1. Conditions precedent, representations and warranties
Conditions precedent, representations & warranties together with covenants and events of
default are standard restrictive clauses contained in syndicated loans. The reasons for their
imposition are that banks want to be sure that everything is in order before the borrower
can draw down the money and that the banks can compel the earlier repayment of the loan
if everything is not as it should be. The loan contracts will contain various conditions
precedent as well as representations and warranties the number of which depends, amongst
other, on the financial position of the borrower, its bargaining power.
I. Conditions precedent (CPs)
The loan agreement will contain various CPs which must be fulfilled before the
borrower can draw down the money by delivering a utilisation request. The idea of the CPs
is to highlight any problems before the money advanced. The CPs in syndicated loans
are fall into the category of the conditions precedent where there is a binding contract
between the parties, however, some or all of the obligations of one or both parties are
suspended pending fulfilment of the CPs. Thus, in syndicated loans there is a contract by
which the lender is bound to make available to the borrower the loan facility, but that
obligation is contingent upon the fulfilment of conditions precedent by the borrower. The
borrower is given a stipulated period within which to satisfy the CPs and the lender is
committed until the end of that period so that he cannot, before then, to withdraw on the
ground that the CPs have not been satisfied.
The loan agreement will also normally provide (but LMA contract states) that the
CPs are to be fulfilled in „form and substance satisfactory‟ to the lender or the agent bank.
The requirement that the CPs must be in form and substance satisfactory‟ to the lender is
subjective in that only the lender – not a reasonable lender or the court – is empowered to
make the determination as to the acceptability of the documentation provided. Yet, the
courts will imply some constraints on its exercise and certain actions maybe so egregious as
not to constitute an exercise of the discretion granted by the contract. However, as
Rawlings points out that the case law on commercial contracts does not provide a
consistent indication of how a court will interpret such a term. In some cases, such as
Paragon Finance plc v Nach & Staunton, which concerned the power of a lender to vary
interest rates, the court implied a term obliging the lender not to use its discretion
dishonestly, for an improper purpose, capriciously or unreasonably. This meant the lender
must not act in a way that no reasonable lender would act. In Socimer International Bank
Ltd (in liquidation) v Standard Bank London Ltd [2008] Rix LJ suggested that a
decision-maker‟s decision will be limited by concept of honesty, good faith, and the need
for the absence of arbitrariness, capriciousness, perversity and irrationality and as such is
subject to principles analogous to Wednesbury test (this involves taking into account
irrelevant considerations, or failing to take into account relevant considerations, or acting in
a way that no reasonable person would have acted). But in other cases, such as Lymington
Marina Ltd v Macnamara the court made it clear that the courts should not refer to the
Wednesbury test. This uncertainty is likely to be a matter of concern to the borrower, who
might wish for a clear set of criteria. However, the lender will usually be unwilling to do
so.
In addition, the lender can waive the need for the borrower to fulfil the CPs before
the delivering of the utilisation request or agree that the fulfilment of a condition might
become a condition subsequent, so that the borrower would be permitted to draw the money
but be required to repay if the condition is not fulfilled by some later date. It is implied that
the lender will not do anything to obstruct a condition precedent from being fulfilled. The
case of Mackay v Dick (1881) makes it quite clear that one party to the contract cannot
claim he is excused if he takes action which prevents the other party from fulfilling a

2. condition which needs to be fulfilled before the contract can be enforced (the defendant
refused to provide a digging machine the testing of which by the plaintiff was envisaged by
the contract).
The conditions precedent can only be used before the lender is obliged to lend, but
many of the issues in the conditions precedent also appear in the representations and
warranties and in other undertakings and covenants and as such may continue through the
currency of the contract and, if breached, may allow the lender to accelerate repayment.
