I.

MODULE 1 – SINGAPORE FINANCIAL REGULATORY FRAMEWORK 5

A. Regulatory Agencies 5
(1) MAS 5
(2) Enterprise Singapore 5

B. Key Legislation and Types of Regulated Entities 6

(1) Banking Act 6
(2) Securities and Futures Act (SFA) 7
(3) Financial Advisers Act (FAA) 7
(4) Moneylenders Act 7
(5) Payment Services Act 2019 (Not yet in operation) 8

C. Impact and Relevance of Financial Regulations 9

D. International Regulatory Framework 9

(1) Key International Policy Bodies 9
(2) Main International Standard Setters 10
(3) Selected Industry Associations 11
(4) Singapore’s Role 11

E. Regulatory Hot Topics 12

(1) Ending “Too-Big-to-Fail” 12
(2) Making Derivatives Markets Safer 13
(3) Fintech 13
(4) Cryptocurrencies 13
(5) Focus on Culture and Conduct 14
(6) Opt-in regime for accredited investors (AI) 14
(7) Cross-border regulatory issues 14
(8) Basel III 14

II. MODULE 2 – SALE AND PURCHASE AGREEMENTS 15

A. Due Diligence 16

B. Engagement Letters 17

III. CONDITIONS PRECEDENT 17

A. Mandatory Condition Precedents 17

B. Material Adverse Change (MAC) 17

C. Conditions to Completion 18

IV. PRE-COMPLETION UNDERTAKINGS 18

A. Restrictions on operations 18

B. Access to Information 19

C. General Cooperation 19
1
D. Warranties 19
(1) Warranties at Signing 19
(2) Completion Warranties 20

E. Representations 20

F. Indemnity 21

G. Limitation of Seller’s Liability under Warranties & Indemnities 21

V. MODULE 3 – DEAL STRUCTURES IN LENDING 24

A. Syndicated Lending Transactions 24

B. Underlying Principles 25

C. Considerations for the Borrower 26

D. Considerations for the Arranger 26

(1) Arranger’s Duties 26
(2) Arranger’s Liabilities 27

E. Considerations for the Agent for the Lenders 28

(1) Role on Drawdown of the Facility 29
(2) Role on Default 29
(3) Liabilities 30

F. Considerations for the Security Trustee 30

G. Role of Local Counsel in Cross-Border Financing 31

VI. STANDARD APLMA FACILITY AGREEMENT – KEY TERMS 32

A. Parties 35

B. Facilities 35
(1) Term Facilities 35
(2) Revolving Facilities 35
(3) Overdraft Facility 36
(4) Swingline Facility 36
(5) Standby or Bridging Facility 36
(6) Multiple Option Facility 37
(7) Incremental (accordion) Facility 37

C. Utilisation 37

D. Repayment, prepayment and cancellation 38

E. Costs of Utilisation 38

F. Withholding Tax 38

G. General Protection Clauses 39

(1) Representations 39
(2) Covenants 39

2
 (3) Events of Default 40
(4) Boilerplate 40

VII. CONTEMPLATING SYNDICATED LENDING 41

VIII. TYPE OF LOANS 41

A. Facilities 42

B. Forward Start Facility 42

C. Bills of Exchange and Acceptance Credits 43

IX. MODULE 3 – INTERNATIONAL DEBT CAPITAL MARKETS AND EUROBONDS 44

(1) Debt securities v loans 44
(2) Types of Interest 44
(3) Forms of Bonds 45

A. Investors and Capital Markets 45

B. Summary of a Eurobond transaction 45

(1) Global Bonds and Clearing Systems 46
(2) Events of Default 47

C. Structures and Key Features of the Bond 47

D. Euro Medium-term Note Programme (EMTN Programme) 47

(1) Parties to an EMTN Programme (some are above) 48
(2) Life Cycle 50

E. Documentation Required on a Eurobond Issuance 52

(1) Prospectus/Offering Circular 52
(2) Subscription Agreement 53
(3) Agreement Among Managers (Optional) 54
(4) Fiscal Agency Agreement (Fiscal Agent Structure) 54
(5) Deed of Covenant (Fiscal Agent Structure) 54
(6) Trust Deed (Trustee Structure) 54
(7) Paying Agency Agreement (Trustee Structure) 55
(8) Forms of Bonds 55
(9) T&C of the Bonds 55
(10) Conditions Precedent Documentation 56
(11) Legal Opinions 56

F. Signing and Closing 57

(1) Pre-Signing 57
(2) Signing 57
(3) Closing 58

G. Green Bonds 58
(1) Use of Proceeds 58
(2) Project Evaluation and Selection 59
(3) Management of Proceeds 59
(4) Reporting 59
(5) External Reviews 60

3
X. MODULE 5 – CROSS-BORDER DISPUTE RESOLUTION 61

A. Modes of Dispute Resolution 61

(1) Litigation 61
(2) Arbitration 62
(3) Negotiation 62
(4) Mediation 62
(5) Adjudication 63

B. Multi-tiered Dispute Resolution Provisions 63

(1) What is a Multi-Tiered Dispute Resolution Clause 64
(2) Arbitrability of Subject Matter and Court’s Inherent Powers 65
(3) Assigning Arbitration Agreements 66
(4) Jurisdiction of Tribunal 66
(5) Putative governing law of arbitration agreement 67
(6) Unilateral option clauses 67
(7) Seat & Venue of Arbitration 67

C. Interim Measures for Cross-Border Protection 68

D. Enforcement of Arbitration 69

E. Drafting an Arbitration Clause 69

4
(2) M&As and SPA
I. Module 1 – Singapore Financial Regulatory Framework
A. Regulatory Agencies
(1) MAS

MAS as regulator: Serves as the central bank

- Also an integrated supervisor overseeing all financial institutions and regulated activities,
including capital markets
- MAS supervises and regulates entitles like:
o Banks and representative offices
o Finance companies
o Credit / charge card issuers
o Capital markets services licensee
o Collective investment schemes trustees
o Trust companies
o Financial advisers
o Markets and exchanges
o Clearing houses
o Trade repositories
o Benchmark administrators and submitters
o Insurers and reinsurers
o Financial holding companies
o Payment systems
o Money-changers
o Remittance businesses
o Stored value facilities
- Manages official foreign reserves
- Develops and promotes SG as an international financial centre

Groups within MAS:

- Economic Policy Group
- Financial Supervision Group
o Banking & Insurance
o Capital Markets
o Policy, Payments & Financial Crime
 Anti-money laundering (AML)
 Enforcement
 Payments Supervision Office

- Markets & Development Group

o Markets & Investment Group
o Development & International Group
o FinTech & Innovation Group

- Corporate Development Group

 Technology Group
 Data Analytics Group
 Information Technology Department
 Technology and Cyber Risk Supervision Department
o Organisation & People Development Group
o Finance, Risk & Currency Group

(2) Enterprise Singapore

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(2) M&As and SPA
Enterprise Singapore supervises & regulates the following entities under the Commodity
Trading Act (CTA):
- Spot commodity brokers
- Spot commodity pool operators

Pre 8 Oct 2018, also regulated business activities involving “commodity contracts”
- Known also as OTC commodity derivatives
- Regulatory oversight of these transferred to MAS on 8 Oct 2018
o However, CTA continues to regulate transitional licence holders under the
“commodity contract” track of the CTA for a limited period of time

B. Key Legislation and Types of Regulated Entities

Banking Act - Banks

- Credit card and charge card issuers
Securities and - Capital markets services licensees
Futures Act (SFA) - Exchanges and market operators
- Clearing facilities and clearing houses
- Trade repositories
- Central Depository System
- Approved holding companies
- Financial benchmark administrators
- Financial benchmarks submitters
Financial Advisers - Financial advisers
Act (FAA)
Moneylenders Act - Moneylenders
Trust Companies Act - Trust companies
(TCA)
Monetary Authority - Merchant banks
of Singapore Act - Money brokers
Finance Companies - Finance companies
Act
Insurance Act - Insurers and reinsurers
- Insurance agents and brokers
Commodity Trading - Spot commodity brokers
Act (CTA) - Spot commodity pool operators
Payment Services - Payment service(s) provider
Act 2019 (not yet in
operation)

(1) Banking Act

Banking Act and its subsidiary legislation covers:

- Licensing of “banking business” and credit card / charge card issuers
- Prohibited businesses for banks
- Minimum asset requirements for banks
- MAS powers of control over banks
- Banking secrecy
- Transfer of business of a bank

S 2 Banking Act

6
(2) M&As and SPA
“Banking business” means the business of receiving money on current or deposit account,
paying and collecting cheques drawn by or paid in by customers, the making of advances to
customers, and includes such other business as the MAS may prescribe for the purposes of
the Banking Act.

(2) Securities and Futures Act (SFA)

SFA and its subsidiary legislation cover:

- Licensing of regulated entities, such as:
o Capital markets services licensees
o Exchanges and markets operators
o Clearing facilities and clearing houses
o Trade repositories
- Conduct of business requirements
- Change of control requirements
- Derivatives reporting, clearing and trading
- Disclosure of interest requirements
- Market conduct provisions (e.g. insider trading)
- Offering documentation / product registration requirements
- MAS powers relating to supervision and investigation

S 339 SFA: Extra-territoriality of Act

339.—(1) Where a person does an act partly in and partly outside Singapore which, if
done wholly in Singapore, would constitute an offence against any provision of this Act, that
person shall be guilty of that offence as if the act were carried out by that person wholly in
Singapore, and may be dealt with as if the offence were committed wholly in Singapore.

(2) Where —

(a) a person does an act outside Singapore which has a substantial and
reasonably foreseeable effect in Singapore; and
(b) that act would, if carried out in Singapore, constitute an offence under any provision
of Part II, IIA, III, IV, VIAA, VIII, XII, XIII or XV,

that person shall be guilty of that offence as if the act were carried out by that person
in Singapore, and may be dealt with as if the offence were committed in Singapore

(3) Financial Advisers Act (FAA)

FAA and its subsidiary legislation cover:

- Licensing of financial advisers and representatives
- Conduct of business requirements
- Prohibited businesses
- Change of control requirements
- MAS powers relating to supervision and investigation

S 90 FFA: Extraterritorial application

90. Where a person does an act partly in and partly outside Singapore which, if done
wholly in Singapore, would constitute an offence under this Act, that person shall be guilty
of that offence as if the act were carried out by that person wholly in Singapore, and
may be dealt with as if the offence were committed wholly in Singapore.

(4) Moneylenders Act

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(2) M&As and SPA

Moneylenders Act and its subsidiary legislation cover:

- Licensing of moneylenders
- Freezing proceeds of unlicensed moneylending
- Regulation of moneylending business
- Registrar of Moneylenders’ powers relating to inspection and issuing directions

S 2 MA:
A “moneylender” means a person who, whether as principal or agent, carries on or holds
himself out in any way as carrying on the business of moneylending, whether or not he carries
on any other business, but does not include any excluded moneylender.

(5) Payment Services Act 2019 (Not yet in operation)

Second reading:
- Fintech opened up new opportunities for more convenient, faster and cheaper payments
- However, new payment methods give rise to new risks
- Necessitated a review of SG’s regulatory framework

Reasons for reform:

- New ways of providing payment services
1. New payment business models
2. Increasing complexity of payment service providers
3. Increasing integration in the payments ecosystem between banks, merchant
acquirers, processors and other payment service providers

- Type of risks
1. Money-laundering and terrorism financing
2. Loss of funds owed to consumers or merchants
3. Fragmentation and limitations to inter-operability
4. Technology and cyber security risks

Solution: Forward looking and flexible framework for the regulation of payment systems and
payment service providers in SG
- Provides for regulatory certainty and consumer safeguards
- While also encouraging innovation and growth of personal services and FinTech

Following payment services are regulated:

Payment Brief Description Currently
Service regulated?
Account Issuing, maintaining or operating a payment account No
issuance in Singapore (e.g. e-wallet, debit card, credit card,
service bank account)
Domestic Providing local funds transfer services in Singapore No
money transfer (e.g. payment gateway services, payment kiosk
service services)
Cross-border Providing inbound or outbound remittance services in Outward
money transfer Singapore remittance
service currently
regulated under
the Money-
Changing and
Remittance
8
(2) M&As and SPA
Business Act
(MCRBA)
Merchant Providing merchant acquisition services in Singapore No
acquisition (i.e., where the payment service provider contracts
service with a merchant to accept and process payment
transactions, which results in a transfer of money to
the merchant)
E-money Issuing e-money in Singapore to allow the user to pay
Partially regulated
issuance merchants (for goods and services) or transfer e- as “stored value
service money to another individual (e.g. peer-to-peer facilities” under
transactions) the Payment
Systems
(Oversight) Act
Digital payment Buying or selling of digital payment tokens, or No
token service providing a platform to allow persons to exchange
digital tokens in Singapore (e.g. crypto exchanges)
Money- Buying or selling foreign currency notes in Singapore Yes under the
changing MCRBA
service

C. Impact and Relevance of Financial Regulations

Can the client or counterparty conduct the transaction?

- Licensing issues?
- Conduct of business requirements?

Can the client distribute the product?

- Licensing requirements?
- Characterisation of product?
- Offering documentation / product registration requirements?

What regulatory issues arise in a financial institution M&A transaction?

- Change of control approvals or notifications?
o At what point to approach the regulator?
- Change of management approvals?
- Restrictions on disclosure of customer information or personal data?
- Regulatory issues for integration?
- Transitional services outsourcing requirements?
- Compliance with AML/KYC requirements?

Regulatory breaches and investigations

- Regulator notification requirements?
- Remedial actions

D. International Regulatory Framework

(1) Key International Policy Bodies

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(2) M&As and SPA

(2) Main International Standard Setters

Basel Committee on Banking Supervision (BCBS)  Banking supervision

International Organisation of Securities Commissions (IOSCO)  Securities regulation

International Association of Insurance Supervisors (IAIS)  Insurance supervision

International Accounting Standards Board (IASB)

- Development of International Financial Reporting Standards (IFRS)

Committee on the Global Financial System (CGFS)

- Short-term monitoring of international financial system

Committee on Payment and Settlement Systems (CPSS)

- Co-operation among central banks on payment, clearing and settlement systems

OECD: Financial Action Task Force (FATF)

- Anti-money laundering standards

10
(2) M&As and SPA
(3) Selected Industry Associations

(4) Singapore’s Role

Singapore, through MAS, is a member of:

- International Monetary Fund (IMF)
o Singapore’s Deputy Prime Minister, Finance Minister, and MAS Chairman Tharman
Shanmugaratnam was appointed as the Chairman of the IMF’s International
Monetary and Financial Committee in 2011

- The World Bank

o Partnership with the World Bank includes jointly organizing the annual World
Bank-Singapore Infrastructure Summit

- Financial Stability Board (FSB)

o Singapore is a member of the FSB and participates actively in its various
committees and work groups

- Bank for International Settlements (BIS) and Basel Committee of Banking Supervision
(BCBS)
o MAS is a member of both BIS and BCBS. MAS participates actively in key
committees and workgroups such as the Committee on the Global Financial
System, and the Committee on Payments and Markets Infrastructures. MAS also
chairs the Market Committee.

- International Organisation of Securities Commissions (IOSCO)

o MAS is a member of the IOSCO. MAS contributes to IOSCO’s policy and standard
setting work through its participation in the various Committees, Task Forces and
Working Groups.

