There’s something odd when a case about three international banks syndicating a loan of a cool $150 million to a major Nigerian oil company comes hand-in-hand with a reference to s.3 of the Unfair Contract Terms Act 1977. Phillips J clearly thought so too, in African Export-Import Bank v Shebah Exploration & Production Co [2016] EWHC 311 (Comm). Three banks sought summary judgment for money lent. The borrowers, squirming in the way of all borrowers who can’t come up with the ready, raised (among others) arguments that one bank had dragged its feet over making the loan, and that another had broken the terms of a different, earlier, loan, and that as a result they had a sizeable set-off. Not surprisingly, the banks pointed to an anti-set-off clause of a kind that appears in any ordinary syndicated loan agreement. The point was essentially, of course, a delaying tactic: an argument that everything should stop to allow the borrowers to argue that this was part of the lenders’ written standard terms of business under s.3 and, in all the circumstances, unfair. Phillips J admitted that the borrowers might be right in strict law to argue the potential applicability of the section, but gave summary judgment nonetheless. Where, as here, standard terms drafted by an outside body (the LMA) were used, it would have to be shown that such use was almost universal, and that amendment was remarkably rare, before a court would infer that the UCTA was engaged. As he put it, placing his finger on reality:
“In circumstances where commercial parties, represented by solicitors, have utilised a ‘neutral’ industry model form as the basis for a complex and detailed financial contract, executed after the usual process of negotiation, including revising a travelling draft, it will require cogent evidence to raise even an arguable case that the resulting contract is made on the written standard terms of one of those parties. I recognise that it might, in theory, be possible to demonstrate that one party to such negotiations has used the industry standard form as the basis for a set of terms it treats as its own and that it will not in reality countenance substantive changes, but that would be an uncommercial and highly unlikely approach. Parties such as the defendants in this case cannot expect to avoid summary enforcement of the terms of the contracts they have entered by asserting, on the basis of little more than speculation, that their counterparty was engaged in such conduct.”
Quite right too. One can almost hear the sighs of relief in the Square Mile.
AT
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