The CPs drafted into the loan agreement will vary accordingly to the particular
circumstances of all parties who contract under the agreement. There are no standard CPs,
however, it is likely the agreement states that the borrower shall provide: (1) a copy of the
constitutional documents of the borrower; a copy of resolutions of the board of directors of
the borrower: approving the finance document, resolving to execute the contract, and
authorising a specified person(s) to execute the finance document and to sign utilisation
requests and to issue any notices required; (2) a certificate signed by a director of the
borrower confirming that the borrowing does not exceed any limits on the borrower‟s
borrowing powers; (3) a certificate of an authorised signatory of the borrower certifying
that each copy document required is correct, complete and in force at the date of the
contract; (4) evidence that any process agent referred to in the finance document has
accepted its appointment (a process agent accepts notices in relevant jurisdictions on behalf
of the borrower); (5) the financial statements of the borrower; (6) evidence that fees, costs
and expenses due from the borrower under the contract will be paid before the first
utilisation date; (7) the legal opinions specified in the agreement; (8) other conditions
precedent will require that any guarantee is enforceable and any security has been properly
charged so as to give priority to the claims of the lender.
In respect of some of these the lender can have little or no room for rejection: for
instance, there should be clear answers to the question of whether or not copies of the
constitutional documents, or resolutions of the board, or certificates, or evidence of the
appointment of a process agent have been delivered. Less clear may be those documents
relating to the last three items. Legal opinions are couched in cautious language (“may”
rather than “is”), and full of declared assumptions and qualifications. Indeed, there is
usually a good deal of negotiation between the parties and the lawyers over the content of
the opinions. The evidence that the fees, costs and expenses will be met at a point in the
future is a matter of opinion that may be open to challenge. The guarantee will be assessed
in financial as well as legal terms. The lender will assess its enforceability, which may
involve uncertainty about the jurisdiction where any claim against the guarantor could be
brought and the legal enforceability of the guarantee in that jurisdiction. Moreover, the
lender will need to consider the financial ability of the guarantor to meet any obligation.
The priority of the lender in respect of any security granted by the borrower depends, not
only on legal issues, but also on factual ones: a lawyer can give an opinion on the
enforceability of the security, but may not be able to determine if it has priority because this
may depend on the existence of competing charges, although this may be easier to resolve
if the relevant country has a system of registration.
If these conditions precedent are met, the borrower may deliver the utilisation
request, but this gives rise to further conditions precedent (sometimes it is called conditions
subsequent), namely, that no event of default is continuing or would result from the loan
and the repeating representations are true “in all material respects”. The repeating
representations (“evergreen representations”) are those representations made both on
executing the contract and on the delivery of every utilisation request. These
representations can also give the lender room to manoeuvre.

3. As noted above some of the conditions precedent may cover the same area as the
representations and warranties. For example, typically the banks would require production
of the borrower‟s constitution documents and a board resolution approving the execution
and performance of the loan agreement. This compliments the representation that the
borrower has power to own its assets and carry on its business and has power to enter into
and perform the loan agreement (cl.19.1 and 19.4) and that all authorisation required in
connection with the transactions contemplated by the agreement have been obtained
(al.19.5). It would also be a condition precedent that all consents and authorisations
necessary to ensure the legality, validity and enforceability of the loan have been obtained.
Again, there will be a parallel warranty (cl.19.5). The banks will normally require formal
legal opinion from the borrower‟s lawyer and from any overseas lawyers instructed on
behave of the banks (as a condition precedent). The lawyers to the agent may also be asked
to give an opinion on the loan agreement which they have drafted. Again, these will serve
to confirm the representations and warranties made by the borrower. These are not a
substitute for the representations and warranties because they serve a separate purpose.
First, they speak only as at the date upon which the opinions are given and are not repeated.
Secondly, to highlight in advance of drawdown any legal problems that may exist.
Apart from the documentary conditions precedent, there will also be a conditions
precedent that the representations and warranties remain true at the date of drawdown and
that no Event of Default (or event which with the giving of notice or the passing of time or
both may become an Event of Default) shall have occurred. Usually, the notice of
drawdown served on the agent by the borrower will contain a statement to this effect.
