamp duty is payable in Ruritania in respect of this agreement
• The agreement is in proper legal form for enforcement in the courts of Ruritania
• The borrower is entitled to make payments under this agreement without deduction of
withholding tax imposed in Ruritania
• The obligations of the borrower under the agreement rank paripassu with all its other
• A judgment of the courts of England in respect of this agreement would be enforced by
the courts of Ruritania without re-examination of the merits of the case
• The borrower is not entitled to immunity in the courts of Ruritania
• Under the laws of Ruritania the lender will not be deemed to be resident in Ruritania or
subject to any Ruritanian tax as a result only of the execution of this agreement
• The choice of English governing law for the agreement will be upheld as a valid choice by
the courts of Ruritania.The assumptions that are commonly made as said before
lawyersoften make assumptions to avoid liability
• Signatures are genuine
• Documents are authentic
• Copies are accurate
• All the lenders are authorized banks
When are they given?
(A)Usually in cross-border transactions
• - a number of legal systems may impinge on an international banking transaction and
the function of legal opinions in such a situation is to address the legal issues that arise
under the laws of each relevant legal system and to give lenders some assurance that the
relevant issues have been met and do not create any impediment to the transaction;
• - a legal opinion should only be given in relation to the domestic law of the jurisdiction
of the lawyer who has given such legal opinion; therefore, there is no such thing as a
• - a lawyer should not be asked to (and should not) express a view on the law of another
jurisdiction in which he is not admitted to practise.
(B) Sometimes for domestic transactions
• - a particularly important, difficult or contentious issue or transaction.
(C)As one of the conditions precedent to draw-down
• - the form of opinion required to satisfy a condition precedent under a loan agreement
will often be set out as a schedule to the relevant loan document;
• - the form of such opinions should be given close attention during the process of
negotiating the loan documentation, so as to flag at an early stage any legal issues which
may create problems. It is important to distinguish the contents of the loan agreement and
the content of the agreed legal opinions. In negotiating the terms of the loan agreement
itself, one should not “trade off” the corresponding contents of the legal opinion, as what
is contained in the legal opinion should not be affected by the commercial terms
negotiated between the parties to the transaction. In this context, it may be that if a lawyer
is unable to cover a particular legal aspect in his opinion to the satisfaction of the parties,
this may be addressed by obtaining a suitable warranty or covenant from the relevant
party to the transaction.
The relevant jurisdictions may include:
• the place where the borrower is incorporated, or in the case where the borrower is a
sovereign state or state entity, the jurisdiction of that entity. The opinion will touch on:
• existence, powers and capacity of the borrower;
• any necessary corporate, shareholder or other authorisations needed by the borrower to
enter into the contemplated transaction and to perform its obligations thereunder;
• ability of the borrower to make the necessary repayments and other payments
• the issue of taxation on interest and other payments by the borrower (eg withholding tax);
• ability to sue the borrower and obtain and enforce judgment against the borrower in that
• if the borrower is an international organisation the applicable principles of international
• if the funds are being disbursed to the borrower or payments are to be made or other
matters are to be performed in jurisdictions other than the jurisdiction referred to in (A)
above (for example, as is often the case in capital market transactions or project
financings), then opinions must be obtained from lawyers in the jurisdiction where such
activities are to take place.
The jurisdiction of the proper law of the loan agreement. Such an opinion will touch on:
• validity and enforceability of the documentation under the proper law of the documents
• ability to obtain a judgment in the courts of that jurisdiction
• other relevant jurisdictions (if any)
• if security is being given over assets located in another jurisdiction, then obtain an opinion
from that jurisdiction;
• in the case of ship financings, for example, in the jurisdiction of the flag of the vessel
• such opinions would cover the ability (under the lex situs) to take security over the assets
concerned and any steps that may be necessary to perfect the taking of security (eg stamp
duty, registration procedures).
• primarily the borrower’s home country - after the agreement’s governing law, this is the
jurisdiction which is most likely to have an impact on the transaction, especially if
litigation occurs there
• The governing law
Who is the opinion given by?
