Is using an LMA loan agreement akin to dealing on written standard terms?
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Is using an LMA loan agreement akin to dealing on written standard terms?
In African Export-Import Bank and others v Shebah Exploration & Production Company Ltd and others [2017] EWCA Civ 845, the Court of Appeal confirmed an earlier summary judgement that lenders who used an industry standard facility agreement, as a base for their negotiations with the borrower, were not dealing on written standard terms of business for the purposes of the Unfair Contract Terms Act 1977.
The facts of the case are as follows:
- A syndicate of banks entered into a loan agreement with a borrower. The banks used the model form of syndicated facility agreement recommended by the Loan Market Association (LMA) as a base document;
- this base document was first then adapted to the transaction and then negotiated by both the banks and the borrower. Certain clause were amended including the material adverse change clause, changing monthly certificates of oil reserves to annual and adding a section on project accounts. However, the form of set-off clause i.e.: that repayments would be made without set-off, was not amended and remained as drafted; and
- the borrower then defaulted and the banks then sought summary judgment for the sums outstanding under the loans. The borrower then tried to set off various sums against the debt which it owed. The borrower alleged that the facility agreement was on the banks’ written standard terms of business and, therefore, the “no set-off” clause was subject to the UCTA reasonableness test.
At first instance, on the summary judgment application, Phillips J held that the agreement was not on the banks’ written standard terms. He found that:
- the banks did not habitually put forward the LMA standard form agreement (or a tailored version of it). Rather, the terms used by the banks seemed to have been determined on a transaction-by-transaction basis by whichever lawyers the banks instructed;
- even if the banks habitually put forward the terms, there was no basis for inferring that they always refused to negotiate them and, in this particular case, the banks had negotiated and agreed at least three changes of considerable commercial significance;
The borrower appealed. The Court of Appeal dismissed the appeal and held that:
- there was no evidence that the deal was on standard terms. Also, a borrower in default could not simply assert that the deal was done on standard terms and then oblige the lender to disclose details of other transactions it had entered into;
- the complexity (or otherwise) of the concept of standard business terms in English law had no relevance to the question of summary judgment;
- as there had been detailed negotiations between the parties which made it impossible to say that the LMA model form was, or the terms ultimately agreed were, the banks’ standard terms of business. It was immaterial that those negotiations had not been concerned with the exclusion terms of the contract.
Conclusion
This judgment is of interest to all who use industry standard terms in their business, such as lenders using LMA standard documents. The key point to take away is that standard form documents that are then negotiated by lawyers are unlikely to constitute “written standard terms” for the purposes of section 3 of UCTA. However, this will always be one of fact and the courts did not consider whether a lender who habitually used an LMA standard form document and then refused to negotiate it could be said to be dealing on standard business terms.
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