"Standard terms of business"

It is well known that the Unfair Contract Terms Act 1977 (UCTA) provides statutory restrictions on the extent to which parties to a private agreement (including business-to-business agreements) can limit or exclude liability for certain types of loss or damage, for breach of contract, negligence and so on. Section 3 of UCTA provides that parties cannot unreasonably limit liability for breach of contract or a duty to perform contractual obligations. However, those restrictions apply only where the parties contract on one party's "written standard terms of business".

Whether parties are contracting on one party's "written standard terms of business" is normally a straightforward factual question (provided any disputes over what are and are not the terms of the contract has been resolved). What, though, is the position where the parties have used or based their contract on a "standard" form - one which is not exactly a "standard" for deals done by one, but not another, party, but which is used across an industry, sector, type of commercial activity, or which has international recognition or currency (e.g. in finance, LMA loan forms and ISDA derivative forms; in international sales of particular types of commodities, GAFTA and FOSFA forms; in construction, JCT forms).

It is well established that it is not enough to show that a model form has, on a particular occasion, been used. The party relying on s.3 UCTA has to show that such model form is habitually used by the other party – in other words, he must supply "proof that the model form is invariably or at least usually used by the party in question". A party can adopt a model form by practice or by an express statement that he adopts a model form as his standard terms of business.

In the recent case of African Export-Import Bank v Shebah Exploration, the Court of Appeal had to consider whether it was arguable that a syndicate of African lenders had contracted on their written standard terms of business when they provided a loan on LMA terms to a Nigerian oil exploration company. The exploration company and its guarantors contended that the loan was on written standard terms of business. The Court rejected this argument, commenting that it was difficult to see how they could have had such a belief when they were dealing with three different parties in a syndicated loan agreement, one of whom was Egyptian and the others of whom were Nigerian. Furthermore, it was clear on the evidence that substantial negotiation had taken place, which was sufficient to demonstrate that the terms ultimately agreed were not the lenders' standard business terms.

Nevertheless, the Court left open the question of whether a contract based on an LMA form could ever be made on standard business terms. The lenders contended that it could not, because there is always a need for "adoption and amendment". Longmore LJ commented that that he suspected that submission went too far, and that if a lender habitually used a particular LMA form and refused to countenance any amendment, it would be difficult to say that the transaction was not done on that lender's standard business terms. However, he left it to a future court to make a conclusive ruling on the question.

African Export-Import Bank & Ors v Shebah Exploration & Production Company Ltd & Ors [2017] EWCA Civ 845