The borrower will not normally be liable to the banks if the CPs are not met. It is
not usual for the borrower to covenant that they will be met or that it will use its best
endeavours that they be met. However, if any bank in syndication fails to make available its
participation in an advance and the borrower has satisfied all the conditions precedent, the
bank will be liable to the borrower in damages for the actual loss caused by the bank‟s
breach if contract under the general principles stated in Hadley v Baxendale. The borrower
cannot order for specific performance (South African Territories v Wallington, Sichel v
Mosenthal). Neither the agent nor any of the other banks will be liable to the borrower for
the defaulting bank‟s breach.
III. Representations and Warranties
According to Clark and Taylor the functions fulfilled by the representations and
warranties (R&W) are threefold: to provide for certain contractual remedies within the
framework of the loan agreement; to give the banks the benefit of certain remedies
available under the general law; and, importantly, to ensure that the banks are provided
with full information before and after advancing funds to the borrower.
Representations and warranties are broadly fall into two categories: those which
relate to the legal position and those which are commercial or factual.
As far as the legal ones concerned, they usually start with the statement concerning
the valid existence and authorisation of the borrower, and include that the borrower is
validly existing under the relevant law and has power to borrow or enter into other
obligations, such as the giving of guarantee, required under the agreement. When
considering capacity of the borrower it is usual to incorporate a statement that the borrower
will not be in contravention of any relevant laws or regulation, such as exchange controls.
There may also be a statement that any necessary authorisations and approvals have been
obtained, a statement that a loan is valid and constitutes a binding obligation upon the
borrower, enforceable in accordance with its terms; a statement that the borrower‟s

4. payment obligations under the loan agreement rank at least pari passu with the claims of all
its other unsecured and unsubordinated creditors and others.
As to the commercial and factual R&W, they contain a statement that no default is
continuing or might reasonably be expected to result from the making of any utilisation; a
statement that the recent accounts of the borrower reflect true and fair view of the
borrower‟s financial condition; a statement that any factual information provided for the
purpose of an information memorandum was true and accurate in all material respects; a
statement that no litigation, arbitration or other proceedings are, to the best of the
borrower‟s knowledge, threatened against the borrower which might adversely affect the
ability of the borrower to perform its obligations under the loan agreement.
Also certain R&W are to be made not only as at the date that the loan agreement
entered into, but are also deemed to be repeated at various time, for example, on the date of
each utilisation request (if the facility is provided by a number of drawdown) and on the
first day of each interest period by reference to the facts and circumstances then existing.
Very often, the warranties are repeated on each rollover date and sometimes even on each
fate during which the facility continues. Yet, the warranty relating to the information
memorandum is usually excluded from the repeating representations because the
information contained in it may not be true as at the date of repetition.
In many term loan agreements, particularly non-revolving structures (so there will
not be a multiplicity of drawdowns during the term of the agreement), the documentation
will provide for the R&W to be repeated at the commencement of each interest period. It is
not appropriate, however, for all representations and warranties to be subject to repetition in
this way. For example, the borrower will frequently give a representation on drawdown
that all amounts payable by it under the loan agreement are payable without any deduction
or withholding on account of taxes. This representation may be true as at the date of
drawdown, but may become untrue as a result of a change in law. Rather than calling an
Event of Default on the basis of a breach of warranty, the appropriate remedy is to require
the borrower to gross up on its interest payments, so the bank does not feel the effect of the
withholding. To take another example, it is not appropriate to repeat only on interest
payment dates (i.e. at the end of an interest period) a representation to the effect that all
relevant consents, licences and authorisations required to effect the borrowing have been
obtained and are in full force and effect. If for any reason a required consent is revoked or
lapses in the middle of an interest period, the bank will not want to wait for the end of the
interest period, and an untrue repetition of the warranty at that point in time, before
exercising its rights: in this circumstance, it is appropriate to call an Event of Default
immediately, and the Events of Default should be drafted accordingly.
Under English law there is a distinction between a representation and a warranty. A
representation is a statement of fact which is made before the loan agreement has been
executed, and in reliance upon the truth of which the lenders enter into the loan agreement.
It is not, however, an integral part of the contract. A warranty, on the other hand, is a term
of the contract itself. This distinction is an important one because remedies for
misrepresentation may are different from those for breach of warranty.
