Whether industry standard terms were ‘standard terms of business’ under UCTA
AFRICAN EXPORT-IMPORT BANK v SHEBAH EXPLORATION [2016]
This case involved the Court considering whether some industry standard terms used by a bank were its ‘written standard terms of business’ for the purposes of the Unfair Contract Terms Act 1977 (“UCTA”).
Facts:
- The African Export-Import Bank (“Bank”) lent money to Shebah (“S”) on the basis of an agreement recommended by the Loan Market Association (“LMA”). The Bank did not have any written standard terms of its own for the type of loan in question.
- The final version of the agreement was produced following negotiations between the parties and their respective solicitors. There was a clause stating that all payments were to be made to the Bank without any set-off or counterclaim.
- The Bank claimed for outstanding payments due under the agreement. S made a counterclaim against the Bank amongst other things for damages for alleged breaches of contract, maintaining that the contract was on the Bank’s standard terms and so the set-off provision was subject to the UCTA reasonableness test – UCTA states that when a party deals on its ‘written standard terms of business’, that party cannot rely on a contract term to exclude or restrict liability for breach unless it satisfies a 'reasonableness' test (section 3).
Decision:
- The Court rejected S’s claim finding that there was no basis for inferring that the Bank habitually put forward the LMA form of contract for the type of loan transaction in question. In fact, there was no evidence as to how the LMA form came to be chosen as the starting point for the transaction.
- The judge commented, “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 …, 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”.
- The Court therefore decided that the no set-off provisions were not subject to the test of reasonableness but applied with full contractual force.
Points to note:
- UCTA provides no express guidance on what the term ‘written standard terms of business’ referred to in Section 3 means but previous cases have shown that it is not necessary for all of a party’s standard terms to be incorporated into a contract to fall within the scope of UCTA.
- Whether an agreement is freely negotiated or on a party's standard terms is a question of fact to be decided in each individual case. However, if the limitation and exclusion clauses essentially remain as per the supplier’s standard terms, then they are likely to be subject to the UCTA reasonableness test even if other elements have been varied (see St Albans v ICL from 1996). The question is whether the terms in question are ‘effectively untouched’.
- It is, however, perfectly possible that a supplier could adopt a contract developed by an industry body as its ‘standard terms’ in which case the UCTA reasonableness test would apply.
- This decision was upheld by the Court of Appeal in 2017.