- International Association of Insurance Supervisors (IAIS)

11
(2) M&As and SPA
o MAS is a member of the IAIS and participates in the IAIS main committees, task
forces and working groups

E. Regulatory Hot Topics

International financial reforms required after 2008 global financial crisis

- Coordinated by Financial Stability Board, these reforms have 4 key elements:
1. Making financial institutions more resilient
o Higher buffers, lower leverage, improved risk management and governance,
sound compensation packages

2. Ending “too-big-to-fail”
o Adopt requirements for higher loss absorbency for Global Systematically
Important Financial Institutions/Banks (G-SIBs)
o Subject G-SIBs to more intensive supervision
o Establishing legal/regulatory frameworks to allow the orderly resolution of these
“too-big-to-fail” institutions in the event of failure, without taxpayer support or
wider economic disruption

3. Making derivative markets safer

o Reporting of all over-the-counter (OTC) derivatives to trade repositories
o Clearing of all standardised contracts through central counterparties
o Trading of those contracts (where appropriate) on exchanges or electronic
platforms
o Subject non-centrally cleared contracts to higher capital and minimal margining
requirements

4. Transforming shadow banking

o Into resilient market-based finance through strengthening oversight and
regulation of shadow banking system
o Note: A shadow banking system is the group of financial intermediaries facilitating
the creation of credit across the global financial system but whose members are
not subject to regulatory oversight
 Operating as a bank without banking license (from MAS for SG)

(1) Ending “Too-Big-to-Fail”

FSB published “Key Attributes of Effective Resolution Regimes for Financial Institutions” in 2014
- MAS strengthened SG resolution regime in SG in line with Key Attributes

MAS Act:
- MAS has powers to impose recovery and resolution planning requirements on pertinent
financial institutions
- Statutory ball-in regime, MAS has power to write down or convert into equity,
instruments issued or contracted after the effective date of the ball-in regime  so as to
absorb losses or recapitalise a distressed financial institutions
- Cross-border recognition of resolution action taken by foreign resolution authorities

Basel Committee of Banking Supervision (BCBS) published “A Framework for Dealing with
Domestic Systemically Important Banks” in 2012
- Framework for assessing domestic systemically important banks (“D-SIBs”) and
subjecting them to a higher-loss absorbency (“HLA”) requirements.

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(2) M&As and SPA
MAS developed its own framework for:
- Identifying D-SIBs in SG, who are then subject to –
o More intensive supervision
o Higher HLA, liquidity coverage rations, recovery and resolution planning and
enhanced disclosures

(2) Making Derivatives Markets Safer

G20 objectives:
- All OTC derivatives contracts should be reported to trade repositories (“TRs”)
- All standardised contracts should be cleared through central counterparties (“CCPs”)
- All standardised contracts should be traded on exchanges or electronic trading platforms,
where appropriate

Non-centrally cleared (bilateral) contracts should be subject to higher capital requirements and
minimum margining requirements

Phased implementation in Singapore through the Securities and Futures Act in recent years:
- Reporting of “specified derivatives contracts” to TRs
o Interest rate derivatives contracts, credit derivatives contracts, foreign exchange
derivatives contracts, commodity derivatives contracts and equity derivatives
contracts in SG or booked in SG
- Clearing obligations came into effect from 1 October 2018, requiring certain SGD and
USD fixed-to-floating interest rate swap contracts to be cleared on CCPs
- Legal framework in place for the mandatory trading of OTC derivatives on organised
markets (new Part VIC of the Securities and Futures Act which came into effect on 8
October 2018)
- Certain uncleared derivatives contracts are subject to initial margin and variation margin
requirements as set out in MAS Circular No. MPI 02/2016 and the Guidelines on Margin
Requirements for Non-Centrally Cleared OTC Derivatives Contracts.

(3) Fintech

Payment Services Act 2019 (not yet in operation)

E-payments User Protection Guidelines (effective 30 June 2019)

- Account holder not liable for losses <S$1,000, provided account user took due care of
the account
- Where recklessness was the primary cause of loss, the account user will be liable for the
actual loss

MAS to issue up to 5 new digital bank licences

- Up to 2 digital full bank licences (for retail segment)
- Up to 3 digital wholesale bank licences (for SMEs and other nonretail segments)

(4) Cryptocurrencies

MAS Guide to Digital Token Offerings

- Are the digital tokens capital markets products?
- Money laundering / terrorism financing risks

Other legal issues

- Characterisation – impact on insolvency laws
13
(2) M&As and SPA
- Taking and perfecting security
- Enforcement of security

Regulation of “digital payment token service” under the PS Act

(5) Focus on Culture and Conduct

Proposed Guidelines on Individual Accountability and Conduct (IAC Guidelines) with 5 outcomes:
1. Senior managers (SM) are clearly identified
2. SMs are fit and proper and held responsible for actions of staff and conduct of business
3. Clear management structure and reporting relationships
4. Material risk personnel are fit and proper
5. Framework that promotes desired conduct among all employees

(6) Opt-in regime for accredited investors (AI)

(7) Cross-border regulatory issues

Markets in Financial Instruments Directive (“MiFID II”)

- Single EU market for investment services and activities across the 31 member states of
the European Economic Area (28 EU members + Norway, Iceland & Lichtenstein)

Packaged Retail and Insurance-based Investment Products (“PRIIPs”)

- Financial assets provided to consumers in EU as alternative to savings accounts
- Category is intentionally broad, covers all packaged, publicly marketed financial products
that have exposure to underlying assets that provide a return over time and has risk
- Transparency requirements required for such products

EU General Data Protection Regulation (“GDPR”)

- EU data protection and privacy law for all EU citizens
- Governs the transfer of personal data outside the EU and EEA areas

EU Benchmarks Regulation
- Common framework and consistent approach to benchmark regulation for benchmarks
used in financial instruments/contracts or to measure performance of investment funds

(8) Basel III

Ratios:
- Net stable funding ratio
- Liquidity coverage ratio
- Leverage ratio
- Note: Cash reserve ratio not included

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(2) M&As and SPA
II. Module 2 – Sale and Purchase Agreements

Main acquisition documents in a non-auction private company share purchase are:

(a) Share purchase agreement (first draft usually prepared by buyer);
(b) Disclosure letter (seller generally prepares this); and
(c) If applicable, an escrow agreement (first draft usually by escrow agent)

In an auction context, the seller prepares the first drafts of the share purchase agreement and
other transaction documents p

Typical clauses in the SPA include:

o Parties
o Interpretation
o Sale and purchase
o Conditions Precedent
o Consideration (Purchase Price Adjustment?)
o Pre-completion undertakings
o Completion
o Representations and Warranties
o Indemnities
o Limitations
o Employees
o Transitional Services
o Restrictive covenants
o Confidentiality and announcements
o Costs
o General
o Entire agreement
o Assignment
o Notices
o Governing law

Red clauses are a way for buyers and purchasers to allocate risk
- SPAs have time gap between signing and completion, risk arises here
o Anti-trust & regulatory approvals

How can buyers protect themselves?

- During the time gap:
o Conditions precedent
o Pre-completion undertakings – on how business will be run
- At signing: Warranties given
- At completion: Warranties repeated at completion

- Also, include provisions to cater for a purchase price adjustment

o Best way for buyer to protect themselves from financial deterioration of company
 Have a Post Completion Purchase Price Adjustment
 No fixed price, based on financial position of company at completion
 Initial purchase price to be paid at Completion
 But entitled to refund from seller if lower value at completion

Preliminary considerations:
- How to structure the transaction  share purchase or acquire assets
- Does the target company operate alone or as part of a corporate group
15
(2) M&As and SPA
- Structure acquisition directly from home jurisdiction or via an intermediate holding
company for tax purposes
- Financing methods: Equity/debt/financial assistance/existing loan facilities

Transaction process and planning:

- Type of sale process
- Who are the parties  is either a public company listed on a securities exchange
- Who is representing each party
- What is the transaction timescale
- Engagement letters

Types of pre-acquisition agreements:

- Confidentiality agreements
- Exclusivity arrangements
- Letters of intent/Heads of terms
- Duty of good faith  depends on jurisdiction

Note: Parties to the agreement

- Involves the seller and the buyer, with any other guarantor
- Hence, the target company is usually not a party

A. Due Diligence

Serves as audit of the target company’s affairs so buyer can decide whether to go ahead
- Assesses the risks and rewards of entering into the SPA

Areas of due diligence –

- Business: The market it operates, company’s strengths and weaknesses, production,
competitors
o What are the normal risks in the industry
o Known reputation of the target company and how it has been run
- Financial: Not a financial audit, focus on target’s financial affairs that are material to the
buyer’s decision
- Environmental: If company used land for industrial purposes
- IT: If target company heavily dependent or is a provider of IT services/products

Scope – Try to investigate key issues like:

- warranties and indemnities appropriately wide.
- negotiating a retention of the purchase price to cover potential warranty claims
- propose a price adjustment
- provide for particular sorts of problems to be solved as pre-conditions to completion
o for example, obtaining of consents to the change of control or waivers of other
awkward provisions in major trading agreements.

Investigate material agreements key for the target company, which might be:
- Supply agreements for crucial raw materials.
- Sales agreements (for example, output or requirements contracts).
- Intellectual property licences (for example, patent or trademark licences).
- Service contracts (for key staff).
- Leases for important equipment (for example, computers).
- Real property leases for facilities.
- Joint venture agreements.
- Shareholders' agreements.
16
(2) M&As and SPA
- Loan agreements to provide capital to run the business.

Assess the type of business assets:

- Plant, machinery and equipment  any defects, any inventory done?
- Stock  Nature of stock, finished or unfinished, work-in-progress schedules
- Motor vehicles
- Intellectual Property rights  Identify and check if registered
- Computer system and data  All hardware and software used by the company
- Real estate  Investigate title to property
- Insurance  Obtain information on all insurance arrangements and any claims

B. Engagement Letters

Clear demarcation of responsibility of advisers  use engagement letters

List out:
- Scope of work and responsibilities
- Fees
- Information flow
- Indemnity for losses arising out of appointment/advisor’s negligence or wilful default

III. Conditions Precedent

A. Mandatory Condition Precedents

Mandatory CPs:
- Competition/anti-trust approvals
o Merger control notification regime: Triggered if certain market share threshold hit
 Merger clearance required
- Regulatory approvals
o In certain sectors like insurance, banking and telecommunications
- Shareholder approvals if Seller or Buyer is a listed company

Change of control condition

- Buyer might find that contract to company has this clause
- Allows 3rd party to terminate contract unless approval obtained from third party
o Usually in the acquired company’s other contracts
- If contract crucial to acquired company, might want 3 rd party approval
o If not, have right to terminate the SPA
o If seller in strong bargaining position, will ask buyer to take on risk

In auction context, seller does not expect bidders to raise any conditions other than mandatory
CPs

B. Material Adverse Change (MAC)

Arises in SPA in 2 places, as a warranty, and a condition

- Warranty: Statement – “Since the last Accounts Date, there has been no material
adverse change in the business”
o Breach = warranty claim for damages
- Condition: Broad MAC –
o … any event or circumstance which is, or is reasonably likely to be, materially
adverse to the business, operations, assets, liabilities, condition (financial, trading
or otherwise), financial results or future prospects of the Group taken as a whole…
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(2) M&As and SPA
 Breach = choice to terminate
 Very common in Asian deals and heavily negotiated
 Seller wants to limit to just Business MAC, for business-related
events like loss of a customer
 Seller wants to exclude future reference to group (too broad)

“Quasi-MAC” CP:
- “all the representations and warranties remaining true and accurate [in all material
respects] as if they had been repeated at Completion”
- Sometimes, also tied to there being no material breach of the pre-completion restrictions
- Right to terminate at completion if business different from what was at signing

C. Conditions to Completion

Completion may be conditional on conditions such as:

- Shareholder consent to the transaction  from one or both parties
- Clearance from any anti-competition regimes
- Consent from the relevant market regulator if company operates in a regulated industry
- Consent from third parties, such as company’s lender or major supplier/customer

Consider as well:
- Time scale for satisfying conditions
- Waiver of conditions  any waiver by one or both parties?
- Obligations to satisfy conditions  need to specify what to do; reasonable or best
endeavours?
- Longstop date  by which date completion must be satisfied (or waived)
- Failure to satisfy completion conditions  what happens?

IV. Pre-completion undertakings

These undertakings by the seller include:

- Business to be carried in the ordinary course;
- Maintain the trade and trade connections of the target company;
- Promptly disclose any material changes in financial position/assets of the target company

If these are breached, buyer should be entitled to remedies:

- Determine the type of remedies available
- If right to terminate the SPA, an express provision should be inserted

A. Restrictions on operations

Positive undertakings/covenants to operate business in ordinary course

- Buyer has veto rights over operational matters like:
o No change in capital structure
o No acquisitions/disposal of assets
o No entry into new materials contracts
o Changes to target company’s officers or key employees
o However, usually the buyer’s consent is not to be unreasonably withheld

However, seller will also want carve outs to veto rights

- Aim: No need to go to buyer for everything
- Include ordinary course of business like routine renewal of short term contracts

18
(2) M&As and SPA
- Agreed business plan eg capital expenditure for new assets as specifically
negotiated/contemplated by parties
- Contemplated in SPA eg pre-sale reorganisation

B. Access to Information

Right to take copies of books and records of the company

C. General Cooperation

To prepare for integration

D. Warranties

Warranties are usually qualified by disclosures made by the seller

- Disclosures help to limit the warranties
- SPA usually has agreement that warranties subject to disclosure  seller prepares a
separate disclosure letter qualifying the warranties
- Serves as a snapshot when you sign the SPA
o Warranties for unknown risks
o Cf indemnities for known risks

Two types of disclosures:

- General disclosures  disclosure of matters which appear in public records or matters of
which the buyer should be aware as a result of its due diligence exercise.
- Specific disclosures  express disclosures made by reference to the warranties and deal
with matters which would constitute a breach of warranty if not disclosed.

What happens if the buyer has actual knowledge of a matter that qualifies a warranty?
- But not disclosed by the sellers in the disclosure letter
- Infiniteland UK: If a buyer entered into SPA knowing that seller’s warranty was incorrect,
seller may still be liable
o In the absence of a provision to the contrary
o Sue for “actual knowledge” for the breach of any such warranty
- No position in SG law yet

To help the buyer, the buyer might try to include a clause

- “only matters disclosed in the disclosure letter are treated as qualifying the warranties,
regardless of what the buyer may be aware of during the acquisition process”
- However, not fool proof, UK and many European courts might find that a buyer’s
knowledge might preclude the warranty claim

How to protect: Clarify during negotiation and before signing

- If not, use other ways to protect:
o Contractual provision through indemnities
o Purchase price reduction

(1) Warranties at Signing

Warranties impose liability on seller  allocation of risk

- A contractual statement of fact giving the recipient of the warranty the right to sue for
damages for breach of contract should the statement turn out to be inaccurate

19
(2) M&As and SPA
Three main functions:
1. Allocate risk to protect against the untrue or unknown
2. Elicit information otherwise unavailable to Buyer but note that disclosures (and matters in
Disclosure Letter) will qualify the warranties
- Note: not substitute for due diligence
3. Underpin price / retrospective price adjustment

Common areas of warranty protection:

- Title to shares/assets
- Corporate Information
- Financial statements
- Post-balance sheet events
- Commercial contracts
- Related party transactions
- Financing and banking
- Real property
- Employees/Pensions
- Insurance
- Intellectual Property
- Information Technology
- Environmental
- Compliance with laws/licences
- Tax
- Litigation

Warranties are usually qualified by disclosures

- Where these are inserted varies per jurisdiction

Warranties serve to guard against unknown risks

- Also help the Buyer obtain information from the seller
- Serves as a snapshot of the risks when the SPA is signed

(2) Completion Warranties

Buyer’s perspective:
- Right to claim damages for breach of warranties at signing and completion
- Right to terminate if untrue at completion

Seller’s perspective:
- No repetition of warranties
o Unsure if will remain correct in the future
- Repetition with right to update Disclosure Letter
o Once relevant Disclosures made, buyers cannot bring claim for damages

Subject to intense discussions  compromise might be:

- Termination right OR right to claim for damages (not both)
- Repetition of specified key warranties only

E. Representations

As compared to a warranty, a representation is:

A statement inducing a Buyer to enter into a contract and on which the Buyer relies, giving the
Buyer a claim for misrepresentation
20
(2) M&As and SPA

Representations v warranties
- “Represents and warrants” instead of just “warrants”
- Gives two remedies/causes of action
(i) Tort for misrepresentation; and
 Puts buyer in position as if misrepresentation not made
(ii) Contract for breach of warranty

However, damages for breach of warranty is based on contractual remedies

- Put Buyer in position as if contractual statement was true

Note: Breach of representations  can terminate contract unlike for warranty

F. Indemnity

An agreement to reimburse on a $ for $ basis in respect of a known contingent liability (whether

through due diligence/disclosure)
- In contrast, if a seller discloses against a warranty, the buyer cannot rely on it
o If seller discloses a $5m litigation against company
o Buyer cannot rely on warranty that no litigation against company
- To protect the seller’s purchase price, use an indemnity
o Only pay if event is triggered  then liability arises for seller

Not subject to contractual principles of remoteness/obligation to mitigate loss

- Usually given in respect of key identified risks such as specified litigation, tax,
environmental liabilities

Summary of Indemnities – Offers protection against identified risks

- Warranties ineffective once qualified/disclosed against
- Enforce upon triggering event – $ for $ basis for loss arising in specified circumstances
- Not subject to contractual principles of remoteness/obligation to mitigate loss
- Usually given in respect of key identified risks such as specified litigation, tax,
environmental liabilities

Type of indemnities to consider:

- For costs  for costs in any circumstances, like if SPA not completed

Indemnities help guard against known risks

- Buyer can request for indemnities from the seller for such risks
- Known risks cannot be protected against under warranties lo

G. Limitation of Seller’s Liability under Warranties & Indemnities

The seller will try to limit its liability under these two areas under the SPA, such as:
- Limitation period during which warranty claims must be notified to the seller.
- Where there are multiple sellers, limiting their individual liability to a specified proportion
of the aggregate consideration.
- Requiring the buyer to exhaust its rights against insurers and other relevant third parties
before recovering under the warranties.
- Giving the seller conduct of any third party claims that may give rise to liability under
the warranties.
- Disclosing all matters existing prior to exchange of contracts which are or may constitute
a breach of warranty.
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(2) M&As and SPA

The most common financial limits are:

- A minimum limit for individual claims (de minimis limit).
o Buyer cannot claim for breach unless the claim exceeds a certain amount  just
so as not to waste everyone’s time
o The figure agreed tends to be relatively low (usually 0.01-0.02% purchase price).
o Depends on the purchase price

- A minimum limit for aggregate claims (also referred to as a "basket", or "threshold").

o Aggregate limit is a monetary threshold which must be exceeded before any claims
can be brought.
o The buyer should insist that, once the threshold is reached, the full amount is
recoverable (not just excess).
o A rule of thumb is 1% of the purchase price.
o If consideration is large, the buyer may consider the threshold too high.
 May be better for the buyer to stipulate a figure below which it would not
consider taking any legal action.

