Court of Appeal considers whether using LMA terms amount to dealing on a party’s “written standard terms of business”

In African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and others the Court of Appeal determined that the use of negotiated LMA terms did not amount to dealing on a party’s “written standard terms of business” for the purposes of the reasonableness test under the Unfair Contract Terms Act 1977.

Under UCTA, if a party deals on its “written standard terms of business” then any term which limits or excludes its liability for breach of contract must satisfy the requirement of reasonableness in order to be valid.

In this case, a syndicate of banks had entered into a loan agreement with a borrower using the LMA model form of syndicated facility agreement. The LMA agreement was amended by the banks and the borrower negotiated its terms. The term which resulted in the dispute stipulated that repayments must be made without set-off. The borrower alleged that this clause was subject to the UCTA reasonableness test because the facility agreement was in the bank’s standard terms.

The High Court at first instance found in favour of the defendant banks. Firstly, because there was nothing to suggest that the banks habitually used the LMA standard documentation and, secondly, even if they did there was no evidence that the banks refused to negotiate the terms put forward.

The Court of Appeal upheld this decision. It is not enough to show that a model form such as the LMA standard document has been used. Indeed, it was emphasised that the LMA User Guide itself stated it was impossible to use the document without amendments and additions. Furthermore, the detailed negotiations undertaken by the parties made it impossible to say that the final agreement, based on the LMA model form, was on the banks’ standard terms of business.