The alternatives are:
• Independent lawyers engaged by the lender
• Independent lawyers engaged by the borrower
• Borrower’s in-house lawyers
This will depend on the circumstances of the particular transaction and in some cases
willinvolve a degree of duplication, but will certainly issue from one or more of:
• (a) lawyers acting for the banks;
• (b) lawyers acting for the borrower;
• (c) lawyers acting for other parties (eg guarantors, third party security providers);
• (d) in-house lawyers.
• The borrower will no doubt wish to save costs on the transaction and will suggest to the
lender that the borrower’s own lawyers should furnish the legal opinion pertaining to the
borrower’s jurisdiction. Alternatively, the lenders may require an independent lawyer to give
that opinion or might double up and require both an independent lawyer and the borrower’s
own lawyers to give opinions as to the matters set out in paragraph 4(a) above. In such a case,
the opinion of the Borrower’s lawyers will ordinarily be more extensive as they will have
greater access to information. There is no set rule of practice on this point. As to whether the
lenders will accept an opinion from the borrower’s in-house counsel, this will largely depend
on the size and type of transaction, whether the lenders feel they would have better protection
in the opinion was not given by an employee of the borrower and whether there is any
alternative (e.g. lack of independent lawyers in some Russian states; China). If the borrower
is an international organisation established by treaty, it is most likely that only the in-house
counsel of that organisation will be able (or indeed willing) to give the relevant opinion. So
far as the opinion referred to in paragraph 4(c) above is concerned, it would be normal for the
lawyers appointed by the lender to give such an opinion.
Who is the opinion given to?
The issue regarding the addresses of the opinion is relevant because lawyers are expected to
assume responsibility for the views expressed in their opinions. As a primary principle, that
responsibility will be to those persons to whom the opinion is addressed. The law firm giving
the opinion will try to expressly restrict its responsibility to the named addressees of the
opinion and it is common for an opinion to conclude with a statement making it clear that it is
only those persons to whom the opinion is addressed who may rely upon the opinion.
Additionally, an opinion might sometimes specifically state that the opinion may not be relied
upon by assignees of the lenders or any other person who might have or acquire an interest
derived through the lenders (for example, an assignee or a sub-participant). The normal
parties who would have an interest in an opinion rendered in respect of a financing transaction
• the original syndicate banks;
• the agent bank on behalf of the banks;
• others eg - rating agencies - preferable not to address your legal opinion to them but
confirm that a copy may be passed to them.
• counterparties(in the case of a bond issue) trustee for bond/note holders, lead manager,
• security trustee.
Liability of lawyer giving an opinion:
• There will be liability to those to whom the opinion is addressed, i.e. the original lenders
• There may be a disclaimer expressing no duty owed to others, e.g. assignees and sub-
participants or subsequent buyers of bonds
This disclaimer is not considered to be subject to the UCTA.
Liability in tort on negligence:
A claimant has to prove:
• A duty of care owed to him
• The duty was breached
• He relied on the opinion
• He was caused foreseeable loss
As mentioned above, a lawyer may purport by an express limitation and disclaimer in the
opinion to limit those parties who may rely on the opinion given by him. Despite this, some
other person may seek to hold the lawyer responsible for the views expressed or for the
general structure of a transaction. The level of responsibility of the lawyer in relation to these
two aspects will largely be dependent upon the jurisdiction in which the lawyer practises, but
he may also find himself exposed to the laws of the jurisdictions in which his opinion has
been received or in which his advice was acted upon. An analysis of this situation according
to English law indicates the following levels of responsibility so far as English law applies:
(A)lawyer instructed by or on behalf of the lenders
• will have a responsibility to the lenders for the accuracy of his opinion;
• where directly retained by a lender, the responsibility will be a contractual responsibility
arising from the retainer;
• in a syndicated facility, the lawyer is normally retained by the agent (and not separately
retained by each of the lenders) in which case the lawyer would have a contract with the
agent but not with the lenders, unless it could be shown that each of the lenders expressly
authorised the agent to retain the lawyer on behalf of the lenders. (This may be difficult,
especially if the documentation contains the usual provision by which the lenders
acknowledge that they have not relied upon the agent for legal advice): see the NatWest v
Tricontinental case considered in the first term;
• to overcome any of these theoretical problems concerning the reliance that the lenders
may place on the legal opinion, the legal opinion will normally be addressed to the agent
and to each of the lenders, in which case the responsibility of the lawyer would be
governed by the law of tort - ie a duty not to be negligent in giving the opinion
• independently from and/or in the absence of a legal opinion, a lawyer who knows that the
lenders are relying upon his advice would have a general responsibility to advise correctly
and not to give negligent advice - this duty would probably extend to pointing out any
pitfalls in the documents and pointing out any legal risks to which the lenders might be
exposed by the transaction.