- An overall limit (or maximum cap).

o The seller will usually seek to limit its aggregate liability under the warranties to
the total consideration received.
o Buyer should be wary of such a limitation if it has not had the opportunity to carry
out extensive due diligence
o Also, this limit may not be sufficient where the consideration is very low or where
part of the consideration is in a non-cash form.
 In other cases, the limit of the purchase price may be viewed as too high.
o There is no right answer to this point.
 If the buyer accepts an overall limit, then it should try to ensure that this
limitation does not apply to matters of fraud or wilful concealment.
o There will sometimes be a lower limit applied in some areas than others.
 For example, tax warranties and warranties that go to title to the shares or
assets may be subject to a higher cap than the remainder of the warranties
(sometimes referred to as general business warranties).
o Split it into two different limits for fundamental vs non-fundamental warranties
 Fundamental: 100%; Non-fundamental: 20-40%
 Fundamental warranties include title to shares

Other limits: The seller may seek to include various other limits, such as:
- Preventing double recovery
o Buyer cannot bring a warranty claim for other forms of recovery available, for
example, from third parties (including insurers), and the benefit of over-provisions
in the accounts or recovery under the indemnities (including any tax covenant).
o The buyer should only give credit for the amount of the net recoveries.

- Disregard of post-completion acts: This clause ensures that the seller is not liable for
matters outside its control, such as matters which arise in part due to acts of the buyer
after completion (for example, changes in accounting policy).
o This may be acceptable, but a balance has to be struck.

- Limiting liability to matters arising during the seller's ownership

o The seller may seek this limitation if it has only owned the target company or
business for a short period of time.
o Such a clause is often subject to heavy negotiation.
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(2) M&As and SPA

- Disregard of changes in legislation

o Seller will not be liable in respect of claims that arise only because of a change in
legislation after the date of the acquisition

- Conduct of claims: It is common to include a clause enabling the seller to have a say in
the conduct of disputes with third parties where the matter has given rise to a warranty
claim.
o The seller's interest is to reduce the amount of its liability under the warranties,
whereas the buyer's interest is to protect the goodwill of the business.
o The clause should try to strike a fair compromise between both parties' interests.

A seller is likely to try to include the indemnities (including any tax covenant) in the overall
limits.
- The buyer can argue that as the point of an indemnity is to provide redress on a pound-
for-pound basis, the indemnities should not be subject to a cap.
- However, a seller will be very wary of any uncapped liabilities.

Usual time limit for claims of breach of general commercial warranties

- Usually for negotiation
- Time limit usually 12 and 24 months of completion (CC lawyer says 2-3 years, but settle
at 18 months so that one audit cycle is completed)

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(3) Lending
V. Module 3 – Deal Structures in Lending

Taxation and costs of borrowing most pertinent where the borrower wants a loan in a specific
currency for business purposes

Benefits:
- Withholding tax
- Cheaper cost of borrowing
- Where specific currency needed

A. Syndicated Lending Transactions

Typical structure:

Roles:
- Here, assumption that borrowers and guarantors are related companies
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(3) Lending
- Arrangers: Banks/divisions of banks responsible for putting the deal together
- Agent Bank: After transaction signed, Arrangers hand over day to day management of
the transaction to the Agent
o AB then plays central coordinating role in the transactions once signed
o May be related to the lenders, most banks have agency divisions separate from
their lending divisions
- Security Trustee: Hold benefit of security in favour of the lenders
o May or may not be same entity as Agent Bank
o Enforces security on behalf of lenders
o May be more than one, depending on where security assets are held
 Some local regulations state that local assets be held by local STs
- Lender: No admin roles outside of lending responsibility
o Make decisions relating to facility like amendments and waivers
- Transferee Bank: If a Lender decides it no longer wants to participating in a loan
o TB is one which takes over the entire loan
- Sub-Participant: Lender stays as lender on record, but passes risk to the SP bank

In a syndicated loan, a borrower borrows money from a group of lenders (viz, a syndicate)
- Under syndicated loan agreement
- Simplifies borrowing process as only one agreement covers the syndicate

B. Underlying Principles

Creditor equality
- Pari passu ranking
- Negative pledge
- Cross default / cross acceleration
- Sharing among Finance Parties

Key principle 1: All lenders treated equally within their same “class”
- Decision rights in proportion to their loan commitments
- Unless expressly stated that some are to be senior or junior to the others
o There are also mezzanine lenders, who are in between the two
o Why be a junior lender?
 To entice a lender to have fewer rights, higher fees or higher interest rates
are offered  rate of return on loan higher than senior lender

Common threshold for decisions: 2/3 by value

- Certain matters require unanimous lender approval like extending prepayment date
- Not common to see 50% for decisions

Key principle 2: Any amounts recovered from borrower is proportional to their loan
commitments – pro rata
- Any repayment/prepayment should be distributed equally among all lenders
o No lender should be repaid in preference to other lenders
o Outside very rare circumstances
 Eg. Illegal for lender to loan money due to change of laws, so lender should
require full repayment to exit from the loan

Liability of lenders is several

- If one lender fails to lend what it is supposed to, no other lenders required to fulfil that
shortfall

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(3) Lending
Considerations:
- Local regulatory and other risks when advising a bank
- Foreign lawyers may not be able to take effective security over local assets

When advising a borrower, you and local counsel must:

- Advise on steps needed for borrowers and obligors to enter into the transaction and
perform obligations
o Obligors often to represent that they have taken all necessary steps to ensure
their obligations are legal, valid, binding and enforceable

Depending on market practice, counsel for lenders or borrowers will advise on obligors
obligations
- Lender’s counsel in SG, HK & UK; while some provided by borrower’s counsel in NY

C. Considerations for the Borrower

Choice of syndicated loan compared against other alternatives

- Debs issue on capital markets; or
- Bilateral loan

Costs: Fees will be charged by the arrangers, underwriters, bookrunners, syndicate lenders,
agents, the borrower and the lender’s lawyers
- Also include margin payable on loan and interest rates

Term: Generally, the longer the facility is available to the buyer, the better
- Delays the cost of arranging further financing
- Syndicated loan is generally of medium-term maturity  3 to 5 years
o Extensions may be provided, usually for 12 months

Freedom: Lenders will require borrower to provide as much information

- Also require representations and warranties, and agree certain covenants and events of
default
- Tension might arise as company might not be able to operate with enough flexibility as
lenders want to protect their security

D. Considerations for the Arranger

(1) Arranger’s Duties

The arranger(s) are the banks which have a key role in putting the deal together
- Does deal structure and finds other banks to participate in the facility
- Once loan agreement signed, arrangers fall out of the picture

General duties include:

- Helping the borrower draft an information memorandum
o Includes proposed structure and terms of the loan facility
o Commercial description of the borrower’s business
o Investment considerations
o Report on borrower’s financial condition and most recent financial statements
- Distributing the memorandum to lenders invited to join the syndicate
- Negotiates loan documents with the borrower on behalf of the syndicate
- Manages the invitations for lenders to join the syndicate

A lender may seek to be to the sole arranger, as:

26
(3) Lending
- No need to share arrangement fee
- More level of control than a joint arranger

However, joint arrangers generally used

- Each arranger can split their underwriting commitments  easier syndication process
- Potential lenders also feel “safer” if two or more lenders are attached

Co-ordinator or Bookrunner
- If strong borrower that has lenders with existing r/s, the arranger acts more as a
coordinator in helping to coordinate the syndicated loan
- If not strong, then the arranger acts more like a bookrunner, having to sell the loan to
other potential lenders
o Arranger will agree an invitation list with the borrower
o Send out invitations to proposed lenders with confidentiality and front-running
letter
o Once the proposed lender has signed and returned the letter, a copy of the info
memorandum will be sent to the proposed lender
- Bookrunner also advises borrower on market conditions
o Ensure borrower’s loan attractive enough to attract a syndicate
o Might include “market flex” clause  bookmaker can change structure of facility
if there are changes to the market conditions
 Unpopular with borrowers, should negotiate so their consent needed

An arranger will want to ensure:

- No other debt by the borrower is sold on the market at the same time
o “Clear market” clause  borrower cannot enter into other financing arrangements
while the loan is being syndicated
- They are in full control of the syndication clause
o “No front-running” clause  arranger cannot make deal with other lenders that
allow the latter to take an interest in the facility, other than as another lender

An arranger (but not always) may also underwrite the loan

- Guarantee the entire commitment and syndicate the loan
- If loan not fully subscribed, they will loan the money to the borrower themselves
- Alternative: Loan will be on best-efforts/best endeavours basis
o If so, arranger commits to a certain amount and tries to get lenders to commit to
the remainder of the loan amount

Also serves as the documentation bank

- Solicits and negotiates comments on any documents from proposed syndicate lenders

A club deal might occur where the arranger is not treated differently from other lenders
- If small loan that is pre-marketed to a group of r/s banks
- Here, the arranger fees might be split equally

(2) Arranger’s Liabilities

An arranger can be held liable against both the borrower and the lender banks
- Borrower: May be liable for: (a) Contractual breaches; or (b) Tort of negligence
- Other Lenders: (a) Contractual (if signed contract); or (b) Tort claim
o Arranger acting on behalf of lenders as it will be a part of the syndicate

For the borrower, usually a commitment/mandate letter is signed from the outset
27
(3) Lending
- Hence, contractual claims can be made easily

In contrast, until a facility agreement is signed, the other lenders have no contractual claim
against the arranger
- Hence, they have to pursue a claim if tort  eg. if negotiations broke down
- Arranger might be a more attractive target if borrower has no money

The Sumitomo bank v Banque Bruxelles Lambert [1997] 1 Lloyd’s Rep 487
- Arranger owes a duty of care to lenders in the syndicate
- Here, a DOC arose as the arranger giving the information:
o Was fully aware of the nature of the transaction that the other party had in
contemplation.
o Knew that the advice would be communicated to him directly or indirectly.
o Knew that it was very likely that the recipient would rely on the advice or
information in deciding whether or not to enter into the transaction.
- Lender also successful in suing the arranger, Banque, for misrepresentation that valid
insurance was in place and full disclosure to insurers had been made

An arranger can also be liable for any actual misrepresentation – Hedley Byrne

IFE Fund SA v Goldman Sachs International [2007] EWCA Civ 811; UKCOA
- Strict limits on DOC owed by arranger to lenders
- No DOC to disclose additional info provided by auditors about borrower’s behaviour

Raiffeisen Zentralbank Osterreich AG v Royal Bank of Scotland plc [2010] EWHC 1392
- RZO was lender, tried to claim RBS induced it to enter via a misrepresentation
- Held: No reps, also estopped due to market disclaimer
o Disclaimer did not seek to exclude/restrict liability under s 3 MA
o Instead, stated that arranger simply forwarded information from borrower

Arranger’s liability can be mitigated as every lender in a syndicate loan will be an experienced
professional  also include disclaimer provisions

The arranger’s duty of care will generally be fulfilled if:

- Sufficient care has been taken in the preparation of the information memorandum and
the completion of any insurance or security arrangements.
- The basis of the relationship is agreed and properly documented at the outset.
- The arranger does not deliberately or negligently misinform the lenders.

Note that the arranger’s conduct must still live up to normal market expectations

Facility agreement will generally include:

- Explicit acknowledgement that:
o Arranger owes no fiduciary or other duty to lenders; and
o No obligation to account for profits
- Non-reliance clauses that arranger not responsible for the accuracy of info
- Clause that arranger may do other business with the borrower and its group
- Confirmation that each lender is responsible for making their own enquiries and
investigations

E. Considerations for the Agent for the Lenders

Agent represents the lenders during the life of the facility

28
(3) Lending
- Paid much smaller fee than arranger, will not accept risk
- Often the same legal entity as the arranger
- Serves as point of contact between financing parties and obligors
o All communications go through them

Mainly administrative and mechanical role, limited to what is in the facility agreement
- Ensures borrower complies with terms of the facility agreement
- Receive all notices and financial statements and distributes them to lenders
- Will be paying agent for all payments under facility agreement
- Given such roles, will not want discretion and merely to only act on receiving instructions
from lenders or a majority of lenders

Main roles:
- Organise utilization/drawdown of the facility; and
o Determines rate of interest for a loan
- Act on behalf of lenders if anything goes wrong with the loan

(1) Role on Drawdown of the Facility

- The borrower delivers the drawdown (or utilisation) notice to the agent.
- The agent notifies the lenders of the amount of the loan to be drawn down.
- The agent reviews the conditions precedent and confirms to the borrower and the lenders
when they are satisfied.
o Typically, the agent will confirm when legal CPs are satisfied but will seek a sign-
off on the commercial CPs from the syndicate lenders.
- The agent establishes LIBOR or EURIBOR and (if applicable) the mandatory costs,
according to the terms set out in the facility agreement.
o The agent notifies then notifies the lenders and the borrower of such costs (if any).
o The level of mandatory costs currently charged is generally very low.
 Since the LMA stopped publishing its schedule, mandatory costs provisions
are rarely included as lenders will typically take account of these costs when
pricing the deal.
- The agent collects funds from each of the lenders in the syndicate by the date specified
in the drawdown notice (the utilisation date).
- The agent pays the collected funds to the borrower on the date specified in the drawdown
notice (the utilisation date).

