#10302 - Drafting Tips - Finance and Capital Markets

• Reasonable = introduces uncertainty and thus is a good & powerful tool for Borrower as it will be hard for Bank to make an objective decision about what is reasonable in a given situation.

• Reasonable endeavours is the least onerous.

  • Requires a party to adopt & pursue 1 reasonable course of action in order to achieve the result

  • It does not require the party to exhaust every course available to it.

• All reasonable endeavours - requires a party to explore all avenues reasonably open to it, and explore them all to the extent reasonable.

  • Party is neither obliged to disregard its own commercial interests, nor required to continue trying to comply if it is clear that all further efforts would be futile.

• Best endeavours - is the most onerous

  • Requires a party to take steps which a prudent, determined and reasonable obligee, acting in its own interests and desiring to achieve that result, would take.

  • It is not an absolute obligation, though, and would not include actions which would lead to financial ruin, undermine commercial standing or goodwill, or have no likelihood of being successful.

It is worth noting that ‘all reasonable’ and ‘best’ endeavours are very similar, and some judges have held there is no practical difference (Rhodia International Holdings v Huntsman International LLC). Onus is on the obligor to show it has met the required level of ‘endeavour’.

• In form and Substance satisfactory to the Bank = Good for bank (plenty of discretion to decide that something is not satisfactory = utilisation cannot be made thus bad for Borrower. Qualify with word “Reasonable”. Thus, “Reasonable” reduces the severity of the clause to benefit the Borrower as it is difficult for the bank to decide what is reasonable and will make the bank hesitate before calling a default.

• To the best of our knowledge and belief = wanted by borrower to qualify e.g. threatening litigation or market information. Lender will accept only by adding “After due and careful enquiry”.

• Materiality a clause may read borrower will be defaulted if it “is in breach of any license necessary for operation of its business”. Borrower will want “materiality” i.e. Borrower will want the clause to read that it will be defaulted as a result of a breach which “may have a material adverse effect on tis liability to perform its obligations”. The bank then will want to define “Material” to state “material in the opinion of the Bank”. Borrower will want this to be a “majority of the banks” and avoid just one bank or agent from deciding what is material.

• De Minimis = some breaches are too trivial to attract legal remedy Borrower wants high threshold (e.g. 100.000), bank wants small threshold (20.000)

• Notwithstanding = no matter what other clause might say.

• Subject to = something can be done only if a certain clause does not prevent it from doing so.

• Means = Favours Borrower = gives precise definition and avoids certainty e.g. “security means fixed charge or floating charge”. Borrower knows exactly what security means and includes.

• Includes = Favours Bank = the definition is much broader & less certain e.g. “security includes fixed charge or floating charge”. Allows bank to cover new products in case it forgot to.

• Threatened Litigation = Borrower will want to have the word “threatened” removed, it seems too vague (we don’t know what threatened means). However, Bank will want to know about any threatened litigation and therefore will not accept the removal of this word. The borrower will then want to limit this by qualifying to say that it should be to the “best knowledge” of the borrower. Bank will not accept this qualification; Bank will want to qualify the knowledge by stating that it should be to the “reasonable knowledge of the borrower”.

• No default = Borrower’s view: This is a clause that...