Loan marketing association terms are not unfair

In this case, a syndicate of banks granted a loan to the borrower on terms using the LMA syndicated loan agreement. The model form was modified by the banks and the borrower made changes with various amendments. The loan agreement provided that repayments would be made without set-off but when the banks sought summary judgment for the debt, the borrower sought to set off sums alleging that the set off clause was subject to an UCTA reasonableness test.

The High Court initially held there was no basis for the borrower claiming the syndicate always insisted on LMA standard terms and held that, in fact, the terms were determined on a case by case basis with lawyers’ input. Furthermore, there was evidence that the banks were prepared to depart from the model terms by allowing negotiation over them – in this case three commercially significant terms.

The borrower appealed, but the Court of Appeal dismissed the appeal, finding that:

• the borrower had not produced evidence that the deal was on standard terms. The borrower attempted to obtain disclosure of other transactions of the bank to demonstrate it was their invariable practice to insist on those terms, but the Court of Appeal said that a defaulting borrower could not seek disclosure of unconnected transactions with third parties simply to prove its case on the bank’s customs. There was therefore a lack of evidence.

• there had been detailed and meaningful negotiations over the terms involving lawyers for both parties which meant there had been a significant departure from the standard terms and it was difficult to assert that the LMA model form were the banks’ standard written terms of business. The Court of Appeal did not accept that it was relevant that those negotiations had not been about the exclusion of certain contractual provisions in those terms.

• the complexity of the issue as to whether the LMA standard terms were standard business terms does not in and of itself mean that the Summary Judgment process is inappropriate (as it is usually used where showing liability is relatively straightforward).