(2) Role on Default

- The agent is usually the first to learn of any default, as all interest payments and notices
are sent to the agent for distribution.
o However, if another lender learns of a default they should notify the agent.
- The agent notifies the lenders of any default.
- The agent holds initial conversations with the borrower to find out about why the default
happened and the borrower's actual financial condition.
- The agent co-ordinates any discussions between the lenders.
o Ensure that the lenders maintain their collective bargaining power while working
with the borrower on what is most likely to ensure that the lenders are repaid.
- The agent typically acts on the instructions of the majority lenders.
- If the syndicate decides to give a waiver, the agent ascertains the terms that are agreed
by all (or the majority) of the syndicate and notifies the borrower.
- If the syndicate decides that the best course of action is to cancel and/or accelerate the
facility, the agent gives notice to the borrower.
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(3) Lending

(3) Liabilities

Duties clearly set out in the facility documents, which generally include:
- The agent may assume that there is no event of default unless it has actual knowledge
of a default. In some cases, an agent may push for "written knowledge".
- An exclusion of any fiduciary liability and obligations imposed by English law on a
fiduciary.
- A right to appoint and rely on the advice of lawyers, accountants and other experts and
to pass on the costs.
- Unilateral resignation provisions to provide maximum flexibility should the agent elect
to terminate its role.
- Limitation of duties to solely mechanical and administrative functions. For example:
o the agent is not responsible for the effectiveness of the facility documents; and
o the agent is not responsible for the information in the facility documents.
- Lenders confirm that they are responsible for their own due diligence or other checks
(including KYC checks) and credit assessment.
- The lenders will indemnify the agent for any loss suffered, or liability incurred by it acting
as agent.
- Exclusion of liability for third party actions, omissions or fraud.
- Protection of officers, employees and agents of the agent from any proceedings being
taken against them by any party (other than the agent) in respect of any potential claim
or act or omission by them.
- The agent is not liable for any act or failure to act unless this is caused by the gross
negligence or wilful misconduct of the agent.

Might also be liable for wilful misconduct and gross negligence

- Gross negligence: greater degree of negligence

National Semiconductors (UK) Ltd v UPS Ltd [1996] 2LL Rep 212
- Wilful misconduct proved when there is either:
o An intention to do something which the actor knows is wrong;
o A reckless act in the sense that the actor is aware that the loss may result from
his act and yet he does not care whether the loss will result or not; or
o That the actor took a risk which he knew he ought not to take.
- Ultimately depends on the facts of the case

Torre Asset Funding Ltd & Anor v The Royal Bank of Scotland Plc [2013] EWHC 2670 (Ch)
- Even where an agent (acting as lender) participated in the events that constituted an
event of default they were not under an obligation to notify those events.
- Where the agent has been provided with worrying financial information by a lender,
unless that information was explicitly supplied to it for the purpose of circulating it to the
lenders it was not obliged to share it.
- Showcases how agent’s role is solely mechanical and administrative

F. Considerations for the Security Trustee

If syndicated loan is secured, a lender will act as the security trustee

- Single entity holds the security on trust for the benefit for all the lenders and other
parties entitled to benefit from the security like hedging counterparties
o Responsible for administrative aspects of security and making distributions to the
secured lenders on enforcement

30
(3) Lending
o If lender assigns/transfers interest to another entity, new lender will benefit from
the existing security package without need for security to be re-registered or for
new security to be granted

- Multiple entities may be required for onshore and offshore assets

o If need local entity to hold local assets, a local security agent is required
 Check local laws

Rights and duties set in security document or in separate security trust deed
- Main role: Take action to enforce/protect security
- But will only act after instructed by a specified majority of the lenders

Security trust deed includes protections for the security trustee, like:
- A right to appoint and rely on the advice of lawyers, accountants and other experts.
- No liability to advise on the appropriateness or suitability of any instructions received
from an instructing group and a right to assume that instructions have been duly given
in accordance with the finance documents.
- An ability to refrain from doing anything which it believes to be contrary to any laws or
directives.
- No liability for any failure, omission or defect in perfecting the security.
- No liability for any act or failure to act unless caused by its gross negligence, wilful
misconduct or fraud.
- An exclusion of all duties, obligations and responsibilities other than those which are
expressly set out.
- No responsibility for the legality, validity, effectiveness, suitability, adequacy or
enforceability of any security document.
- No responsibility for monitoring any ongoing covenant compliance and (unless instructed
otherwise in accordance with the relevant document(s)) the right to assume that no
event of default has occurred.

Will have indemnities from borrowers and other lenders as well

G. Role of Local Counsel in Cross-Border Financing

Provide expert opinion and formal local advice

- Ensure chosen local counsel is reliable + reputable and provides sound local law advice

Review guarantees and local regulatory matters

- Any guarantee limits prescribed by law
- Whether guarantor has capacity to provide guarantee  legal opinion
- Draft corporate approvals to approve the guarantee
- Draft closing certificate of guarantor, director to certify certain financial matters
- Legal opinion to consider guarantor’s obligations to consider it binding
- Any required filings/registrations
- Advice on stamp duty
- At close to end of transaction, confirm that Indian conditions precedent have been
delivered
- Maybe ask for tax advice, but often to tax advisors

Legal opinion: Fact-checking on whether something can be done

- If company can enter into transaction under constitution, whether shares can be charged
- Two categories:
(i) Capacity – matters relating to obligor
31
(3) Lending
 Corporate capacity to enter into transaction
 Whether obligor has corporate approvals to enter into transaction
 Whether entry into the transaction conflicts with the obligor’s constitution

(ii) Enforceability – enforceability of obligations under the relevant documents

 Opine if obligors’ obligations are enforceable under governing law of the
document
 Whether obligor’ s obligations conflict with the law
 Usually given by counsel in same jurisdiction as the law which governs the
contract

- Look at jurisdiction of obligors and see if assets charged by them as security can be
enforced in their various jurisdictions
o Eg. LTA in SG does not recognise foreign security over local land

Three Types of Security

 Singapore security over Singapore assets  Gold standard
 Singapore company but it owns assets in Germany and enters into a German security
document over that assets  That would work.
 SG company with Singaporean assets subject to New York law security  “Dirty security”
o If someone wants to enforce New York Law security over these assets, it may work
at the end, but it will be a nightmare.

VI. Standard APLMA Facility Agreement – Key Terms

APLMA: Asia Pacific Loan Market Association

- HK association, produces standard forms

Four broad categories of clauses:

1. Mechanics (purpose / the facilities / funding / repayment)
2. Margin protection: Ensure lenders’ profit lenders not reduced by tax or regulatory costs
3. General protection (representations, covenants and events of default)
4. “Boilerplate”: Transfers, notice provisions, clauses of non-economic nature

APLMA facility agreement has:

- Embedded guarantee and indemnity
o Hence, lender does not need to sign up for a separate guarantee and indemnity
o Protective clauses can also, if appropriate, be extended to protect the guarantor
- Schedules, including:
o Commitment amounts
o Conditions precedent
o Form of transfer certificate
o Timetable for drawing under facility

Clause 2.2(a) of the APLMA agreement (p 17) provides for several liability:
The obligations of each Finance Party under the Finance Documents are several. Failure by a
Finance Party to perform its obligations under the Finance Documents does not affect the
obligations of any other Party under the Finance Documents. No Finance Party is responsible
for the obligations of any other Finance Party under the Finance Documents.

Clause 33.1: Majority decision by 66 2/3 majority

33.1 Required consents

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(3) Lending
(a) Subject to Clause 33.2 (All-Lender matters) and Clause 33.3 (Other exceptions), any
term of the Finance Documents may be amended or waived only with the consent of the
Majority Lenders and the Obligors and any such amendment or waiver will be binding on
all Parties.

(b) The Agent may effect, on behalf of any Finance Party, any amendment or waiver
permitted by this Clause 33.

(c) [Paragraph (c) of Clause 23.12 (Pro rata interest settlement) shall apply to this Clause
33.]
Defined in s 1.1 as: "Majority Lenders" means a Lender or Lenders whose Commitments
aggregate more than [66 2 / 3 ]% of the Total Commitments (or, if the Total Commitments
have been reduced to zero, aggregated more than [66 2 / 3 ]% of the Total Commitments
immediately prior to the reduction).

Clause 26: Pro rata payment

26.1 Payments to Finance Parties

If a Finance Party (a "Recovering Finance Party") receives or recovers (whether by set-off or

otherwise) any amount from an Obligor other than in accordance with Clause 27 (Payment
Mechanics) (a "Recovered Amount") and applies that amount to a payment due under the
Finance Documents then:

(a) the Recovering Finance Party shall, within three Business Days, notify details of the
receipt or recovery to the Agent;

(b) the Agent shall determine whether the receipt or recovery is in excess of the amount the
Recovering Finance Party would have been paid had the receipt or recovery been received or
made by the Agent and distributed in accordance with Clause 27 (Payment Mechanics),
without taking account of any Tax which would be imposed on the Agent in relation to the
receipt, recovery or distribution; and

(c) the Recovering Finance Party shall, within three Business Days of demand by the Agent,
pay to the Agent an amount (the "Sharing Payment") equal to such receipt or recovery less
any amount which the Agent determines may be retained by the Recovering Finance Party
as its share of any payment to be made, in accordance with Clause 27.5 (Partial payments).

26.2 Redistribution of payments

The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and
distribute it between the Finance Parties (other than the Recovering Finance Party) (the
"Sharing Finance Parties") in accordance with Clause 27.5 (Partial payments) towards the
obligations of that Obligor to the Sharing Finance Parties.

Note Clause 26.5 also provides some exceptions

Note Clause 7.5: Right of prepayment and cancellation in relation to a single lender
(a)(i) For tax-gross up in Clause 12.2 or (ii) Tax indemnity under Clause 12.3 or Increases
costs under Clause 13.1
Clause 7.4(c), 23.12 [optional clause], Clause 27.5 [partial payments] all showcase creditor
equality

Once CPs fulfilled, lenders to make amounts available

4 CONDITIONS OF UTILISATION
33
(3) Lending

4.1 Initial conditions precedent

(a) The Borrower may not deliver a Utilisation Request [unless the Agent has
received all of the documents and other evidence listed in Schedule 2 (Conditions
Precedent) in form and substance satisfactory to the Agent]/[the Agent has received all of
the documents listed in and appearing to comply with the requirements of Schedule 2
(Conditions Precedent)]. The Agent shall notify the Borrower and the Lenders promptly upon
[being so satisfied]/[receiving such documents and other evidence].

(b) Other than to the extent that the Majority Lenders notify the Agent in writing to the
contrary before the Agent gives the notification described in paragraph (a) above, the Lenders
authorise (but do not require) the Agent to give that notification. The Agent shall not be liable
for any damages, costs or losses whatsoever as a result of giving any such notification.

4.2 Further conditions precedent

The Lenders will only be obliged to comply with Clause 5.4 (Lenders' participation) if
on the date of the Utilisation Request and on the proposed Utilisation Date:

(a) no Default is continuing or would result from the proposed Loan [and none of the
circumstances described in Clause 7.2 (Change of control) has occurred] 53 ; and

(b) the Repeating Representations to be made by each Obligor are true in all material
respects.
5.4 Lenders' participation

(a) If the conditions set out in Clause 4 (Conditions of Utilisation) and Clauses 5.1 (Delivery
of a Utilisation Request) to 5.3 (Currency and amount) have been met, each Lender shall
make its participation in each Loan available by the Utilisation Date through its Facility
Office.

Covenants/general undertakings, falls into three categories:

1. General: commercial covenants/protection of assets – Clause 21
2. Information covenants like compliance certificate – Clause 19
3. Financial: Precise trigger for default [not in APLMA] – Clause 20, blank
- Clause 22 for breach of covenants
o Clause 22.17 provides right of acceleration, can cancel commitment or any part
of it and can request for full repayment
22.17 Acceleration

On and at any time after the occurrence of an Event of Default which is continuing the Agent
may, and shall if so directed by the Majority Lenders, by notice to the Borrower:

(a) without prejudice to the participations of any Lender in any Loans then outstanding:

(i) cancel the Commitments (and reduce them to zero), whereupon they shall
immediately be cancelled (and reduced to zero); or
(ii) (ii) cancel any part of any Commitment (and reduce such Commitment
accordingly), whereupon the relevant part shall immediately be cancelled (and
the relevant Commitment shall be immediately reduced accordingly); and/or

(b) declare that all or part of the Loans, together with accrued interest, and all other amounts
accrued or outstanding under the Finance Documents be immediately due and payable,
whereupon they shall become immediately due and payable; and/or
34
(3) Lending

(c) declare that all or part of the Loans be payable on demand, whereupon they shall
immediately become payable on demand by the Agent on the instructions of the Majority
Lenders.

A. Parties

Parties to a cross-border loan:

- Obligors; comprising (a) the borrower(s) and (b) the guarantor(s); and
- Finance parties; comprising (a) Lenders; (b) Facility Agent; (c) Mandated Lead; and (d)
If secured loan, a Security Trustee

In a CBT, jurisdiction of incorporation of obligors are important  determine from outset

- Helps determine what law applies
- Look at the jurisdiction of incorporation of the borrower(s) and guarantor(s)
o Look also at the governing laws of various documents;
o Location of assets provided as security; and
o Location of obligors
- Additional Obligors may be added
o Need to know, then, where were they incorporated

Jurisdiction of the Finance Parties also important

- Help determine if withholding tax might be payable, generally on payment of interest
being made to overseas lenders
- Does not really affect fees payable to Security Agent, Facility Agents, etc.
- Use local counsel to confirm what withholding tax is payable on

B. Facilities
(1) Term Facilities

Term Facility: One-time borrowing, no re-borrowing after repayment

- Loan may be repaid at end of the term of in instalments, usually between 1-5 years
- Short availability period (3 months) where loan can be borrowed in one amount
o Also can have provision where loans may be drawn in smaller advances or in
separate tranches

Advantages to borrower:
- Certainty of a pre-determined repayment schedule
- Use of tranches provides flexibility, may be further increased if term loan allows the
borrower to draw money in different currencies
- Interest likely lower than that paid on overdraft, or at standard fixed rate

Disadvantages
- Cannot reborrow once term loan has been paid
- Usually no more than 5 years, if not borrower needs to find other forms of capital

(2) Revolving Facilities

Revolving Facility: Amount borrowed can be repaid, reborrowed, repaid, until end of loan period
- Similar to overdraft, availability period extends for almost entire life of the loan
- Borrower can draw and repay tranches up to the specified maximum amount where it
choose through the term of the loan
o Borrower can take tranche for an interest period
35
(3) Lending
o At the end, decide whether to repay that or “roll-over” into the next interest period
o Further funds can be drawn down at any time, interest periods run in parallel

Advantages:
- Maximum facility, can draw as much or little as required
- Can repay outstanding tranches that are no longer required

Disadvantages:
- Likely to have more restrictions than overdraft, like:
o Minimum notice periods before a sum is advanced
o Bank may set upper/lower limits on the amounts which may be drawn at any one
time and the number of interest periods that may exist in parallel at any one time
o Bank may impose a repayment schedule
- Long commitment period = high commitment fees

(3) Overdraft Facility

Viz, “working capital facility”  provides cash in readily accessible form to meet temporary
shortfalls in working capital

Advantages:
- Simple form of finance, generally easier to arrange
- High than compared to term loan but cheaper overall as interest is calculated at the end
of each day on the basis actually borrowed
o Rather than maximum of overdraft limit
- No commitment fees
- Lower legal fees as simple documentation

Disadvantages:
- Uncommitted facility, to be repaid on demand
- Current liability for borrower’s balance sheet
- Little scope for amendment as standard-form agreement used
- Limited basic flexibility as:
o Always have upper limit
o Has “clean-up” provision – borrower to bring overdraft down to specified sum for
a specific period for a particular number of consecutive days
- Bank charges and interest are relatively high

(4) Swingline Facility

Committed facility, used for short-term bridging purposes

- Usually part of a larger revolving credit facility, can be activated very quickly
- Aimed to be used in an emergency until borrower has alternative arrangements in place
- Quite short, like 5-7 days, to be repaid very quickly

Advantages: Almost immediate access to funds in a given currency

Disadvantages: Very short-term form of financing

- Margin much higher than on longer-term forms of finance

(5) Standby or Bridging Facility

Used in very limited circumstances, usually a revolving credit facility

36
(3) Lending
- Provides guaranteed funds if another method of raising cash fails
- Used to temporarily support transactions for which financing is delayed

Advantages: Short-term finance to support a trnasction that might otherwise collapse

Disadvantages: Short-term solution and high margins charged

(6) Multiple Option Facility

Two stages:
1. Formal, committed facility agreement (usually revolving) provided by syndicate of banks
up to a specific figure;
2. Syndicate provides options for borrower to use the agreed figure
o This is uncommitted, syndicate offers their best priced options
o Might be debt securities, bills of exchange or short-term loans
o Borrower can take up offer or use stage one of the facility

Advantages: Borrower has flexibility to choose cheapest option

Disadvantageous: Only appear during a borrower’s market, generally unpopular with banks

(7) Incremental (accordion) Facility

Uncommitted lines within committed facilities that can be called on as required

- Member of existing syndicate have first right of refusal
- If existing lenders do not wish to assume commitments equal to the total increase
amount, borrower may bring in new lenders to take up shortfall
- New lenders accede to facility agreement on same term as the existing lenders

Terms negotiated on case-by-case basis, include:

- Minimum amount
- Maximum number of uses
- Specified time frames

Increasingly common in leverages loans

- LMA has set of optional incremental facility provisions in facilities agreement for
leveraged acquisition finance transactions

C. Utilisation

Agreement then sets out the mechanics for the utilisation for the loan
- Various conditions precedent to be met before loan can be withdrawn
- Set out documents to be submitted before borrower can make a utilisation request
o Eg. Constitutional documents, licenses, security perfection
o Ascertain what documents are required under local law  check with local counsel

Next, sets out the timetables

- Lenders’ participations; and
- Cancellation of available facility

Role for CPs:

- Risk assessment and mitigation
o Allow lawyers to conduct initial due diligence on various obligors
37
(3) Lending
o Covenant enhancement to preserve lenders’ rights
- Confirmation of various assumptions by lenders
o Factual, legal and financial

Satisfaction of CPs  triggers obligation to lend

- Lenders will request confirmation from local counsel that relevant documents delivered
- These are initial CPs, which have to be submitted prior to drawdown

There is also further CPs, which are non-documentary CPs that are fulfilled before loan can be
made
- To be satisfied on the date of utilisation request and on proposed drawdown date
- Include accuracy of representations and absence of any default

D. Repayment, prepayment and cancellation

APLMA then talks about how loan can be repaid, when it must be prepaid, or cancelled

Note: Why cancellation?