Remedies available under common law for misrepresentation:
(1) A fraudulent misrepresentation may give rise to an action for damages in deceit.
(2) A negligent misrepresentation may give rise to an action for damages in for
negligent misstatement (a tort) under Hedley Byrne v Heller principles.
(3) The innocent party may also have a right to rescind the contract entered into as a
result of misrepresentation (whether fraudulent, negligent or innocent).
Although in the case in negligent and innocent misrepresentation, the court has
now discretion to award damages in lieu of rescission (s. 2(2) of the

5. Misrepresentation Act 1967). Where the representation is not „substantial‟, the
court would probably uphold the contract and exercise its discretion to award
damages. The higher the ratio of the failure to the level of performance
undertaken, the more likely it is the court would regard the failure as substantial
and allow the contract to rescind (Hong Kong Fir Shipping Co Limited v
Kawasaki Kisen Kaisha Limited, where charterers were held not be entitled to
rescind the contract because the ship was still available for 17 out of the original
24 months of the charter party).
(4) In the case of negligent misrepresentation, the injured party may also be entitled
to damages under s. 2(1) of the Misrepresentation Act 1967, although s. 2(3) of
the same Act provides that any damages awarded under s. 2(2) shall be taken
into account in assessing the liability under s 2(1).
As mentioned above, a warranty is a term of the contract. Whether a statement is or
is not a term of the contract will depend upon the intention of the parties and such intention
is ascertained by applying an objective test.
Appropriate drafting techniques can, however, avoid problems which arise out of
the distinction between representation and warranties by expressly making all statements
warranties and, therefore, terms of the contract. Such an approach is also represent in LMA
contract where the borrower „represent and warrants‟ in respect of every clause in the
appropriate section of the documentation.
However, not all terms of the contract are strictly specking “warranties”. A
distinction is drawn between a “warranty” which is a contractual term which affects some
relatively minor aspect of the contract and a “condition” which affects a more fundamental
aspect. In the former case, the innocent party can only sue for damages, whereas in the
latter case ha can not only sue for damages but also have a right to terminate the contract
for the future.
Even this is not as simple as it sounds because recent cases recognise a separate
group of intermediate terms which are neither warranties nor conditions, breach of which
justifies the termination of the contract by the innocent party if the breach amounts to a
serious failure in performance of the contract by the defaulting party (Bunge Corporate v
Tradex SA, Tradex International SA v Goldschmidt SA)
The court will look to the intention of the parties to determine whether a particular
term is a “condition” or a “warranty” as expressed in the contract, but the crucial question
is whether the term is so important that it would be unreasonable to expect the innocent
party to fulfil its obligations under the contract if that term is breached by the other party –
if this is the case then the term is likely to be construed as a condition (Bunge Corporation
v Tradex SA).
Although the loan agreement will leave intact any remedies under the general law
for misrepresentation and breach of warranty and condition, it will attempt to circumvent
the technicalities by providing certain contractual remedies within the framework of the
loan agreement itself.
These contractual “internal remedies” are threefold:
(1) the condition precedent that all representations and warranties are correct when
the loan agreement is signed and as at the proposed date for any utilisation of
the facility will allow the banks to decline to make advance available if it is
discovered that any of the R&W are untrue;
(2) the breach of R&W will be an event of default which entitle the agent (normally
on the instruction of the banks) to cancel the undrawn portion of the facility; and
(3) the event of default should also allow the agent (normally on the instruction of
the banks) to declare the loan to be immediately due and payable.

6. However, it worth noting that if the banks know at the time a R&W is made that it
is incorrect, they may be treated as having waived their right to enforce any right they may
have as a result of R&W being incorrect.