(B)if the legal opinion has been given by the borrower’s lawyer (ie with respect to the law of
the borrower’s domicile), then that lawyer will have a responsibility in tort to the lenders.
That responsibility would be that he should not be negligent in giving his opinion. He will
not have a responsibility in contract to the lenders as he was instructed by the borrower, and
not by the lenders.
(C)in respect of third parties - this would include people such as investors or assignees of an
original lender who have suffered loss on the transaction, but derived their interest in the
transaction at some later time (usually through one of the original parties). Taking for
example, a bond holder (to whom an opinion would not ordinarily be addressed), it would be
the case that he would not have a claim in contract and would have to try to establish a claim
in tort based upon a failure on the part of the lawyer to take reasonable care. It is difficult to
see how such a claim could be successfully mounted as the investor would need to establish:
• that he relied upon the lawyer in circumstances where it was unreasonable to do so;
• that the lawyer ought to have known that such a person as the investor would so rely on
the lawyer (foreseeability);
• that such reliance plays a significant part in the decision to invest (proximity)
• See Hedley Byrne and Co. Limited v. Heller and Partners Limited. The decision of the
House of Lords in Murphy v. Brentwood District Council  1 AC 398 has since
confirmed, however, that liability does not lie in tort for pure economic loss.
(D) in the event the opinion is being given in respect of a cross border transaction and an
English lawyer has instructed a foreign lawyer to provide local law advice, the English lawyer
may have a duty of care to supervise the foreign lawyer. See Gregory v Shepherds 
• The distinction between a liability in contract and in tort is primarily relevant as regards
the time limits for instituting a suit against the lawyer if his advice or opinion has proved
to be negligent. The damages which could be recovered against the lawyer would be
limited to the loss that the lawyer should have reasonably expected at that time that he
gave his advice to have resulted from his negligence. A lawyer should not be responsible
for any other loss such as, for example, loss arising from a bad commercial decision which
was not based upon the lawyer’s advice.
Conflict of Laws Issues
• (A)in respect of contractual claims: as a general rule the law of the contract would be used
to assess the nature and extent of any duties and liabilities.
• (B)in respect of tortuous claims.
What does an opinion opine on?
• legal issues;
• - not factual matters (eg not a confirmation of borrower’s representations and warranties
as to outstanding litigation, prior encumbrances, internal borrowing limitations);
• should not address matters upon which the borrower (or another party) will be giving
representations and narratives and one should not expect a lawyer to address such matters
(unless, perhaps, the borrower’s in-house lawyer).
Hedley Byrne & Co Ltd v Heller & Partners Ltd is a tort law case on pure economic
loss, resulting from anegligent misrepresentation. Prior to the decision, the notion that a party
may owe another a duty of care for statements made in reliance had been rejected, with the
only remedy for such losses being in contract law. The House of Lords overruled the previous
position, in recognising liability for pure economic loss not arising from a contractual
relationship, introducing the idea of "assumption of responsibility".