- In most loans, borrower to pay commitment fee if it does not borrow anything
- Commitment fee ceases when borrower loans and pays interest on the loan
- If not required, makes sense to cancel to avoid paying any fees

APLMA provides when loan must be prepaid if the lenders request

- Eg. Sanctions against a country, loan cannot be outstanding
o Might then be illegal to make such a loan to borrowers incorporated in country X

Right of prepayment or cancellation in relation to a single lender

- Exception to the idea that all lenders paid equally
- Arises where there is a:
o Tax gross up
o Tax indemnity
o Increased cost: Regulatory costs payable by bank which lender passes to borrower
- If these arises, borrower can choose to selectively pay just the increase in these costs
to just that lender

E. Costs of Utilisation

1. Interest
2. Default Interest: Payable where there is a default under the facility
3. Fees payable by borrower: Includes
- Arrangement fee: Payable to arranging banks
- Agency or Security Trustee fees: Payable to each party
- Commitment fees

F. Withholding Tax

APLMA contains a tax gross up or tax indemnity provision

- On cross-border loan, withholding tax is important
- Lenders do not expect profit to be affect by withholding tax
o Hence, borrowers to increase payable nett sum
o These provisions help increase these sums payable

Lenders also expect to be compensated for:

38
(3) Lending
- Stamp duties or indirect taxes like GST
- Indirect taxes  fall under category of increased costs

G. General Protection Clauses

(1) Representations

Unambiguous statements of fact (or law) by obligors made to induce lenders to make the loan
- Local counsel to provide input to see what is appropriate for borrower incorporated in
that jurisdiction

Remedies:
- Legal Rescission or affirm agreement and claim for damages
- Contractual Trigger event of default

Customary representations include:

- Legal
o Status, binding obligations
o No conflict with other obligations
o Power and authority
o Validity and admissibility in evidence
o Governing law and enforcement
o Deduction of tax
o No filing or stamp tax
o Pari passu ranking

- Information
o No default
o No misleading information
o Financial statements
o No proceedings pending or threatened
o Authorised signatures

- State of business/group
o Insolvency
o No breach of laws
o Environmental Laws
o Taxation
o Holding and dormant companies
o Security and Financial Indebtedness

- Security/credit support
o Ranking
o Good title to assets, legal and beneficial ownership

(2) Covenants

Impose control on activities of obligors

- Consult local counsel on any covenants appropriate for that jurisdiction in question

Positive or negative:
- Promise to do something or refrain from doing something

Broadly, fall under three categories

39
(3) Lending
1. General Undertakings: commercial covenants / protection of assets
o Authorisations
o Compliance with laws
o Pari passu ranking
o Negative pledge
o Disposals
o Merger
o Change of business
o Environmental compliance and claims
o Acquisitions
o Loans and guarantees
o Financial Indebtedness

2. Information covenants
o Financial statements – annual audited/semiannual/quarterly/monthly
management accounts
o Compliance certificate
o Notification of Default
o Miscellaneous Information

3. Financial covenants [Note: APLMA does not set these out, but definitions]
o Precise trigger for default
o Measure performance against prediction/target
o When tested
o Cashflow Cover: the ratio of Cashflow to Debt Service
o Interest Cover: the ratio of EBITDA to Finance Charges
o Leverage: the ratio of Total Debt to EBITDA
o Capital Expenditure: Capped amount for each Financial Year

(3) Events of Default

Rights on occurrence of an Event of Default which is continuing (remedied/waived)

- Cancel all or part of the Commitments
- Declare amounts immediately due and payable
- Declare amounts due and payable on demand
- If relevant, direct Security Trustee to take action

Customary events of default include:

- Ownership of the Obligors
- Unlawfulness
- Repudiation
- Moratorium on External Indebtedness
- Cessation of business
- Change of control
- Expropriation
- “Declared Company” in relation to a Singaporean obligor
- Material adverse change

(4) Boilerplate

Clauses include:
- Assignment / transfer of Loans
- Payment Mechanics
40
(3) Lending
- Set-off
- Notices
- Partial Invalidity
- Counterparts
- Governing Law
- Jurisdiction
- Arbitration

VII. Contemplating Syndicated Lending

Syndicated debt market a good choice for the average medium-sized corporate
- Flexible, cheaper, and simpler than other choices like securitisation or bonds

Choosing an arranger: Use it via competitive tender

- Need to share choices for why an arranger is selected
- Basically, main consideration is value for money

What should a company looking for an arranger do?

- Send companies that are potential arrangers their ideal term sheet
- Sent to current arrangers (if any) and other close r/s banks that have the capacity to
arrange syndicated debt
- Have short meetings, based on pricing and conditions only
- Have at least two arrangers for all but the smallest of deals
o Each serves as a check with each other
o Discard banks you cannot work with
o Look for one/two banks with proven track record of successful recent syndications

How to execute and the documentation

- Agree with arrangers on a timetable and set out a signing date
- Borrower to stand up to the arrangers on the invitation list
o List on who to invite
o So as to avoid being swamped out by too many banks
o Initial marketing to come from the borrower, not the arranger  allows the former
to retain control of the process
o However, borrower to stay clear of the titles to be awarded like Lead Arranger,
etc
- Contents of information pack – Potential tension here
o Arrangers want to give comprehensive financial information
o Borrower does not want to give that much
o If deal is renewal involving relationship banks, confirmation that current market
expectations are realistic might be sufficient
- Leave the arrangers to set out who does roles such as bookmaker, agent, etc
- Arrangers to contact invited banks to get them to join the deal
- If deal is oversubscribed, might need to scale back
o Only way is via pro-rata reduction with sensible roundings
o If not, hard to explain

VIII. Type of Loans

Bilateral loan: Single source lends to a company

- Involves the lender and a borrower

Advantages: Transaction private for both parties, allow for borrower to negotiate terms
41
(3) Lending
- Documents simpler and fees lower

Disadvantages: High value may be disadvantageous to a borrower

- More risk it carries for individual bank  will charge more

Syndicated loan: Several banks act together and provides a proportion of the loan on a several
basis

Advantages:
- Amount: Can allow borrower to access a larger amount of money
- Cost: Lower rates of interest as smaller risk to each individual lender
- Regulatory: Enables a bank to be involved in a wider range of deals than it might
otherwise be able to because of regulatory requirements
- Currencies: More effective to borrow in different currencies

Disadvantages:
- More complex documentation, involves inter-bank arrangements
- Fees for arranger, agent, underwriter and lawyers can be substantial
- Market precedent to be followed to secure the syndicate’s agreement to lend
- Borrower confidentiality harder to maintain as info goes to a number of banks

A. Facilities

See section above

B. Forward Start Facility

New loan may refinance (repay) an existing loan on maturity

- Borrowers may look to a forward start facility (FSF) to refinance an existing syndicated
loan

Key features include:

- New syndicated loan agreement that sits alongside existing syndicated loan agreement.
- The new facility is committed from the date of signing, but is not available for drawing
until the existing syndicated loan maturity date (which ensures the lenders under both
facilities do not have a double exposure), and is to be used for the purpose of refinancing
the existing syndicated loan.
- It is signed long before the existing syndicated loan maturity date, between several
months to over a year before that date.
- Its lenders include some of the existing syndicated loan lenders (but not all, as in that
case the existing syndicated loan could simply be amended to extend its maturity date,
and a FSF would not be required).
- Its terms are based on the existing syndicated loan terms, subject to certain exceptions
such as availability period, purpose, conditions precedent, pricing and maturity date.
o Typically, the parties will also incorporate updating amendments, for example to
reflect any change of law or market practice.

Main advantages:
- Borrower’s future borrowing arrangements are certain and for a fixed price
- Lenders who participate in the FSF and existing syndicated loan generally receive a
higher return than if borrower refinanced the existing syndicated loan close to maturity
date

42
(3) Lending
FSF lenders typically receive:
- Up-front fees for entering into FSF; and
- Fees for the period from the FSF signing date to the start of its availability period

When structuring a FSF, parties to consider issues like:

- FSF covenant package  may be more restrictive than existing syndicated loan covenant
package
o Need to consider if breach of FSF covenants = breach of existing syndicated loan
- Cancellations/prepayments of the existing syndicated loan
o Should generally result in a proportionate reduction of FSF
- Amendments in favour of the lenders under the existing syndicated loan
o FSF may require the right to make corresponding amendments to the FSF
- Transfer provisions: Consider whether FSF and existing syndicated loan can be
separately traded or whether commitments under the two facilities can only be traded
together
- Security: On execution of FSF, to release and retake the security for a secured
syndication loan

C. Bills of Exchange and Acceptance Credits

Bill: Order by the drawer to the drawee

- Latter pays a stated sum of money to specified payee or to his order or to bearer of bill
- Drawer draws bill under bill facility and delivering it to the lender (drawee)
- Lender pays the borrower an amount less than the face value of the bill
- May accept” the bill  the lender, by signing it, guarantees to pay the bill if it is delivered
to it on maturity
- On maturity, the borrower who asked the lender to accept the bill must reimburse the
lender  in the interim, the borrower is borrowing from the lender

Bills of exchange: Negotiable instruments

- Under certain conditions, person whom bill is transferred to can require payment
according to its terms, regardless in defects in the entitlement to the bill of previous
holders
- Bill creates rights and obligations independent of the underlying transaction that brought
it into existence

43
(4) International Debt Capital Markets
IX. Module 3 – International Debt Capital Markets and Eurobonds

A bond is an instrument constituting or evidencing a debt  like a loan

- Issuer promises to repay principal amount it borrowed from bondholder at a certain
specified time in the future
- Return in the form of interest on specified interest payment dates

Eurobond: Bonds in currency other than the country/countries in which they are sold
- Could be Eurobond in USD, sold by Indonesian palm oil company to pension funds in HK
- In contrast, domestic bond are bonds issued to domestic investors in domestic currency

3 things when you are in breach of a representation in a bond

- Bond can be terminated
- Claim for damages for misrepresentation
- Maybe infringe security liabilities?
- Right to repayment immediately

(1) Debt securities v loans

Syndicated loans: Only certain banks authorised to lend money

In debt security: Issuer can access much wider group of potential lenders
- Banks do not have to loan their own money
- Instead, “manager” banks initially buy or agree to buy the bonds, but sell them on to
other investors for a commission

Advantages of debt securities:

- Can be traded on international capital markets
- Less restrictive covenants than in syndicated loan
- More flexible interest rate, whereas syndicated loan has only floating rate of interest
- Usually unsecured
- Information disclosed by company are usually information that is publicly available

Advantages of syndicated loan:

- Flexibility in the amount borrowed, can draw funds as and when requested
- Borrower has flexibility in the amount to be repaid, can repay and redraw money
- Multi-currency, whereas debt securities is in one currency
- Private transactions between the syndicate and the borrower
- Terms can be renegotiated
- Available to companies with poor credit ratings, issuer of debt securities usually tend to
be established companies with a good credit rating

(2) Types of Interest

Fixed rate bonds: Interest rates on bonds fixed at issue and through life of the bonds

Floating rate notes: Usually called notes rather than bonds

- Interest rate on the notes varied
- Rate usually set above a benchmark rate, like LIBOR or EURIBOR

Variable rate notes: Interest rate varies depends on certain triggers during the life of the notes

Zero coupon bonds: No interest but issued at discount

- Bondholder receives full price back when bonds mature
44
(4) International Debt Capital Markets

Partly-paid bonds: Price of bonds paid in instalments, interest accrues only on the amount paid
- Issued at full principal amount, but purchase price is partly paid

(3) Forms of Bonds

Bearer bonds: Negotiable bonds whose title passes on delivery

- Coupons attached to the bonds, to be presented to the issuer for payment on each
interest date

Registered bonds: Title passes by registration of the bondholder’s name in a register

A. Investors and Capital Markets

Investors have excess funds

- Look towards risky assets like buying shares
- Aim for enhanced benefits or future returns

Capital Markets: Bring these investors with businesses or governments which need funds
- Equity and bonds are the two broad classes in capital markets
o Equity: Shares, investors become part owners of the company
o Bond: Give regular returns in form of interest payments

Aim: Promote economic efficiency

- Investor can expect greater returns than interest on fixed deposit accounts
- Business get the funds they need to execute their business plans

Benefits:
Issuer
- Larger pool of investors
- Larger supply of funds
- Reduced cost of funds
Investors
- Broader array of investment products
- Better diversification benefits
- Possibility of building personal desired
risk-reward profile

B. Summary of a Eurobond transaction

Main parties:
- Issuer of the bond
45
(4) International Debt Capital Markets
- Bondholders

Third parties:
- Managers: Roles include structuring the bond, determining the covenants, coupons the
issuer will expect to attract investors, where to market and actual marketing process
o In some situations, may underwrite the bond
o Enter into underwriting agreement with issuer where they will purchase the bonds
if the purchasers do not pay
- Paying Agent: Agents of issuer that help pay bondholders the interest agent
o Issuer pays paying agent, who passes it through clearing system
o Clearing system pays the bondholders on regular dates
- Trustee: Representative of the bondholder
o Act in best interests of the bondholders
o May be appointed in cases where there are large numbers of bondholders

(1) Global Bonds and Clearing Systems

If Cliff wants to invest in bonds, he might do so through a unit trust

- Unit trust purchases the bonds on behalf
- How does the unit trust hold these bonds?

