The Court of Appeal has upheld an order for summary judgment for sums due under a facility agreement which was based on a Loan Market Association (LMA) model form. It rejected the defendants' argument that (i) the parties were dealing on the lenders' written standard terms of business and therefore (ii) a term in the facility agreement that prohibited set-off needed to satisfy the reasonableness requirement under the Unfair Contract Terms Act 1977 (UCTA): African Export-Import Bank v Shebah Exploration & Production Company Ltd [2017] EWCA Civ 845.

The court held that, in determining whether parties are contracting on standard terms of business, it is not sufficient that the terms derive from the use of a model form. The essential questions are:

  • whether the relevant party habitually uses those terms; and
  • whether there have been more than insubstantial variations to the terms.

The decision suggests that, where a party habitually uses a standard form document but its terms are then negotiated, it is unlikely to be seen as contracting on standard terms for the purpose of UCTA, at any rate where the negotiations result in "more than insubstantial variations" to that standard form. Each case will however turn on its facts.

The decision may be seen as casting doubt on the recent High Court judgment in Commercial Management (Investments) Ltd v Mitchell Design and Construct Ltd [2016] EWHC 76 (TCC) (considered here) which suggested that parties could be contracting on standard terms even if the standard terms comprised only a small proportion of the terms of the contract – although its precise impact on that decision is not clear.


The claimants (an Egyptian financial institution and two Nigerian banks) entered into a Facility Agreement with the first defendant, Shebah (guaranteed by the second and third defendants), under which they agreed to lend Shebah US$150 million. The Facility Agreement was based on the LMA model form which was then further negotiated by the parties. Shebah defaulted on its obligations under the Facility Agreement and the claimants accelerated the debt.

The defendants contended that they had counterclaims which they were entitled to set off against the sums claimed. The claimants argued that set-off was prohibited under a clause of the Facility Agreement. The defendants argued that, because they were dealing on the claimants' written standard terms of business, pursuant to section 3 of UCTA, the set-off clause could be relied on only insofar as it satisfied the requirement of reasonableness.

The High Court (Phillips J) granted summary judgment, 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 UCTA.


The Court of Appeal (Longmore LJ and Henderson LJ) dismissed the defendants' appeal. Longmore LJ noted that, for section 3 of UCTA to apply, the party relying on UCTA must prove that:

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

Ordinarily, as in this case, the first two requirements would not be in dispute. The third and fourth requirements were considered by the Court of Appeal in more detail. It concluded, having reviewed the relevant authorities:

  • In determining whether a term is part of the other party's standard terms of business, the test is whether or not the other party habitually uses those terms of business. It is not sufficient that the terms are sometimes used and sometimes not, nor is it sufficient that the terms form part of a model form. In that scenario, the question is whether the model form was habitually used.
  • As to whether the other party is dealing on its standard terms of business, a relevant question is whether there have been more than insubstantial variations to the terms which otherwise have been habitually used. If there have been, a party seeking to rely on UCTA would be unlikely to be able to prove that it was contracting on the other's written standard terms of business.

On the facts, the court held that the defendants had not made out an arguable case that the claimants were dealing on the claimants' standard terms. The defendants had filed no evidence to the effect that they believed the agreement was made on the claimants’ standard terms, and it was difficult to see that they could have had any such belief when they were dealing with three different parties in a syndicated loan agreement. Longmore LJ emphasised that a party who contends that it is arguable that a deal was done on standard business terms must produce some evidence that that was likely.

In any event, because detailed negotiations took place to finalise the final form of the Facility Agreement and substantial amendments were made, it was impossible to conclude that the agreement or its terms constituted the claimants' standard terms of business, regardless of the fact that a model form was used as a starting point for the agreement.

The Court of Appeal did not rule on the claimants' submission that a contract based on an LMA model form could never be made on standard business terms because there is always a need for amendment (as confirmed by the LMA's own user guide, which emphasises that it is impossible to use the model form without amendments and additions). Longmore LJ said he suspected this 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. But that was a question for another day.

Finally, it is worth noting that Longmore LJ did not accept that the decision in Commercial Management had any relevance to the present case. He pointed out that both Commercial Management and the case of Pegler v Wang [2000] BLR 218 (on which Edwards-Stuart J relied in Commercial Management) were cases involving a "battle of the forms", and so were directed largely at determining which terms were actually part of the contract. He added, "But once it was decided what were the terms of the contract, it was not difficult to decide whether the terms being relied on were standard business terms of that party and, in any event, no difficulties of the sort encountered in Pegler v Wang are present in the current case." It is therefore not clear what impact this decision will have on the principles discussed in those earlier cases.