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8 December 2017 0 Comments
Posted in Financial Services, Opinion

Loan marketing association terms are not unfair

Author headshot image Posted by , Partner

The Court of Appeal has handed down judgment in the case of African Export-Import Bank & Ors v Shebah Exploration & Production Company Ltd & Ors [2017] EWCA Civ 845 about whether the standard terms found in the industry standard form syndicated loan documentation are “another’s written standard terms of business” for the purpose of the Unfair Contract Terms Act 1977 (UCTA) and therefore susceptible to a “reasonableness test” for the purposes of considering whether any of the terms are unfair and therefore not enforceable.

In this case, a syndicate of banks granted a loan to the borrower on terms using the LMA syndicated loan agreement. The model form was modified by the banks and the borrower made changes with various amendments. The loan agreement provided that repayments would be made without set-off but when the banks sought summary judgment for the debt, the borrower sought to set off sums alleging that the set off clause was subject to an UCTA reasonableness test.

The High Court initially held there was no basis for the borrower claiming the syndicate always insisted on LMA standard terms and held that, in fact, the terms were determined on a case by case basis with lawyers’ input. Furthermore, there was evidence that the banks were prepared to depart from the model terms by allowing negotiation over them – in this case three commercially significant terms.

The borrower appealed, but the Court of Appeal dismissed the appeal, finding that:

  • the borrower had not produced evidence that the deal was on standard terms. The borrower attempted to obtain disclosure of other transactions of the bank to demonstrate it was their invariable practice to insist on those terms, but the Court of Appeal said that a defaulting borrower could not seek disclosure of unconnected transactions with third parties simply to prove its case on the bank’s customs. There was therefore a lack of evidence.
  • there had been detailed and meaningful negotiations over the terms involving lawyers for both parties which meant there had been a significant departure from the standard terms and it was difficult to assert that the LMA model form were the banks’ standard written terms of business. The Court of Appeal did not accept that it was relevant that those negotiations had not been about the exclusion of certain contractual provisions in those terms.
  • the complexity of the issue as to whether the LMA standard terms were standard business terms does not in and of itself mean that the Summary Judgment process is inappropriate (as it is usually used where showing liability is relatively straightforward).

For more information on Loan Marketing Information Terms, please contact Milan Kapadia in our Dispute Resolution team on:

020 7842 1497     Email

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