 Through global bonds and clearing systems

Global bonds represent the entire aggregate principal amount of the bonds being issued
- On closing, global bond will be delivered to a bank, known as a common depository
on behalf of the clearing systems
o Common depository: Legal owner of the aggregate principle amount of the bond
o Clearing systems: Electronic systems which allow bondholders to hold their bonds
and settle transactions of “book entry interests” in bonds electronically
 Used to pay investors like Cliff, despite him not being the legal owner

Clearing systems will credit the securities accounts of each accountholder with an interest in
the global bond equal to the amount of their respective investments
- Note: May have a whole chain of interests or custodial relationships below the
accountholder ending in the person with the ultimate underlying economic interest in the
bond [eg. Cliff]

- Chain of interest

46
(4) International Debt Capital Markets
Other key supporting players:
Auditors (Statutory auditors of the issuer) Lawyers
Provide financial statements
Provide comfort letters as to the:
- financial position of issuer
- accuracy of financial information in
prospectus
- Prepare prospectus
- Draft, negotiate and settle main
contractual documentation
- Deliver legal opinions
- Review other conditions precedent
documentation
- Provide legal advice

(2) Events of Default

Events of default clauses in Eurobond terms and conditions

- Stipulates what events allow the trustee to declare that the issuer is in default; or
- Allows bondholders to know when the issuer has defaulted
- Effect of breach: Triggers the acceleration clause
o Lenders can require the issuer to repay all of the monies outstanding under the
bond

Typical events of default clauses include:

- In the event of default in the payment of principal or premium, if any, when due
- Failure to pay interest when due
- Default in the obligation to redeem the notes after bondholders have exercised their
option to redeem
- Failure by any borrower to furnish financial information when due or when requested, or
permit the inspection of its books or records
- Generally, failure to pay interest or principal or time, or default on negative or affirmative
covenants

Cross-default clauses (looks like more applicable for EMTN programmes)

- If issuer defaults on bond A, bondholders in Bond B can treat it as a default of Bond B

C. Structures and Key Features of the Bond

Structure and key features of the transaction to set out from the outset:
- Bond features and terms and conditions
o Fixed or floating rate notes
o High yield bonds
o Convertible or exchangeable bonds
o Hybrid capital eg. perpetual securities
- Offering jurisdictions
o Where bonds are being marketed so as to include appropriate selling restrictions
- Listing
o Different stock exchange have different requirements for disclosure etc.
- Scope of Due diligence
o Largely based on where bonds are being marketed
- Ratings of the Issuer of the Bond (Creditworthiness of issuer and risk of default)

D. Euro Medium-term Note Programme (EMTN Programme)

Way of issuing bonds quickly and easily

- Set of master documents, standard T&C
- Can be used for any number of bond issues in the future
47
(4) International Debt Capital Markets
- Multiple bonds can be issued for one set of master documents, as compared to a stand-
alone bond, where documents are required for each bond

“Medium term”: Misleading, can be of any length for maturity

Advantages of an EMTN:
- Save cost and time once programme documents are in place
o Negotiation of principal terms already done
o Can go to market in a week, even a day
- Flexible, issuer can issue almost any kind of note at short notice
- Less number of documents needed as compared to a stand-alone bond issue
- Note: Need to drawdown multiple times and billions of dollars to make it worth
o Ford was issuing billions every month of notes under the EMTN

Disadvantages:
- Cost-effective only if the issuer does several bond issues over the following year or so
- Unusual or complex terms: If terms are not contemplated, changes to each issue may
make it more preferable for a stand-alone issue
- Need to keep disclosure documents updated every year
o Might be waste of money if you don’t issue any notes for that year

(1) Parties to an EMTN Programme (some are above)

The borrower. Usually a large company, bank, sovereign or state.

Issuer
- It borrows money by issuing notes.
An investment bank appointed by the issuer.
Arranger - It will have a similar position to the lead manager in a bond issue
in that it coordinates the setting up of the programme.
Investment banks that could be lead managers or managers of future
drawdowns.
- As managers, they would subscribe notes that are issued and sell
Dealers
the notes to investors.
- A drawdown may have one dealer (a single dealer drawdown) or
several dealers (a syndicated drawdown).
The noteholders are the investors who lend money to the issuer by
buying the notes.
Noteholders - Usually institutional investors/professional investors such as
pension funds, banks, insurance companies and are rarely retail
investors.
An investment bank and agent of the issuer that makes payments of
interest and principal to the noteholders.
Fiscal agent
- Has other administrative functions in relation to issue of the
notes.
A professional trust company that acts on behalf of the noteholders as
Trustee
an intermediary between the noteholders and the issuer.
Banks and agents of the issuer that make payments of interest and
Paying agents
principal to the noteholders.
Common service For notes issued in the new global note (NGN) form, one of the paying
provider (CSP) agents or fiscal agent will be appointed as a common service provider.

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(4) International Debt Capital Markets
For notes issued in the classic global note (CGN) form, the common
depositary is a bank with depositary facilities (often the same entity as
the fiscal agent).
Common depositary - It holds the global notes as custodian for the clearing system and
or common receives payments made by the issuer to the noteholders.
safekeeper (CSK)
For notes issued under the new global note (NGN) structure, the CSK is
one of the ICSDs (see below) or the CSP.
- The common depositary or CSK holds the legal title to the notes.
Large financial institutions that enable trading of securities by debiting
and crediting accounts on behalf of issuers and noteholders, into which
securities or cash can be transferred electronically without the need for
Clearing system or physical delivery.
ICSD - No actual transfer of notes: the global notes stay with the
common depositary or CSK.
- The two largest clearing systems (also called ICSDs) in Europe are
Euroclear and Clearstream.
An accountancy firm.
- Auditors give comfort letters to the managers as to the accuracy
Auditors
of the issuer’s financial information contained in the base
prospectus.
Law firms appointed by the issuer, arranger, dealers and trustee to
Lawyers advise on the legal aspects of the EMTN programme, to draft the
documents and provide legal opinions, where necessary.

Additional Parties:
Guarantor Usually the parent or other member of the issuer's group that guarantees
(if the notes are the payment obligations of the issuer.
guaranteed) - It will need to sign all the agreements that the issuer signs.
Listing agent An investment bank, law firm or accountancy firm.
(if the notes are - If required by the local listing authority, it advises the issuer on
listed) the procedure for listing and submits the documents for listing to
the relevant stock exchange.
Registrar An investment bank or trust company that maintains a register of the
(for registered names and addresses of registered note owners and any change in
notes only) ownership when notes are sold.
- Usually the same entity as the fiscal agent (in a fiscal agency
structure) or the principal paying agent (in a trustee structure),
and will often also act as transfer agent.
Transfer agent An investment bank that maintains a record of the names and addresses
(for registered of registered note owners and any change in ownership when notes are
notes only) sold.
- Has other administrative functions, such as providing replacement
notes if certificates are lost or stolen.
- Usually the same entity as the registrar.
Rating agent An agency, such as Fitch, Moody's or Standard & Poor's, that assesses
(if the issue is the financial position and creditworthiness of an issuer and assigns a
rated) grade to the programme or a note issue.
- Indicates the agency's views of the likelihood of the issuer
defaulting on repayment and is therefore an indicator of the risk
of investing in its notes.

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(4) International Debt Capital Markets
Process agent An agent appointed by the issuer to receive any legal documents on
(if the issuer is a behalf of the issuer that are served on it in legal proceedings.
non-UK issuer)
Calculation agent An investment bank that calculates the value of a derivative or the
amount owing from each party in a swap agreement.
- Usually the same entity as the fiscal agent (in a fiscal agency
structure) or the principal paying agent (in a trustee structure).

(2) Life Cycle

Life of an EMTN programme:

(a) Establishment – Creation of programme documents;
(b) Drawdowns – Notes are issued under the programme;
(c) Updates and Amendments – Programme updated to reflect changes in:
a. Issuer or other parties;
b. The law; or
c. The terms and conditions

Drawdown
Once EMTN established, issuer can issue notes whenever it needs capital  viz, drawdowns
- Drawdown  supplementary documents to master documents are produced
o Indicating which provisions in the master documents are applicable for that
particular issue; sets out terms of new issue

Can be either:
- Syndicated: Syndicate of the dealer banks agree to subscribe the notes, documented in
subscription agreement
- Single-dealer drawdown: Only one dealer subscribes or sells the notes
o Dealer signs dealer confirmation, usually in schedule to the programme agreement
o Dealer may need to sign a dealer accession letter if not the original dealer

Reasons a drawdown may not be possible:

- Programme limit reached, issuer needs to increase programme limit before issuing notes
- Terns not covered by the programme
- Conditions precedent set out in programme and subscription agreement not satisfied

International Capital Market Association (ICMA) recommended steps for syndicated drawdown
- The lead manager must:
o send the managers a copy of the master programme documents and the most
recent base prospectus, if requested;
o procure that the issuer sends each manager any supplement or updates to the
base prospectus;
o send the managers the final drafts of the drawdown documents, including forms
of the final terms supplement and subscription agreement, at least two days
before the signing (a recommendation for any bond issue);
- The final terms supplement should state whether the issue is syndicated and give the
names of the managers.
- Legal opinions and comfort letters should be prepared for each drawdown.

Lead manager then informs the other parties of the issue

Drawdown documents that need to be prepared:

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(4) International Debt Capital Markets
A document sent by the lead
· Terms of the notes.
manager to the managers on
Invitation telex · Selling restrictions.
launch inviting the managers to
· Fees of the managers.
join the syndicate.
A short document of terms sent
A summary of the principal terms of the
Term sheet by the lead manager to the
proposed issue.
managers.
a. Issuer agrees to issue the notes.
b. Issuer gives representations and
warranties to the managers.
c. Issuer agrees to indemnify the
managers against loss they suffer due
An agreement governing the
to breach of the representations and
relationship between the issuer
warranties.
and managers on a syndicated
d. Managers agree to underwrite the
issue.
Subscription issue and subscribe the notes on a
agreement joint and several basis.
Parties: issuer (guarantor) and
e. Lead manager given authority to carry
managers.
out stabilisation activity and apply for
listing of the notes.
Dated: signing date.
f. Selling restrictions.
g. Expenses.
h. Payment and delivery provisions.
i. Conditions precedent.

Final terms A document specifying the terms · Commercial terms of the issue.
supplement of a particular issue. · Identifies terms in master documents.
A single document representing
the entire note issue held by a
depositary bank on behalf of the
Global Note · Schedules recording interest payments.
clearing systems. It is
authenticated on the closing date.

Letters to the managers written

by issuer’s lawyers and lawyers in
the jurisdiction of the governing
· Confirmation that the issue conforms to
Legal opinions law of the notes.
relevant laws.
Dated: closing date.

Two letters given by the issuer’s · Confirmation that the financial

auditors to the dealers. information of the issuer in the note issue
Comfort letter
documents is accurate and not misleading.
Dated: signing and closing date.
· Authorises the issuer to issue the notes.
Minutes of the board meeting of · Approves drafts of the documents of the
Board minutes the issuer held to pass resolutions issue.
in connection with the note issue. · Authorises any powers of attorney.

Powers of · Authorises individuals to act on behalf of

A deed of the issuer.
attorney the issuer.

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(4) International Debt Capital Markets

· Documents to be produced.
Signing and · Procedure to issue the notes.
A timetable of the issue and
closing · What needs to be done.
checklist of who does what.
memorandum · Who needs to do it.
· Closing letters.

E. Documentation Required on a Eurobond Issuance

Key Documentation
- Prospectus or offering circular
- Subscription agreement
- Agency agreement
- Deed of covenant
- Trust deed
- Forms of global bonds and definitive bonds
- Terms and conditions of bonds
- Note: Generally standard, but terms for them differ from transaction to transaction

(1) Prospectus/Offering Circular

Main offering document which discloses information about bonds and the issuer
- Generally a legal and disclosure document, not a marketing document
- Designed to prevent investors from claiming they were not given material information

Usual sections include:

- Description of bonds including their terms and conditions
- Description of issuer's business and operations
- Financial information about the issuer
- Risk factors relating to bonds and issuer’s business
- Selling restrictions and tax provisions relevant to payments on the bonds

Ensure that accuracy, sufficiency and appropriateness of information disclosure is crucial

- Might need greater disclosure if:
o Issuer of bond is high-risk / new / unlisted
o Bond contains features resembling subordinated features of equity
o Bonds are marketed under a Rule 144A offering in the US (to QIBS – Qualified
Institutional Buyers)

Rule 144A
Generally, sellers of securities need to be registered with the SEC
- Rule 144A provides an exemption for non-US sellers of securities
- Issuer cannot use Rule 144A to sell its securities directly to US investors
o Instead, it allows a financial intermediary to buy unregistered securities from the
issuer and resell them to an unlimited number of US institutional investors

Criteria for a seller for a Rule 144A offer or sale of securities are:
- Securities must only be sold to qualified institutional buyers (QIBs), but they may be
offered to non-QIBs
o QIBs: Institutions that own or invest on a discretionary basis at least $100m of
securities, considered the most sophisticated investors
 Include banks, insurance companies and large investment businesses

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(4) International Debt Capital Markets
o Rule 144A securities can be offered to persons other than QIBs, eg via general
solicitation or advertising
 As long as all purchasers of the securities are reasonably believed to be
QIBs

- It must be a private, not a public sale  no public offering

- Notice must be given to purchasers.

o Sellers and any person acting on their behalf to take reasonable steps to ensure
that purchasers are aware that seller is relying on Rule 144A
 Eg. through indicating n confirmation of sale and offering document
 Also include on cover page of ‘selling restrictions’ section in offering circular
o Common restrictive legends include:
 Are restricted securities and are subject to resale restrictions.
 Have not been registered under the Securities Act.
 May not be offered or sold in the US without registration or an applicable
exemption from registration.

- Securities must not be fungible with listed securities.

o Debt securities are considered fungible with each other if there is substantial
similarity in terms relating to interest rate, maturity, subordination, security,
convertibility, call, redemption and any other material terms.

- The issuer must provide certain information

o Brief description of its business, products or services
o Issuer’s most recent balance sheet, profit and loss and retained earnings
statements
o Financial statements for the two preceding fiscal years that the issuer has been in
operation
o Must be provided for the initial sale and any subsequent resale of the securities
pursuant to Rule 144A
o Issuers must also provide information for future resales by:
 Reporting information to SEC
 Publishing on their websites documents made public by them in their home
country, filed with their principal securities exchange or distributed to
securities holders, as required by the Exchange Act.
 Agreeing to provide such information, on request, to holders and
prospective buyers of the securities [preferred option by non-US issuers]

(2) Subscription Agreement

Governs relationship between issuer and managers:

- Issuer agrees to issue bonds
- Manager agrees to procure subscribers for bonds
- Sets out payment and settlement procedures to be followed on the closing date

Usual provisions:
Reps & Warranties Given by issuer to managers
- Eg. as to its authority to enter into agreements and
transactions, its business, accuracy of info in prospectus
Indemnities Given by issuer to managers against any loss due to breach of reps,
warranties or undertakings

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(4) International Debt Capital Markets
Conditions Must be satisfied before closing, and usually cover corporate
Precedent authorizations, legal opinions, comfort letters, no MAC in financial
position
- Query if other specific CPs required in that transaction  eg.
if there are operational figures considered important, get
officer’s certificate certifying accuracy of such numbers
- If acting for issuer, ensure all procurable prior to closing and
that list is exhaustive and no catch-all clause
- No material adverse change from signing to closing
Termination Rights For manager to terminate transaction in certain events, eg major
disruption in markets, or failure to fulfil conditions precedent
Selling Restrictions Summary of key regulations pertaining to offering and sale of bonds,
and distribution of offering material in target jurisdictions

In syndicated drawdown, almost the same except that:

- Incorporates terms by reference to programme agreement
- Has provision to appoint dealers who are not dealers under the programme
- Signed by the issuer, lead manager and managers on the signing date

(3) Agreement Among Managers (Optional)

Agreement between managers governing their liability and obligations to each other
- ICMA has two industry-standard versions of the agreement among managers
o Version 1: Fixed price non-equity related issues used for bond issues
 Managers to subscribe the bonds on joint and several basis

(4) Fiscal Agency Agreement (Fiscal Agent Structure)

Governs relationship between issuer and paying agent (fiscal agent)

- Mechanics for payment of principal and interest under bonds to bondholders
- Also other administrative duties like:
o Keeping records of payments on the bonds
o Issuing replacements for lost or destroyed bonds
o Calling and holding bondholders’ meetings
o Sending notices to bondholders

Issuer will usually indemnify the fiscal agent against loss incurred by the fiscal agent
- For actions/omissions of the issuer

(5) Deed of Covenant (Fiscal Agent Structure)

Deed under which bondholders are given direct rights of enforcement against the issuer
- As the bondholders are not directly in contact with the issuer
- Eg. If issuer default on payment or fail to deliver definitive bonds to the bondholders if
the clearing system closes
- Bondholders do not have such contractual rights as they are not in a party to the contract
with the issuer

Only required if no trustee appointed

- Deed to be signed by the issuer (and guarantor, if any) and dated before the closing
date

(6) Trust Deed (Trustee Structure)

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(4) International Debt Capital Markets

Deed under which the bonds are constituted and a trust created
- Includes covenants by issuer to trustee to perform its duties under terms and conditions
of bonds
o To pay amounts due by issuer under the bonds
o To notify trustee of any event of default or potential event of default

Trustee agrees to hold certain trust property on trust for bondholders

- Including the benefit of the covenants made by issuer and any monies received in respect
of the bonds

Sets out trustee’s powers of discretion in relation to the bonds, e.g.

