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Break Fees in Finance Mandate Agreements

Break fees are commonly imposed in mandate agreements and term sheets. They provide comfort to a lender or arranger where in the event that a transaction does not complete, an agreed sum will be paid to the arranger or lender. This is intended to cover the various costs that they will have incurred while progressing the transaction.


In a recent case[1] involving Astra Asset Management Limited (Astra) and Odin Automotive S.à.r.l, Astra agreed in a mandate agreement to use its best efforts to arrange a facility for Odin. This loan was for the purpose of acquiring StreetScooter GmbH and three associated companies. The mandate agreement stated that the facility agreement should be in a form and substance satisfactory to the arranger, ie Astra, and did not contain any obligation to agree a facility agreement that would be acceptable to the borrower.

Break fee not paid

Odin ultimately decided not to enter into the proposed transaction and Astra requested payment of the break fee. The break fee was not paid. Astra then applied to the High Court of England for a summary judgment to compel Odin to pay the break fee. Odin contested this and argued, amongst other things, that:

  • Astra placed undue pressure on Odin to sign the proposed facility agreement, and
  • Astra failed to use its best efforts. By Odin’s reckoning the terms of the proposed facility agreement were onerous, unusual, unreasonable and unacceptable, in particular, the terms relating to the financial covenants.


The High Court of England rejected Odin’s arguments and ordered Odin to pay the break fee both on the basis of contractual interpretation and as a matter of fact. It was determined that:

  • The timeframe for completion of the transaction resulted in inherent pressure to sign the facility agreement and that this did not amount to undue pressure
  • Odin had proposed changes to the facility agreement and had not previously flagged that the financial covenants were onerous, unusual and unreasonable, and
  • Odin was advised by an experienced international law firm who had reviewed the facility agreement. No evidence was submitted to suggest that there had been any discussion that the financial covenants were onerous, unusual or unreasonable.

Importantly, the High Court of England also confirmed that Astra had no obligation to ensure that the proposed facility agreement did not contain unreasonable, unusual or onerous terms. It was also noted that the proposed terms that Odin argued were unreasonable, unusual and onerous would not amount to a breach of Astra’s obligations to use best efforts to arrange a facility on terms acceptable to Astra itself.

Strict interpretation

This judgment demonstrates a strict interpretation of the best efforts requirements set out in the mandate agreement. Lenders and arrangers should take comfort from the fact that the High Court of England upheld the agreed commercially negotiated position regarding the obligation for Astra to use best efforts to arrange a facility on terms acceptable to itself and held that:

  • There was no implied obligation to ensure that the proposed facility agreement was reasonable, in line with market practice and non-onerous, and
  • No defence was available to payment of the break fee in these circumstances even if the facility agreement did contain terms that Odin considered unusual, onerous or unreasonable.

This English judgment will have persuasive authority in the Irish courts.


This judgment highlights that lenders, arrangers and borrowers need to carefully consider the terms they agree in mandate agreements and term sheets. It is not unusual for a mandate agreement or term sheet to only require the arranger to use efforts to produce a facility agreement acceptable to itself. In such circumstances, the case suggests that borrowers will have no defence against payment of the break fee if they decide not to proceed with the terms of a negotiated facility. Borrowers should take this into consideration when determining risk allocation in the context of a proposed transaction.

The case demonstrates that provided the parties proceed in accordance with the agreed terms of a mandate agreement, no additional implied obligations will be imposed on a lender or arranger when seeking to arrange a facility. Consequently, they need not consider the reasonableness, from the perspective of the borrower, of the terms of the proposed facility agreement unless the mandate agreement sets out otherwise.

For more information and expert advice, contact a member of our Banking team.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

People Also Ask

When is a break fee payable?

A break fee is typically payable when a transaction does not proceed to completion.

Who pays a break fee?

The party who breaks the terms of the agreement will pay the break fee to the other party.

How is a break fee calculated?

The mandate agreement or term sheet will typically set out how the break fee will be calculated.

[1] [2023] EWHC 1465 (Comm).

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