Citigroup v Brigade Capital Management: Difference between revisions

Revlon — you know, that Revlon: lippy, perfume, nail polish, that sort of thing; a struggling “heritage” brand — borrowed a ton of money in 2016 to acquire Elizabeth Arden.<ref>What made Elizabeth Arden? Max Factor.</ref> The financing was complex but the thing to know was that Citigroup acted as Revlon’s [[loan servicing agent]]. A loan servicing agent keeps a register of the lenders, who is owed what, and handles interest and principal payments to the lenders on the borrower’s behalf.  The key concept here is “[[agent]]”, my little legal eaglets. Citigroup had no responsibility for Revlon’s obligations: Revlon would pre-fund all the payments it needed to make to the lenders. If — as seemed increasingly likely — Revlon could not meet its obligations, this was the Lenders’ problem, not Citigroup’s

You can just imagine the [[indemnities]], [[disclaimers]], [[waiver|waivers]] and exclusions of liability littered through Citigroup’s standard agency legal documents, can’t you. If they were bad before, just imagine what they look like ''now''.

It came time, in August 2020, for Revlon to pay about $8m ininterest on its loan. It put Citigroup in funds, as it was obliged to. Then someone at Citigroup made what, on hindsight, he may regard as a “bit of a ''bish''.”<ref>You could, and I just might, write a whole article about the wisdom of the inevitable claims of “[[operator error]]” here: that that “someone” worked for an [[outsourced]] operation in a low-cost jurisdiction might be an irony beyond the capacity of those Citigroup executives who are still there, to see the funny side of. The application he was obliged to use to make that payment, and the accompanying [[playbook]] explaining how to use it, was utterly baffling. Doubtless, Citi will put this down to “[[operator error]]”.</ref> Instead of instructing the interest payment, the [[operations]] team instructed a full repayment of ''[[principal]]''. Eight-hundred and ninety-three million dollars of the stuff. Nearly, as the bankers like to call it, a “[[yard]]”. [[Principal]] that was not, according to the loan, due to be repaid until 2023. Principal that was not in Revlon’s account with Citi, ''because Revlon didn’t have it''.

Because Citigroup was — and perhaps, at the same time, was not — Revlon’s agent, there is quite the four-dimensional chess game going on here. It is one thing to work out where the money should end up, in an equitable resolution; tracing that through the tangled skein of interrelations is something else again.

''Ouch''. This is the “discharge for value defense” — criticised by some US authorities,<ref>A Schall, ''Three-Party Situations in Unjust Enrichment Epitomised by Mistaken Bank Transfers'' [2004] RLR 110.</ref> but still the law there. The English courts have come to an opposite conclusion: {{cite|Barclays Bank Ltd|WJ Simms|1980|QB|677}}

This was the crux of the decision: the payment, though mistaken discharged a debt, was received without inducement or notice of the mistake. It is not at all clear that prepaying a loan when the loan is not due  ''does'' discharge the debt, nor that the Lenders can have been labouring under the slightest hint of an misapprehension that the payment was intentional and not mistaken — but the Judge was not prepared to play the [[Anus matronae parvae malas leges faciunt|little old lady]] card in favour of Citigroup. To the contrary, citi got the [[durum caseum per magnos canibus]]'' treatment: the court considered itself bound rather literally by ''Banque Worms'', and I dare say that precedent will get a good testing on appeal.