- to declare an event of default
- to invest trust monies
- to delegate its functions
- to agree to minor modifications to, and waivers of, the terms and conditions of the bonds

(7) Paying Agency Agreement (Trustee Structure)

Agency agreement where trustee appointed instead of a fiscal agent

- Includes payment mechanics, paying agent’s obligations
- Indemnifies the paying agent against losses incurred by them due to acts/omissions by
the issuer or third parties

Signed by the issuer (and guarantor), trustee and paying agents

- Dated before the closing date

(8) Forms of Bonds

May be global or definitive bonds

- Forms of these will be set out as schedules to agency agreements or trust deed
- Global bonds: Provision that they can be exchange for definitive bonds under very limited
circumstances
o Eg. If clearing system under which bonds are held closes

T&Cs are generally drafted as if issue was in a definitive form

- Global bonds schedule modifies some T&Cs to apply to bonds held in global form

(9) T&C of the Bonds

Schedule to the global bonds and contain:

- Form and title of the bonds
- Currency and denomination of the bonds
- Status of the bonds (senior or subordinated)
- Interest calculation and payment provisions
- Redemption provisions
o Including redemption prior to redemption date
- Events of default
o Allow acceleration of the bond and immediate redemption by making full payment
of the principal amount to the bondholders
- Tax gross-up provisions
o Withholding tax  issuer can gross-up on such payments
- Covenants
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(4) International Debt Capital Markets
o Negative pledge most common/limitation on liens  issuer shall not allow any
security to subsist on its assets
- Provisions for waiver and modification of the terms and conditions of the bonds
- Governing law

(10) Conditions Precedent Documentation

Comfort letters:
- give assurance as to financial position of issuer
- give assurance as to accuracy of information in prospectus
- serve as a due diligence defence

Usually 2 comfort letters:

1. Issued on date of prospectus – verifies information in prospectus before managers
execute subscription agreement
2. Bring down comfort letter – brings down statements in 1 st comfort letter; confirms they
are still true as of closing date

Legal Opinions confirm certain legal matters:

- that issuer’s obligations are valid and enforceable under governing law
- capacity of issuer to issue the bond and execute the transaction agreements

Legal opinions give protection to managers

- If T&Cs contravene any laws and investors suffer loss, managers may have defence that
they took reasonable care by taking legal advice that issuance complied with relevant
laws

Corporate authorizations – issuer must:

- convene board meeting
- pass resolutions that authorize issue and grant powers to directors to sign documents
- pass resolutions approving drafts of principal documents of issue

(11) Legal Opinions

ICMA recommends the provision of relevant and appropriate opinions to the effect that the
notes and the contracts of the issue are valid and binding.
- The provision of legal opinions is also usually a condition precedent to the issue of notes

Opinions usually given by:

- Issuer's (and guarantor's) lawyers in the relevant country of incorporation.
- Lawyers in the country of the law governing the notes.
- Specialist lawyers in the issuer's jurisdiction who may be instructed by the managers.
o This type of opinion is only given rarely if, for example, there are matters that are
important to noteholders but which the issuer's lawyers do not or cannot opine on,
for example, in relation to local tax laws.

Foreign lawyers will generally be asked to opine that:

- The issuer (or guarantor) is duly incorporated under the laws of its jurisdiction and has
the power and authority to conduct its business.
- The issuer (or guarantor) has the authority to enter into and perform its obligations
under the bonds.
- There are no registration or filing requirements or other consents required for it to issue
the bonds.
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(4) International Debt Capital Markets
- Issuing the bonds does not contravene any laws in the issuer's country of incorporation.
- The courts of the relevant country will recognise and give effect to the law governing law
of bonds.
- Any information contained in the prospectus relating to the laws of the relevant country
are correct and not misleading.
- No withholding tax will be imposed and no other taxes or stamp duty are payable.

F. Signing and Closing

Signing and closing applies for stand-alone bond and EMTN bond issues
- Signing and closing memorandum sets out everything to be done before and at signing
and closing

(1) Pre-Signing

The following steps should be completed before the signing meeting:

- Signing and closing memorandum should be prepared and distributed to all parties.
- Finalise the following documents to be signed on the signing date:
o supplemental prospectus
o final terms supplement
o subscription agreement
- The forms of the legal opinions from the relevant lawyers should be agreed.
- The first comfort letter should be signed by the auditors and the form of the second
comfort letter, to be signed on closing, should be agreed.
- Board minutes of the issuer (and of the guarantor, if the issue is guaranteed) should
have been prepared following the board meeting where the resolutions authorising the
issue were passed.
- Powers of attorney of the issuer, lead manager or managers to be prepared and signed.
- The process agent's confirmation should be prepared by the process agent.
- Forms of other letters required at the closing should be produced by the relevant party.
- Any requirements of the relevant stock exchange or listing authority should have been
complied with and any documents or other information requested should be provided

(2) Signing

The documents will be signed, usually two days to a week before closing and via email
- If issue guaranteed, guarantor must sign the documents

The documents at signing are:

- Final terms supplement, dated the signing date.
- Subscription agreement or dealer confirmation
o The subscription agreement is signed by the issuer and the managers.
o Conditional contract between the issuer and the managers, under which the issuer
agrees to issue, and the managers jointly and severally agree to underwrite the
issue, providing certain conditions precedent are satisfied. The conditions
precedent are usually that:
 the warranties made by the issuer at signing are still true at closing;
 the global note is authenticated and delivered;
 legal opinions are delivered;
 comfort letters are delivered (one on the signing date and the second on
the closing date);
 a certificate of no material adverse change by the issuer (and guarantor) is
delivered;
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(4) International Debt Capital Markets
 if the notes are listed, that the listing has been approved by the stock
exchange or listing authority.
- Process agent confirmation.
o Signed by the issuer and process agent and a copy given to the process agent,
together with any of the documents referred to in the confirmation.
- Escrow documents.
o Any documents that are dated the closing date may be signed and held in escrow
until the closing date.

(3) Closing

Relevant documents that were not signed at signing are signed

- Notes transferred from issuer to noteholders
- Payment for notes transferred to the issuer

The documents that need to be dealt with at closing are as follows:

- Supplemental agreements.
o Any agreements supplemental to the programme documents, for example, a
supplemental programme agreement, supplemental agency agreement or
supplemental trust deed are signed.
- Global note.
o The global note may need to be authenticated (signed) by the fiscal agent or
principal paying agent as a security measure.
o Note is not valid until the relevant agent signs it.
- Legal opinions are delivered.
- The second auditor's comfort letter is delivered.
- Issuer's certificate of no material adverse change of the issuer (and guarantor) is
delivered.

G. Green Bonds

Any type of bond instrument where proceeds exclusively applied to finance or re-finance new
and/or existing eligible Green Projects

Four core components:

1. Use of Proceeds;
2. Process for Project Evaluation and Selection;
3. Management of Proceeds; and
4. Reporting

(1) Use of Proceeds

Eligible Green Project categories include:

Renewable energy production, transmission, appliances and products
Energy efficiency new and refurbished buildings, energy storage, district heating, smart
grids, appliances and products
Pollution reduction of air emissions, greenhouse gas control, soil remediation,
prevention and waste prevention, waste reduction, waste recycling and
control energy/emission efficient waste to energy
Environmentally environmentally sustainable agriculture; environmentally sustainable
sustainable animal husbandry; climate smart farm inputs such as biological crop
management of protection or drip-irrigation; environmentally sustainable fishery and
living natural aquaculture; environmentally-sustainable forestry, including
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(4) International Debt Capital Markets
resources and afforestation or reforestation, and preservation or restoration of natural
land use landscapes
terrestrial and protection of coastal, marine and watershed environments
aquatic
biodiversity
conservation
clean electric, hybrid, public, rail, non-motorised, multi-modal transportation,
transportation infrastructure for clean energy vehicles and reduction of harmful
emissions
sustainable water sustainable infrastructure for clean and/or drinking water, wastewater
and wastewater treatment, sustainable urban drainage systems and river training and
management other forms of flooding mitigation
climate change information support systems, such as climate observation and early
adaptation warning systems
eco-efficient development and introduction of environmentally sustainable products,
and/or circular with an eco-label or environmental certification, resource-efficient
economy adapted packaging and distribution
products,
production
technologies and
processes
green buildings meet regional, national or internationally recognised standards or
certifications

(2) Project Evaluation and Selection

The issuer of a Green Bond should clearly communicate to investors:

- the environmental sustainability objectives;
- the process by which the issuer determines how the projects fit within the eligible Green
Projects categories identified above;
- the related eligibility criteria, including, if applicable, exclusion criteria or any other
process applied to identify and manage potentially material environmental and social
risks associated with the projects.

(3) Management of Proceeds

Net proceeds to be credited into a sub-account or tracked by the issuer in an appropriate

manner
- Attested to by issuer in formal internal process for the issuer’s lending and investment
operations for Green Projects

As long as Green Bond outstanding, balance of the tracked net proceeds to be periodically
adjusted to match allocations to eligible Green Projects made during that period
- Issuer to make known to investors the intended type of temporary placement for the
balance of the unallocated net proceeds

(4) Reporting

Issuers to keep readily available up to date information on the use of proceeds to be renew
annually until full allocation and on a timely basis in case of material developments

Annual report: Include list of projects Green Bond proceeds have been allocated
- Brief description of the projects and amounts allocated
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(4) International Debt Capital Markets
- Expected impact

(5) External Reviews

Also recommended that issuers appoint external reviewers to confirm alignment of the bond
with the four core components of the GBP defined above

Independent external reviews may cover:

1. Second party opinion: Institution with environmental expertise issues this opinion
o Independent from issuer’s adviser for the Green Bond framework
o Assesses issuer’s overarching objectives, strategy, policy and/or processes
relating to environmental sustainability
o Evaluate environmental features of the type of projects intended for the Use of
Proceeds

2. Verification: Obtain independent verification against designated criteria

o Evaluate the environmentally sustainable features of underlying assets

3. Certification: Certified against external green standard or label

4. Green Bond Scoring/Rating: Have its Green Bond assessed by independent third parties
o Third parties to be qualified and use an established scoring/rating methodology

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(5) Cross-Border Disputes
X. Module 5 – Cross-Border Dispute Resolution

Poorly drafted dispute resolution clauses lead to:

- parallel proceedings in different jurisdictions regarding meaning and scope of the agreement
- challenges to the court, tribunal or mediator’s substantive jurisdiction
- the chances of successfully enforcing the judgment, award or negotiated settlement being
affected
- binding the parties to an unnecessarily expensive or lengthy procedure
- increased cost and delay for the parties

Some issues to consider:

- Which party likely to be the Pt?
o Have more time to prepare the case as compared to the Df
- Types of disputes likely to arise
o About non-payment, performance or something more complex?
- Who holds the money/assets and in what jurisdiction?
- Any key IP involved, and who owns it
- How difficult to locate/serve the opposing party after transaction has closed
- Difficulty in getting jurisdiction in the preferred forum
- Will discovery be necessary to prove claims that are likely to arise?
- Is there a likelihood that a dispute may involve more than 2 parties?
- Quality, fairness or other concerns in the local courts in the country where the
counterparty is located?
- Likely/desirable for the parties’ relationship to continue after resolution of the dispute?
- Which party more concerned about the publicity associated with any disputes?
- Difficulty in having a foreign country judgment enforced in the countries where
enforcement most likely to occur?

A. Modes of Dispute Resolution

(1) Litigation

Taxpayers fund the judges + venue of hearings

Issue: Choice of forum

- International commercial litigation more successful if there are experienced judges who
have knowledge of the industries referred to them
- If no such roster, parties may end up with judge with no legal/commercial experience in
the subject matter referred to them
o Affects the efficiency and neutrality of such decisions

Lack of finality another issue due to right to appeal

- Affects time and expense due to appellate court process

Enforcement of appellate decision may also be tricky compared to arbitration award

- May be easier to submit to jurisdiction of common law court rather than civil law
o Discovery obligations available for former
o Easier to enforce within common law jurisdictions
o Disclosure obligations in civil law jurisdictions less extensive

Advantage: Avoids inconsistent award in multi-party awards compared to arbitration

- Arbitration: Uncertain institutional rules on whether tribunal has power to join third party
to arbitration  NO LONGER AN ISSUE, rules have been amended
- Single forum litigation avoids these concerns
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(5) Cross-Border Disputes

(2) Arbitration

Arbitrator is basically a judge chosen by the parties to an award

- Binding on parties and ultimately enforceable through the courts

Advantages to Arbitration
- Easy to enforce, relative to litigation: New York Convention
- More flexibility in procedure, tailor it if parties are from civil/common law countries
- Parties can choose a neutral forum
o Particularly as parties might be a state or state entity, and no desire to submit to
the jurisdiction of the courts of a state
- Parties can choose the adjudicator
- Confidential: Helps preserve trade secrets and rebuild commercial relationship between
parties

Length of Arbitration: Depends on co-operation of parties

- Party can delay if for tactical reasons

Third Parties: Court procedural rules provide for these and involvement of third parties
- Arbitration institutional rules may provide for involvement of third parties, but require
their consent
o However, leading institutions and rules like SIAC have institutional rules dealing
with joinder of third parties and multi-party arbitrations
o Aim to catch up with court procedural rules

Third Party Funding: Trending controversial issue

- Funding of claimant who otherwise who cannot fund the arbitration
o Funders are not party to the arbitration agreement
o Compliance of claim and adverse costs order become issues if funded party fails
in arbitration
- However, still ratified by UK, US, Au, SG, HK and Paris

(3) Negotiation

Advantages:
- Takes into account parties’ ongoing business interests rather than strict legal obligations
- More time and cost efficient
- Confidential and always available despite the clauses in the agreement

Disadvantages:
- Requires compromise between parties
- Significant uncertainty

If parties rational and properly advised, should be effective way

(4) Mediation

Same pros and cons as negotiation

- However, higher chance of success for mediation due to involvement of neutral expert

Further disadvantages:
- Availability and cost of competent mediators
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(5) Cross-Border Disputes
- May cost more and take more time than negotiation
o May be worth it if results achieved

Can consider mediation administered by institutions like SMC and SIMC

(5) Adjudication

Adjudicator a third party intermediary appointed to resolve a dispute between parties

- Most dispute resolution clauses will state that such determinations are binding and final
o Some may provide for decision of adjudicator to be reviewed by arbitrator or court
proceedings

Eg. Construction projects

- Used to resolve disputes quickly without delaying payments of project

Key consideration: Enforcement

- Only a function of contract, no supra-national enforcement regime for court judgment or
arbitration

B. Multi-tiered Dispute Resolution Provisions

First tier: Maybe some consensual dispute resolution method, assisted or non-assisted
- Eg. Negotiation and mediation

Second tier: Adjudicative processes that provide binding decision on parties

- Eg. Expert determination, arbitration and litigation

Example: SIAC Arb-Med-Arb Clause

- Collaboration between SIAC and SMC
Any dispute arising out of or in connection with this contract, including any question regarding
its existence, validity or termination, shall be referred to and finally resolved by arbitration
administered by the Singapore International Arbitration Centre (“SIAC”) in accordance with
the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC Rules”) for the
time being in force, which rules are deemed to be incorporated by reference in this clause.

The seat of the arbitration shall be [Singapore].*

The Tribunal shall consist of _________________** arbitrator(s).

The language of the arbitration shall be ________________.

The parties further agree that following the commencement of arbitration, they will attempt
in good faith to resolve the Dispute through mediation at the Singapore International
Mediation Centre (“SIMC”), in accordance with the SIAC-SIMC Arb-Med-Arb Protocol for the
time being in force. Any settlement reached in the course of the mediation shall be referred
to the arbitral tribunal appointed by SIAC and may be made a consent award on agreed
terms.

