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Dealing on a party’s standard terms and conditions? Remember UCTA

The Court of Appeal has recently upheld a High Court summary judgment that a syndicate of lenders who used industry standard terms as a starting point for a loan agreement were not dealing on written standard terms of business. Consequently, the agreement was not subject to the reasonableness requirement under section 3 of the Unfair Contract Terms Act 1977 ("UCTA").

Facts of the Case

In African Export – Import Bank v Shebah Exploration and Production Co Ltd an African oil and gas company (the "Borrower") appealed against the entry of a summary judgement in favour of three banks, one Egyptian and two Nigerian (the "Lenders"), who had each advanced $50 million to the Borrower under an agreement which was based on the form of a syndicated facility agreement recommended by the Loan Market Association ("LMA"). The final version of the agreement was an adapted and amended version of the LMA form, arrived at after negotiation between the parties.

The Borrower had defaulted and, when no payment was made to the Lenders, they began proceedings to recover the outstanding sums owed. The Borrower defended against this on the basis that it was entitled to set-off a claim against the Lenders' claim – allegedly a $1 billion breach by the Lenders of an oral agreement that they would not accelerate the repayments of the debts owed by the Borrower before a certain date. To counter this defence, the Lenders argued that they could rely on a "no set-off" exclusion clause included in the loan agreement, which disallowed the Borrower from setting-off any claims against them.

The Borrower maintained that it had contracted on the Lenders' written standard terms and, as such, the "no set-off" exclusion clause was subject to the reasonableness requirement found in s.3 UCTA.

The Decision

The Court of Appeal was primarily concerned with two key points:

  • was the "no set-off" exclusion clause part of the Lenders' "written standard terms of business"; and
  • were the Lenders "dealing on those written standard terms of business", i.e. does UCTA still apply where negotiations have resulted in some, but not all, of one party's standard terms applying to the deal.
Standard Terms of Business

The Court of Appeal held that in order to prove the "no set-off" exclusion clause was part of the Lenders' written standard terms of business the Borrower had to prove they "habitually used" those terms. It was not enough to simply show that a model form of contract had been used; the Borrower had to show that the Lenders use had been habitual, e.g. "invariably" or "at least usually" used.

The Court of Appeal held that the Borrower had not produced any evidence that the LMA model form loan agreement had been used habitually by the Lenders and that, in any event, the detailed negotiation between the parties would make any such conclusion unlikely.

Dealing on Standard Terms of Business

In determining if a party is dealing on its written standard terms of business the Court of Appeal referred to (among other cases) St Albans City and District Council v International Computers Ltd which found that s.3 UCTA would apply where the party's standard terms remained "effectively untouched." With this in mind, the Court held that the correct approach was to "inquire whether there had been more than insubstantial variations to the standard terms which otherwise might have been habitually used by the other party". So, in short, if there have been substantial variations to the terms of an agreement then it is unlikely that the agreement was made on a party's written standard terms.

As the variations in this case were found to be more than insubstantial (and had been negotiated and amended) the court held that it was impossible to conclude that s.3 UCTA applied and, therefore, the "no set-off" exclusion clause stood.


This judgement provides some useful guidance on the approach the courts will adopt when determining if a business is dealing on its written standard terms of business, and should be of particular note to those businesses that often rely on template or standard documents. It underlies the difficulty in relying on UCTA – and therefore that terms in a contract will be subject to the requirement of reasonableness – without evidence that those terms were regularly used by the other party. In addition, it highlights that courts are unlikely to hold a contract as based on written standard terms where those terms have been negotiated and/or amended unless it can be proven that those variations are insubstantial.

This article was written by Freddie Law.

For more information, please contact Freddie on +44 (0)20 7427 6522 or at

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