African Export-Import Bank (and others) v. Shebah Exploration & Production Company Limited (and others) [2017] EWCA Civ 845
In June, the Court of Appeal handed down judgment in an appeal that considered whether section 3 of the Unfair Contract Terms Act 1977 (UCTA) can catch facility agreements based on the Loan Market Association (LMA) standard form. Section 3 of UCTA prohibits a party from relying on an exclusion clause where such clause is contained within standard written terms, unless such a clause is reasonable. It had been argued that the claimant banks, in using an LMA form agreement, were dealing on their written standard terms.
The appeal concerned an application for summary judgment in favour of three lenders, African Export-Import Bank, Diamond Bank and Skye Bank (the Banks) against the first defendant (Shebah) and its two guarantors. Summary judgment was given in favour of the Banks following Shebah's defaults. The defendants accepted that the sums claimed by the Banks were due and payable. However, they also asserted that they had counterclaims against the Banks such that they were entitled to set off.
The Banks, in response, relied on provisions in the facility agreement and guarantee which stated that all payments had to be made without set-off or counterclaim. Shebah, in order to bring into question the reasonableness of the provisions relied on by the Banks, and thus make the matter inappropriate for summary judgment, sought to rely on section 3 of UCTA.
The judgment of the court highlighted that the LMA form of the syndicated facility agreement had merely been a starting point for negotiation between the parties. It was also significant that the LMA's own user guide made it clear that it would not be possible to use the form without amendments and additions. Both the court at first instance and the Court of Appeal noted that there had been multiple discussions and drafts of the facility agreement passing between the parties and their respective solicitors. The Court of Appeal held that the fact that there were detailed negotiations "render it impossible to say that either the LMA model form was, or the terms ultimately agreed were, the claimants' standard terms of business".
The court added that the negotiations between the parties do not need to relate specifically to exclusion clauses in order for section 3 of UCTA to be inapplicable. As such, where parties begin with a standard form agreement (such as the LMA), it is not the case that the particular clause which a lender later seeks to rely on must have been specifically negotiated. Regardless of amendments to individual terms, it should suffice to demonstrate that the final contract agreed was not on standard terms. In such circumstances, section 3 of UCTA will not be applicable.
The court highlighted that facility agreements do not usually contain traditional exclusion terms "in the same way that traditional sale contracts ... often do." Notwithstanding that, in the present case, a no set-off clause was interpreted as an exclusion clause.
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