Summary of the cases by Westlaw
As to CPs
Paragon Finance plc v Nach & Staunton: N appealed against the striking out of a
defence and counterclaim to a possession action brought by the mortgagee, PF, after N had
fallen into mortgage interest arrears. N contended that the mortgage agreement, which
contained a variable interest clause, became an extortionate credit bargain under the
Consumer Credit Act 1974 s.138 following the failure by PF to bring its interest rates in
line with the Bank of England or prevailing market rates. N sought to have the loan
agreements reopened under s.139 of the 1974 Act, and to plead an implied term that PF was
bound to exercise its discretion in varying interest rates fairly, honestly, in good faith, and
not arbitrarily, capriciously or unreasonably, having regard to all relevant matters and
ignoring the irrelevant.
Held, dismissing the appeal, that the discretion to vary interest rates was not
completely unfettered and was subject to the implied term contended for by N, Lombard
Tricity Finance v Paton [1989] 1 All E.R. 918 not followed. However, the fact that PF had
set interest rates without reference to those of other market lenders did not place PF in
breach of the implied term. PF had been attempting to alleviate serious financial difficulties
by passing its increasing costs onto its borrowers. Therefore it could not be said that its
discretion to set interest rates was being exercised capriciously, arbitrarily, unreasonably or
for an improper purpose. The argument that the rates of interest were exorbitant so as to
bring the agreement within s.138 of the 1974 Act had no real prospect of success, given
that only charges existing at the time of the agreement could be taken into account in
determining whether a credit bargain was extortionate. Furthermore, it was not open to N to
establish a breach of the Unfair Contract Terms Act 1977 s.3(2)(b) by arguing that PF had
defeated their reasonable expectations, given that the setting of interest rates was not
"contractual performance". The court could only intervene if a credit bargain had been
grossly unfair to a borrower by requiring grossly exorbitant payments or if it had grossly
contravened principles of fair dealing.
Lymington Marina Ltd v Macnamara: The relevant clause in a marina licence
authorised the licensee to grant successive sub-licences, and the marina company's refusal
to approve the sub-licences had been based on an erroneous view of the power conferred on
the licensee by the clause and was invalid.
Mackay v Dick: If, in the case of a contract of sale and delivery, which makes
acceptance of the thing sold and payment of the price conditional on a certain thing being
done by the seller, the buyer prevents the possibility of the seller fulfilling the condition,
the contract is to be taken as satisfied.
Hadley v Baxendale principles: that the remoteness test comprises two limbs: the
lender is liable for the types of loss which arise naturally from the breach or which might
reasonably have been foreseen as likely to arise from particular circumstances of which the
lender was aware at the time of the contract.
South African Territories v Wallington The rule that specific performance cannot
be granted in respect of a contract to lend money applies to a contract to lend to a company
money, payable by instalments, upon the security of debentures to be issued by the
company.

7. Where the lender makes default in payment, the moneys due for unpaid instalments
do not constitute a debt to the company, and the company are only entitled to damages for
the actual loss caused by the breach of contract.
As to R&W
Bunge Corporation v Tradex SA: In general, time is of the essence in a mercantile
contract, and a term as to time of performance of an obligation by one party as a condition
precedent to the performance of an obligation by the other party will generally be treated as
a condition.
By a contract dated January 30, 1974, buyers agreed to purchase 15,000 tons of
soya bean meal, shipment to take place in consignments of 5,000 tons in May, June and
July 1975. By cl.7 of the Grain and Feed Trade Association Ltd.'s standard form contract
119, which was incorporated, it was provided that "Period of delivery during May 1975 at
buyers' call. Buyers shall give at least 15 days' notice of probable readiness of vessel." The
buyers gave notice under cl.8 extending the period for delivery to one calendar month. The
last day upon which the sellers could ship the goods therefore became June 30, 1975, and
the last day for the buyers to give notice was June 12. The buyers did not give notice until
June 17. The judge held that the term as to the time for giving notice was not a condition
and that in any event there had been no breach. The Court of Appeal allowed the sellers'
appeal. On appeal to the House of Lords, held, that, in general, time was of the essence in a
mercantile contract; in such a contract, where a term had to be performed by one party as a
condition precedent to the ability of the other party to perform another term, especially an
essential term such as the nomination of a single loading port, the term as to time for
performance of the former obligation would in general fall to be treated as a condition. cl.7
was a condition since until notice was given the sellers could not know which loading port
to nominate