African Export-Import Bank, Diamond Bank Plc and Skye Bank Plc ("the Lenders") –v- Shebah Exploration & Production Company Limited ("the Borrower"), Allenne Limited and Dr Ambrosie Bryant Chukwueloka Orjiako (together "the Guarantors") [2016] EWHC 311

The parties entered into a Facility Agreement, governed by English Law, which provided for a term loan of US$150m. The Borrower defaulted and the Lenders purported to accelerate repayment of the entire debt by service of a notice. Demands were also made on the Guarantors. 

In settlement of proceedings issued by the Lenders, the parties entered into a Discontinuance Agreement, pursuant to which the Borrower (without admitting liability) would repay all sums outstanding. The Borrower failed to pay the first instalment and the Lenders commenced further proceedings, seeking summary judgment.

The Defendants contended that no sums were due to the Lenders, asserting that they had arguable defences to the claim, relying principally on a contention that the Borrower had counterclaims against the Lenders, which they claimed should be set-off against sums owed. In addition, the Defendants contended that the purported notice of acceleration was ineffective and that, whilst a subsequent notice of acceleration had been effective and valid demands had been served, the causes of action arising from such service post-date the issue of the claim and so no sums were payable.

The Decision

Notwithstanding that the Facility Agreement contained express provisions excluding any right of set-off, the Defendants' contended that they had an arguable case that the Facility Agreement constituted the Lenders’ written standard terms of business within the meaning of section 3 of UCTA and as such, the exclusion clauses did not apply because they did not satisfy the requirement of reasonableness under section 11 of UCTA.

The UCTA limits companies' ability to avoid liability in their contracts: it is concerned with exclusion clauses, and does not examine whether a contract is generally unfair. Section 3 of UCTA provides that where a party is a consumer, or deals with another party on that party’s written standard terms of business, the party whose terms are utilised cannot: (i) exclude liability for breach of contract; or (ii) render a performance substantially different from that which was reasonably expected/render no performance at all unless the term satisfies the requirement of reasonableness. The basic requirement of reasonableness under section 11 of UCTA is that the provision is a fair and reasonable one having regard to the circumstances when the contract was made.

The Lenders solicitor had expressly confirmed that, as a syndicate of Nigerian and international banks, they do not have any forms common to them all and the documentation for such a transaction is negotiated and agreed on a transaction by transaction basis. The Facility Agreement had been based on the form of syndicated facility agreement recommended by the Loan Market Association ('the LMA') and the final version was produced following negotiations between the parties and their respective solicitors.

The Court rejected the Defendants’ contention that it was to be inferred that the Lenders, or any of them, habitually utilised the LMA form (or a tailored version of it) as a basis for their syndicated loan transactions. Further, the Court would not infer that the Lenders always refuse to negotiate the terms it contains. The likely permutations of lenders and borrowers, their respective bargaining strengths and the range of lawyers and their respective skills, are far too great to permit such conclusions. The Court was satisfied that the Defendants did not have a realistic prospect of establishing at trial that the Facility Agreement was on the Lenders’ written standard terms of business. The suggestion that disclosure might alter the position was a “classic example of hoping that something may turn up”. The no set-off provisions were not subject to a test of reasonableness but applied with full contractual force.

As regards the acceleration, the Court found that the first notice was not effective as it was expressed to take effect at a future date. The contractual clause permitted the Lenders to declare that the loans "be immediately due and payable" in certain circumstances: it did not permit the Lenders to give notice of a future acceleration, conditional on future events. However, the Claim had been amended by consent to plead the subsequent notice and demands so the Lenders were not prevented from claiming those sums.

Comment

The Court provided clear guidance about the application of section 3 of UCTA to complicated financial transactions. In circumstances where commercial parties, represented by solicitors, have used a 'neutral' industry model form as the basis for a complex and detailed financial contract, which was subject to the usual process of negotiation (including revising a travelling draft), it will require cogent evidence to raise even an arguable case that the resulting contract is made on the written standard terms of one of those parties. It may be possible to demonstrate that one party to such negotiations has adopted the industry standard form as their own set of terms and that it will not in reality countenance substantive changes, but that would be an uncommercial and highly unlikely approach, especially in relation to syndicated lending

Parties cannot expect to avoid summary enforcement of the terms of the contracts they have entered by asserting, on the basis of mere speculation that, the agreement was on the written standard terms of the counterparty. The Defendants' resistance to the application for summary judgment was a clear attempt to delay repayment until they had had an opportunity to obtain alternative financing.  As such, the Courts willingness to grant summary judgment was a welcome decision.