It is common for parties to a contract to attempt to exclude or limit their liability. However the Unfair Contract Terms Act 1977 (the "Act") limits the application of such clauses to standard contracts.
Standard contracts are non-negotiable, pre-printed contracts offered to everyone a business deals with.
Under the Act some exclusion and restriction clauses are declared void and others are subject to a "fair and reasonable test" before they can be given effect. Similar rules apply to consumer contracts pursuant to the Consumer Rights Act 2015.
A borrower and two guarantors appealed against the decision of the High Court in granting judgment in favour of three lenders on their claim for sums due under a syndicated loan facility agreement.
The lenders were three banks, one Egyptian and two Nigerian, which advanced $150 million to the borrower under an agreement based on the form of syndicated facility agreement recommended by the Loan Market Association ("LMA").
The borrower defaulted on their obligations under the facility agreement and the lenders accelerated the debt such that it became due and payable and made demands on the guarantors in respect of their guarantees.
The borrower contended that they had a counterclaim against the lenders in the total sum of approximately $1 billion which should be offset against their accepted liabilities. However the lenders alleged that any such set off was specifically excluded by the wording of the facility agreement.
In response the borrower sought to rely on the Act, stating that they were dealing on the claimants "written standard terms of business" and therefore the lenders could not reasonably rely on the wording of the facility agreement.
The Court cited the case of British Fermentation Products Ltd v Compair Reavell Ltd  2 All ER Comm 389 which provides the test to be satisfied before the reasonableness of a clause may be considered:
The term is written;
The term is a term of business;
The term is part of the other party's standard terms of business; and
The other party is dealing on those written standard terms of business.
The first two requirements were not disputed.
For the third requirement, the Court approved the decision in British Fermentation which stated that "proof that the model form is invariably or at least usually used by the party in question" was required.
In respect of the fourth requirement, the question before the Court was whether the Act applies to cases where there has been negotiation between the parties. The Court referred to the decision of St Albans City and District Council v International Computers Ltd  4 ALL ER 481 in which a deal had been said to be done on standard terms of business as they had remained "effectively untouched" by the negotiations which had taken place.
The Court held that: "it is relevant to inquire whether there have been more than insubstantial variations to the term…If there has been substantial variations, it is unlikely to be the case that the party relying on the Act will have discharged the burden on him to show that the contract has been made 'on the other's written standard terms of business' ".
The Court found that the borrower had filed no evidence to the effect that they believed the agreement was made on the lender's standard terms of business.
Further, the Court upheld the decision of the High Court on the basis that there were in fact detailed negotiations between the parties solicitors on the LMA model form and it could not be said that they were "effectively untouched". The appeal was accordingly dismissed.
The decision will be of some comfort to lender's who regularly use the LMA model form. However, it is important to note that the Court refused to rule on the lender's submission that a contract based on an LMA form can never be made on standard business terms because there is always a need for adaptation and amendment. Instead it was commented that "if a lender habitually used a particular LMA form and refused to countenance any amendment, it would be difficult to say that the deal was not done on that lender's standard business terms".