In the recent decision of African Export-Import Bank v Shebah Exploration and Production Co Ltd(1) the Court of Appeal upheld a decision to allow summary judgment for sums due under a facility agreement, rejecting the defendants' arguments that the facility agreement – based on the Loan Market Association (LMA) model form – constituted the lenders' standard terms for the purposes of the Unfair Contract Terms Act 1977. Had the act applied, the terms of the facility agreement would have been subject to a reasonableness test.

The question of whether model terms constitute a party's standard terms will always turn on the facts of the case, such as the degree of variations which are agreed on the terms. This judgment will provide some comfort to lenders who routinely contract on the LMA model form. However, the Court of Appeal refused to rule on the claimants' submission that a contract based on the LMA form can never constitute standard terms for the purposes of the Unfair Contract Terms Act (because there is always a need for adaptation and amendment). The Court of Appeal considered that that submission went too far; if a lender habitually used a particular LMA form and refused to countenance any amendment, it would be difficult to say that the deal was not done on that lender's standard business terms.


The three claimants were lenders (based variously in Egypt and Nigeria) under a pre-export finance facility agreement for $150 million. The first defendant was the borrower under the facility agreement. The second defendant (a corporate entity affiliated with the borrower) was a guarantor under the terms of the facility agreement itself, while the third defendant (the president of the borrower) provided a guarantee pursuant to a separate deed of guarantee.

The facility agreement was based on the form of syndicated facility agreement recommended by the LMA as a starting point for negotiations. The judgment at first instance recorded that the LMA's own user guide emphasises that it is impossible to use the form without amendments and additions. In this case the final form agreement was produced following negotiations which took place between the parties and their respective solicitors.

The facility was provided in order to refinance some of the borrower's existing debt, and to provide working capital including funding for an oil production programme in Nigeria. There was no dispute between the parties that the claimants advanced $150 million under the facility agreement, and that the borrower defaulted on all of its capital repayment obligations (other than a payment of $6.1 million in June 2012). Following default, the claimants exercised their contractual right to accelerate the debt and made demands under the guarantees.

The defendants asserted that they had counterclaims against the claimants in the sum of approximately $1 billion, which they contended should be offset against their accepted liabilities. The claimants alleged that the defendants were not entitled to offset the alleged counterclaims against their liabilities under the facility agreement and the personal guarantee. They relied on Clause 32.6 of the facility agreement (and Clause 9.1 of the personal guarantee), which provided that "All payments to be made by an Obligor under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim".

The claimants applied for summary judgment, which the defendants sought to resist by relying on Section 3 of the Unfair Contract Terms Act, which imposes a standard of reasonableness to exclusion clauses in contracts between contracting parties where one deals as a consumer or on the other's written standard terms of business.

The High Court granted summary judgment to the claimants, finding that the defendants did not have a realistic prospect of establishing at trial that they were dealing on the claimants' written standard terms of business pursuant to Section 3 of the act. The defendants appealed the decision.


The Court of Appeal upheld the High Court's decision and dismissed the appeal. The Court of Appeal cited the four-stage test in British Fermentation Products Ltd v Compair Reavell Ltd,(2) which provides that in order for the Unfair Contract Terms Act to be held to apply and require an inquiry into the reasonableness of any particular term, the party seeking to rely on the act must establish that:

  • the term is written;
  • the term is a term of business;
  • the term is part of the other party's standard terms of business; and
  • the other party is dealing on those written standard terms of business.

There was no dispute as to the first two limbs in this case. The third and fourth limbs were considered in turn.

The term is part of the other party's standard terms of business
The Court of Appeal approved the passage in British Fermentation, which confirms that the Unfair Contract Terms Act will not necessarily apply simply where the parties have used a model form agreement drafted by an outside body (here, the LMA). In order to apply to such model forms, it must be proved that the model form is invariably or at least usually used by the party in question; it is not enough that sometimes it does and sometimes does not. Nor is it enough that a model form has, on the particular occasion, been used.

The Court of Appeal considered it to be "striking" that the defendants had adduced no evidence to the effect that they believed the agreement was made on the claimants' standard terms of business. The Court of Appeal commented that it cannot be difficult in a proper case to produce such evidence, since anonymised requests about prospective terms of business can be made and participants in the credit market may well have knowledge of how particular lenders go about their business.

The other party is dealing on those written standard terms of business
The Court of Appeal confirmed that the correct approach is to assess whether there has been more than insubstantial variations to the standard terms used. If there has been substantial variation, it is unlikely that the contract will be on a party's standard terms of business. In this case, the Court of Appeal pointed to the detailed negotiations between the parties as rendering it impossible to determine whether the LMA model form or the terms eventually agreed were ultimately the claimants' standard terms of business dealt upon. Further, the numerous redline mark-ups of the facility agreement demonstrated that it could not be said that the terms were "effectively untouched".(3)


The judgment provides useful confirmation of the tests in earlier decisions at first instance for the application of Section 3 of the Unfair Contract Terms Act. The decision also shows the court's willingness to give due weight to the commercial reality of the process of negotiations between parties. While the decision illustrates that it will be difficult for a borrower to contend that a bank has contracted on standard terms for the purposes of the act, it does leave the door open to the possibility of future challenges to facility agreements which are based on the LMA (or any other) model form, where the lender habitually uses that form and will not countenance amendments.

For further information on this topic please contact Charlotte Henschen or Jonathan Cary at RPC by telephone (+44 20 3060 6000) or email (c[email protected] or [email protected]). The RPC website can be accessed at


(1) [2017] EWCA Civ 845.

(2) [1999] 2 All ER Comm 389.

(3) Nourse St Albans City and District Council v International Computers Ltd [1996] 4 All E R 481.