Advantages: Companies can resolve disputes in less adversarial setting, preserve ongoing r/s
- Flexibility where complex contacts may produce different disputes of different sizes and
complexity
- Threat of litigation/arbitration may lead parties to resolve disputes early under first tier

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(5) Cross-Border Disputes
Disadvantages: May add cost and time if used as delaying tactic

Clauses to be clear on how to trigger each step

- Consult dispute resolution specialist on how to draft

(1) What is a Multi-Tiered Dispute Resolution Clause

International Research Corp PLC v Lufthansa Systems Asia Pacific Pte Ltd [2013] SGCA 55
Facts Lufthansa, first Res, and second Res, Datamat, entered into Cooperation Agreement
- Included dispute resolution clause, first via mediation then via arbitration
- Supplemental Agreements made under which Datamat would transfer to App
moneys it received from Thai Airways
- Payment not made, disputes arose
- Res tried to use dispute resolution clause in main agreement for the dispute
under the two Supplemental Agreements which the App objected to
- App had not signed Cooperation Agreement, only Supplemental Agreements
Held [34] General question of construction, not whether parties are different
- Contractual interpretation per Zurich Insurance  objective intention of parties
- Whether parties intended to incorporate the arbitration agreement in question
by referring, in their contract, to it or to a document containing it

Clause in Supp Agreements stated that “all other provisions of the [Cooperation]
Agreement shall remain effective and enforceable”
- Also important to examine context + factual matrix  purpose of the
Supplemental Agreements

App’s only obligation was expressly and only to act as a payment conduit
- Undertook no obligation under the Cooperation Agreements
- Datamat still undertook to be primarily liable under Supp Agreement No. 1
- Hence, dispute resolution clause did not apply to the Supp Agreements

Note: Econ Piling – If same parties and two closely-related agreements involving same
subject matter, likely to resolve disputes through same dispute resolution mechanism
- So dispute resolution clause in one agreement applicable to other
- In the absence of any clear and express intention to the contrary

HSBC Institutional Trust Services (Singapore) Ltd (trustee of Starhill Global Real Estate
Investment Trust) v Toshin Development Singapore Pte Ltd [2012] SGCA 48
Facts Lease agreement between the App qua landlord and Res qua tenant had a three-stage
dispute resolution clause
- Under Stage One, parties were to conduct negotiations on rent in good faith
- Under Stage Two, parties would appoint three international licensed valuers
jointly to determine the prevailing market rental rate
- Under Stage Three, President of the SISV would nominate the designated
valuers that parties could not agree on the do the valuation

Res approached various international licensed valuers to prepare valuation reports on

demised premises and App found out
- App claimed that this was an infringement of the first stage of the clause, as it
was not done in good faith
Held Good faith clause in pre-contractual negotiations different from “negotiations”
between the parties in the present case
- Here, parties already committed to a contract, cannot walk away simply
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(5) Cross-Border Disputes
- Express agreement to negotiate in good faith based on promise of both parties
to co-operate at Stage One to avoid having to go to Stage Two
- No reason why this good faith clause here cannot be upheld
o Not contrary to public policy
o No harm even if clause is upheld as dispute can be resolved in other ways

Good faith: Part objective and subjective per Ng Eng Ghee v Mamata Kapildev Dave
- Objective: Accepted commercial standards of fair dealing in the performance of
their identified obligations
- Subjective: Requirement of acting honestly

Clause here certain and capable of being observed by both parties

- Not difficult to ascertain what commercial standards of fair dealing required
- Hence, court enforced the clause

Ling Kong Henry v Tanglin Club [2018] SGHC 153

Facts Club’s rules had multi-tier dispute resolution clause
- First via conciliation, then second via mediation and finally arbitration
- However, this r 45B only applied to disputes which expressly stated so

Club took disciplinary actions against Mr Ling and gave him a written reprimand
- Mr Ling filed application for declaration that Club had breached rules of natural
justice and fairness in conduct of disciplinary proceedings
- Club filed for stay of application as r 45B governed to arbitrate the dispute
- Application by Mr Ling dismissed by AR, as dispute touched on a matter which
express provision had been made in r 26 covering disciplinary proceedings
Held Dispute resolution clause an expression of parties agreement on the forum/for a to
have a matter resolved
- Here, r 45B was an agreement to arbitrate, with conciliation and mediation
being preconditions to arbitration

(2) Arbitrability of Subject Matter and Court’s Inherent Powers

Tomolugen Holdings v Silica Investors [2015] SGCA 57

Held Arbitrability of subject-matter, in particular a dispute over minority
oppression or unfair prejudice
Dispute concerning non-arbitrable matter is an exception under s 6(2) IAA
- Court can refuse a stay of court proceedings in favour of arbitration
- [74] Arbitration course would be “inoperative” or “incapable of being
performed” for a dispute involving subject matter that is not arbitrable

Essential criterion of non-arbitrability under s 11 IAA: Whether subject matter of

dispute of a nature contrary to public policy to be resolved by arbitration
- Presumption of arbitrability as long as dispute fell within scope of an arbi clause
- Presumption can be rebutted by showing:
(a) Parliament intended to preclude a particular type of dispute from being
arbitrated (via text or legislative history of the statute in question); or
(b) contrary to the public policy considerations involved in that type of
dispute to permit it to be resolved by arbitration: at [75] and [76].

A dispute over minority oppression or unfair prejudice was arbitrable.

- Did not fall under either exception

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(5) Cross-Border Disputes
To determine if dispute in court proceedings fell within an arbitration clause:
(a) Determine what the matter(s) in the court proceedings are;
o Practical and common-sense inquiry in relation to any reasonably
substantial issue that is not merely tangentially connected to the dispute
o Matter(s) should not be characterised as overly broad or unduly narrow
(b) Ascertain whether these matter(s) fell within the scope of the arbitration
clause on its trust construction

In most cases, the matter would encompass the claims made in court
- But not an absolute or inflexible rule

Discussion on court’s inherent case management powers to stay court

proceedings in favour of arbitration
Threshold not “rare and compelling” threshold in UK and NZ
- Pt’s has a right to sue whoever he wants, wherever he wants
- But not an absolute rule, may be curtailed to holding the Pt to his obligation to
arbitrate where he has agreed to do so

(3) Assigning Arbitration Agreements

Rals International Pte Ltd v Cassa di Risparmio di Parma e Piacenza SpA [2016] SGCA 53
- Rals entered into supply agreement with Oltremare, where eight promissory notes were
issued to Oltremare
- Oltremare presented notes to a bank at a discount, but Rals dishonoured them when the
bank relied on them
- Bank brought claim, Rals tried to stay by claiming that the claimant was a party to the
arbitration agreement
- HC: As an assignee of the contractual right against Rals, bank rceived not only the right
to receive the purchase price under the Contract
o Also received the burden of the arbitration agreement
o Hence, bank was a party claiming “through or under” Oltremare, s6(1) IAA applied.
- SCA: Negotiable instrument such as promissory note was not governed by an arbitration
agreement in an underlying contract
o Unless agreement expressly incorporated into the instrument
o Not incorporated here
o Furthermore, since subject matter not subject to the Arbitration Agreement and
was not incorporated  arbitration agreement not applicable to this dispute

(4) Jurisdiction of Tribunal

Sanum Investments v Government of the Lao People’s Democratic Republic [2016] SGCA 57
- On jurisdiction of tribunal –
o When the Court reviews a tribunal’s decision on jurisdiction, the Court ought to
undertake a de novo review
o Reviewing court ought to approach the matter anew and give no deference to
the tribunal’s findings.
o Although Courts can rely on the decisions of the tribunal, it would be the cogency
and quality of their reasoning rather than their standing and eminence that will
factor into the Court’s evaluation
- To admit fresh evidence after commencement of arbitration, Ladd v Marshall test applied
(a) evidence could not have been obtained with reasonable diligence for use at the
trial

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(5) Cross-Border Disputes
(b) evidence must be such that, if given, it would probably have an important
influence on the result of the case, though it need not be decisive; and
(c) evidence must be such as is presumably to be believed, or in other words, it must
be apparently credible, though it need not be incontrovertible
o Note: Test was not stated in the case, just applied directly
- Issues relating to international treaties in the Singapore Courts are justiciable on
appeal from an arbitral decision where the issue has bearing on the application of
Singapore law and on the right of the Plaintiff to have the tribunal’s ruling on jurisdiction
reviewed
o Especially so where the issue does not concern the exercise of sovereignty or
legislative prerogative in matters of high policy such as sovereign immunity,
deployment of tropops overseas, boundary disputes or recognition of foreign
governments

(5) Putative governing law of arbitration agreement

BCY v BCZ: A putative arbitration agreement that was “subject to contract” would only be
binding upon execution
- If no express arbitration clause, then the governing law of the arbitration clause follows
the law governing the underlying agreement

(6) Unilateral option clauses

Taylor Asia Pacific Pte Ltd v Dyna-Jet Pte Ltd [2017] SGCA 32
- Dispute resolution clause that gave Res the right to elect to arbitrate is valid
o Immaterial that:
 Right of election is unilateral and the other party cannot reject an election
 Made arbitration of a future dispute optional and not place parties under an
immediate obligation to arbitrate their disputes
- Here, Res had the choice to elect to pursue the matter via litigation or arbitration
o No election made, thus dispute never fell within the arbitration clause
o Hence, court did not have to determine if dispute fell within subject matter of the
clause  cf even though trial judge found it fell within

(7) Seat & Venue of Arbitration

Sanum Investments Limited v ST Group Co, Ltd and others [2018] SGHC 141
- Arbitration clause: “If one of the Parties is unsatisfied with the results of the above
procedure, the Parties shall mediate and, if necessary, arbitrate such dispute using an
internationally recognized mediation/arbitration company in Macau, SAR PRC.”
o Meant that parties to arbitrate such dispute using an internationally recognised
arbitration company in Macau
- Commencement of arbitration in SIAC was proper, but seat was to be in Macau, not SG
- However, this irregularity was not a group for refusal of enforcement of the SIAC award
o Material prejudice normally required for non-recognition/enforcement
o Prejudice a relevant factor which the Lao disputants did not provide any
- Seat for arbitration less important in an application to refuse enforcement opposed to
setting aside the award, as enforcement can be brought in any jurisdiction
o However, only seat court can set aside award
o Hence, incorrectly seated arbitration insufficient, to show evidence how law of the
incorrect seat impacts the procedure adopted by the tribunal

BNA v BNB [2019] SGHC 142

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(5) Cross-Border Disputes
- Contract had the following clauses:
o PRC to be governing law of the Agreement
o “any and all disputes arising out of or relating to this Agreement shall be submitted
to the SIAC for arbitration in Shanghai, which will be conducted in accordance with
its Arbitration Rules”
- Df commenced arbitration under the second clause and SIAC Rules 2013
o Pt claimed arbitration agreement invalid under proper law  PRC law
 Forbade foreign arbitral institutions from arbitrating domestic disputes
- Held: Three-stage analysis applied to determine proper law of the arbitration agreement
(a) Arbitration agreement construed like any other commercial agreement;
(b) Arbitration agreement should be construed so as to give effect to a clear intention
evinced by parties to settle their disputes by arbitration; and
(c) Defect in the arbitration agreement should not render it void ab initio unless defect
so fundamental so as to negate parties’ intention to arbitrate
- Here, no express choice of proper law of the arbitration agreement
o Hence, implied law applied
- SG was the seat of arbitration
o SIAC Rules 2013 Art 14.2 expressly provided SG to be seat in absence of a
contrary agreement by the parties
o Reference in the clause above to Shanghai was merely a venue for hearings as
Shanghai is a city and not a law district
- Law of the seat displaces the proper law of the Agreement (PRC law)  SG law the
parties implied choice of proper law of the arbitration agreement
o PRC law would have made the arbitration agreement invalid
o Also, SG law the closest and most real connection with the arbitration agreement
- Note: Overturned by COA but judgment not out

C. Interim Measures for Cross-Border Protection

Interim Reliefs may include temporary restraining order or injunctions

- Eg. to protect IPRs or assets or to satisfy judgment awards

Issues to consider in obtaining interim relief:

- Likelihood of challenge to jurisdiction of body granting the interim relief
- Speed of obtaining an order for interim relief
o Might be better to go with arbitral tribunal if already constituted
o If not, faster to go via courts  but affects confidentiality
- Ease of enforcing the order for interim relief against the adverse party
o If not enforceable, then go with court process
o However, resultant arbitral award may be enforceable if third parties jointed

Note: Might be harder to obtain from arbitration than from courts

- Arbitral tribunal might also have issues with jurisdiction to grant interim relief

Arbitration Institutions whose rules provide for emergency relief:

- Provide emergency arbitrator in their institutional rules
o Stockholm Chamber of Commerce (“SCC”)
o American Arbitration Association (“AAA”)
o International Chamber of Commerce (“ICC”)
o Singapore International Arbitration Centre (“SIAC”)
o Hong Kong International Arbitration Centre ("HKIAC")
o Australian Centre for International Commercial Arbitration ("ACICA")
o Asian International Arbitration Centre ("AIAC")
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(5) Cross-Border Disputes
o China International Economic and Trade Arbitration Commission ("CIETAC")

D. Enforcement of Arbitration

If arbitration award not complied with, client must be able to enforce the award
- Parties will only go with arbitration if arbitration award can be enforced with
similar/equivalent effect as court judgments
- New York Convention – 159 contracting states as of this date
o Process of enforcement entails litigation which carries about its own risks
o Enforcement Application in the court of the state where the party seeks to enforce
the award
o Makes SG court treat award as a local court judgment

E. Drafting an Arbitration Clause

The governing law of the agreement and the arbitration clause in Clause _ shall be governed
by, interpreted and construed in accordance with the laws of __.
- Consider:
o If parties consent to accept SG law as seat of arbitration, from a negotiating
position, makes sense to have SG as governing law too
 Also, costs savings from having SG lawyers advice on both substantive and
arbitration procedure
o Parties from civil or common law countries?
o Implementing a neutral third party’s laws?
o Even if not, just try to fight for SG law
- Arbitration clauses treated as separable and a separate contract
o Two governing law clauses, one for main contract and for arbitration clause
o BCY v BCZ: If no arbitration clause, it follows law of the underlying agreement
 Settled position in SG, but not so much the other jurisdictions

Any dispute arising from or relating to the terms and conditions of this Agreement…
- Consider:
o Subject matter of dispute covered by the clause?
o Any triggers to know when a dispute arises?
 Perhaps a clause stating when service of any document alleging a dispute
by one party to the other by registered post to the other party’s registered
office
 However, also problematic if drafted too specifically

…shall be resolved between us by negotiation/mediation/expert determination…

- Consider:
o Scope of dispute, does it involve matters that an expert determination might help?
 Eg. Disputes as to valuation in construction project
o Costs, whether to go with negotiation or mediation
o Timeline for negotiations/mediation
o Negotiate in good faith provision? HSBC v Toh-Shin

… and if not, referred to binding arbitration in accordance with the SIAC (or other rules) for
the time being in force, which rules are deemed to be incorporated by reference in this Clause
- Consider:
o Venue/seat  pick rules to match seat in particular

The venue and seat of the arbitration shall be in Singapore (or other country) …
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(5) Cross-Border Disputes
- Consider: Make explicit that both venue and seat to be in SG
o More importantly is the seat
o BNA v BNB: Venue merely a place to have arbitration hearings
o NOTE: OVERTURNED BY SCA
- Note: Ensure seat follows law governing the arbitration agreement
o Seat determines nationality in which arbitration award is made
o Affects national law to challenge the arbitral award on the basis that subject
matter of the dispute is outside the scope of the arbitration clause

… decision of the arbitration tribunal shall be reasoned, final, and binding upon the Parties
- Consider: Do parties waive their right of appeal to the courts?
o Metalform: Expressly waiving of the right of appeal to a higher court of law or any
other judicial authority must be expressly stated

Suggest third party neutral venue

- ICC or SIAC as a good third party neutral venue as experienced international arbitration
centres with good track record of jurisprudence, established rules and a wide panel of
arbitrators from all parts of the world

The arbitral tribunal shall comprise one (1) arbitrator. If parties fail to agree on his/her
appointment, will consist of three (3) arbitrators. Party A and B each can nominate one (1)
arbitrator, with the third arbitrator being nominated by the aforesaid two (2) arbitrators.
- Consider:
o Any qualifications and experience for the arbitrators?
 Will narrow pool which is good and bad
 Experienced in the issue
 But might face conflicts and arbitrators might have to discharge
themselves if pool unduly narrow
o Other ways to resolve deadlock?
 President of the SIAC to appoint third
 Stipulate timeframe for which appointment of third to be made by the two
arbitrators
 Can also refer to court to appoint third arbitrator.

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