Williams v Natural Life Health Foods Ltd  is an important tort law, company
law and contract law case. It held that for there to be an effective assumption of responsibility,
there must be some direct or indirect conveyance that a director had done so, and that a
claimant had relied on the information. Otherwise only a company itself, as a separate legal
person, would be liable for negligent information.Mr Williams and his partner approached
Natural Life Health Foods Ltd with a proposal. They wanted to get a franchise for a health
food shop in Rugby (ie, they wanted to use the Natural Life brand to run a new store and pay
Natural Life Ltd a fixed fee). Mr Williams was given a brochure with financial projections.
They entered the scheme. They failed, and lost money. So Mr Williams sued the company,
alleging that the advice they got was negligent. However, before the suit could be completed,
Natural Life Health Foods Ltd went into liquidation. So Mr Williams sought to hold the
company's managing director and main shareholder personally liable. This was Mr Mistlin,
who in the brochure had been held out as having a lot of expertise. Mr Mistlin had made the
brochure projections, but had not been in any of the negotiations with Mr Williams.
The High Court allowed Mr Williams claim, and so did the Court of Appeal by a majority.
The company and Mr Mistlin appealed to the House of Lords.
The House of Lords held unanimously that Mr Williams claim would fail. They emphasised
that there had been no separated assumption of responsibility directly to Mr Williams, and no
Her Majesty's Commissioners of Customs and Excise v Barclays Bank Plc  is a leading
tort law case concerning negligent misstatement and pure economic loss.Customs and
Excise needed to freeze the bank account of a Barclays customer. By law, banks are required
to comply with requests for freezing orders and are paid for the service. When it received the
request, a Barclays employee replied that it had frozen the bank account. But it had not, and
the customer proceeded to empty all of the money from the account. Customs and Excise sued
Barclays for the amount that was lost. Barclays argued it had no duty of care, nor had it
assumed responsibility.Court of Appeal
Peter Gibson LJ, Longmore LJ, Lindsay LJ held that there was no duty and proposed
that Hedley Byrne type assumption of responsibility should be subsumed into the threefold
test fromCaparo Industries plc v Dickman.
The House of Lords unanimously disapproved the Court of Appeal's decision, that
"assumption of responsibility" was indistinct and subsumed into the law of negligence. It
held, however, that in this case, because the bank was required by law to comply with the
freezing order, there could not be said to have arisen any assumption of responsibility
on Hedley Byrnegrounds. Applying then the Caparo test, it was held to not be fair, just and
reasonable to impose liability. The bank was therefore not required to reimburse Customs and
Excise for the dissipated money.
Caparo Industries plc v Dickman  is a leading case on the test for a duty of care. The
House of Lords, following the Court of Appeal, set out a "three-fold test". In order for a duty
of care to arise in negligence,
harm must be reasonably foreseeable as a result of the defendant's conduct
the parties must be in a relationship of proximity
it must be fair, just and reasonable to impose liability
The decision arose in the context of a negligent preparation of accounts for a company.
Previous cases on negligent misstatements had fallen under the principle of Hedley Byrne v
Heller. This stated that when a person makes a statement, he voluntary assumes responsibility
to the person he makes it to (or those who were in his contemplation). If the statement was
made negligently, then he will be liable for any loss which results.The question
in Caparo was the scope of the assumption of responsibility, and what the limits of liability
ought to be.
Murphy v Brentwood District Council  is a House of Lords decision on recovery
of pure economic in tort. It is considered to overrule the decision Anns v Merton London
Borough Council. The defendant Local Authority failed to inspect the foundations of a
building adequately, with the result that building became dangerously unstable. The claimant,
being unable to raise any money for repairs had to sell the house at a considerable loss, which
he sought to recover from the L.A. This action failed as the loss was identified as a Pure
The House of Lord overruled "Anns" and held that the council was not liable in the absence of
Gregory v Shepherds- An English solicitor, employing a lawyer in another jurisdiction to
purchase land for a client was not himself negligent for a failure of that foreign lawyer. The
lawyer was not employed as a kind of sub-contractor. Nevertheless the solicitor was negligent
in his own act of paying the money across to the seller direct without first enquiring of the
foreign lawyer that all proper searches and enquiries had been carried out.