www.newlawjournal.co.uk | 9 October 2015 COMMERCIAL LEGAL UPDATE 15

received had termination not taken place; and ffto disregard the “entire agreement” clause.

For Longmore LJ the critical factor was that the person who had to act in a commercially reasonable manner is the guarantor, . Barclays had to determine whether its consent was to be given. Could Barclays prefer its own interest over that of Uniserve? Yes, it could. This was because any commercial man whose consent to a course of action is required and to whom that determination is entrusted would think it reasonable to have regard to his own interests.

The big What is the test for “commercial reasonableness”? “The party who has to make the question determination will not be acting in a Simon Duncan provides commercially reasonable manner if he demands a price which is way above what he an update on the test for can reasonably anticipate would have been commercial reasonableness a reasonable return from the contract into which he has entered and which it is sought to

IStockphoto/peshkov © terminate at an early date.” (Longmore LJ) So how was the clause to be regarded? IN BRIEF requested early termination because of a ffDid it confer a contractual discretion on f In Barclays Plc v Bank AG regulatory change. Barclays refused because Barclays so that the cases on contractual and another the Court of Appeal considered that would deprive it of the minimum of five discretion applied? what the critical factor is in the test for years’ worth of premiums that it anticipated. ffDid it confer a discretion to which the commercial reasonableness. Unicredit considered the refusal of principles of Associated Provincial Picture consent to be unreasonable. It elected to Houses Ltd v Wednesbury Corp [1948] 1 KB he question “what is commercially treat the refusal as a waiver of the consent 223, [1947] 2 All ER 680 applied? reasonable?” came before the requirement, and designated 30 June 2010 as ffWas it analogous to landlord and tenant Court of Appeal in Barclays Bank the early termination date. cases where the consent of the landlord TPlc v Unicredit Bank AG and another Barclays applied to court for a declaration “could not be unreasonably withheld”? [2014] EWCA Civ 302, [2014] 2 All ER that it had validly refused consent and ffDid it require Barclays to make an (Comm) 115. sought to enforce the payments under the objectively commercially reasonable guarantees. interpretation? The facts In 2008, Unicredit was under pressure to At first instance Barclays was entitled to prefer its improve its capital reserves. It entered into Popplewell J held that: own interests in making a commercially a “synthetic securitisation” with Barclays, ffBarclays had withheld its consent to early reasonable decision subject only to the whereby Unicredit transferred the credit termination in a commercially reasonable principle derived from the Wednesbury case risk on their loan portfolio to Barclays by manner and that Unicredit’s election had that its decision could not be so unreasonable procuring three guarantees against losses no efect; as to be perverse. from Barclays. This allowed Unicredit to hold ffBarclays was entitled to prefer its own Longmore LJ gave shrift to Unicredit’s less capital against the risk of loss. interests in refusing consent; argument about the efect of the entire Unicredit paid premiums to Barclays, and ffBarclays’ refusal was not a refusal on agreement clause. Such a clause: “Is intended received credit protection payments to cover any terms. In light of the correspondence to exclude any evidence or argument to the portfolio losses in return. between the parties the price of Barclays’ efect that the terms of the contract are to The guarantees were to last for 11 years consent was that it should recover five include any mutual understanding that is not (the first two) and 19 years (the third.) years’ worth of fees, albeit discontinued recorded in the contract. It is not intended Unicredit had an option to terminate after for present payment. to exclude admissible evidence or argument five years or if a regulatory change made about the way in which parties exercise rights the guarantees subject to a less favourable On appeal given to them by the terms of the contract.” treatment. If the latter, then Unicredit could Unicredit considered the judge to be wrong: Barclay’s decision was therefore designate the next payment date as the early ffto hold that Barclays was entitled to commercially reasonable and Unicredit’s termination date provided that it obtained give precedence to its own commercial appeal was dismissed. NLJ consent from Barclays: “Such consent to be interests; determined by [Barclays] in a commercially ffto hold that Barclays was entitled to Simon Duncan, solicitor, Moon Beever reasonable manner.” demand a sum equal to five years’ worth Solicitors ([email protected]; Less than two years later, Unicredit of fees that it would otherwise have www.moonbeever.com)