Barclays Bank Plc v Unicredit Bank AG [2014] EWCA civ 302
This case addressed the construction of a clause requiring a party to make a determination in a "commercially reasonable manner" in relation to an option for early termination.
The requirement for parties to commercial contracts to exercise their rights in a "commercially reasonable manner" is often seen in finance documents. This decision therefore has potentially wide reaching implications.
The High Court decided that it was commercially reasonable for Barclays to withhold its consent on the basis that it did. However, Unicredit challenged that decision in the Court of Appeal claiming that the Judge was incorrect to allow Barclays to give precedence to its own commercial interests and exclude the interests of Unicredit. Unicredit also challenged the sums sought. The appeal failed on all the issues.
The following key points come out in the judgment:
- It is the manner of the determination which must be commercially reasonable; it does not follow that the outcome has to be commercially reasonable although, if it is not, that would no doubt cause one to look critically at the manner of the determination
- A party is entitled to take account of its own interest in preference to the interest of the other party
- The Court decided that the entire agreement clause did not exclude evidence about the way in which the parties exercise their contractual rights
This case serves to remind parties that the Court will give effect to the ordinary meaning of the words in contractual provisions. In the judgment Longmore LJ said that it was not easy to set out an express test for commercial reasonableness but tentatively expressed it by saying that the party who has to make the relevant determination will not be acting in a commercially reasonably manner if he demands a price which is way above what he can reasonably anticipate, but stressed that the question of construction applied only to the particular contract in its particular context.
Although this decision leaves scope for further question as the Court did not take the opportunity to give clearer guidance as to the interpretation of "commercially reasonable manner" the decision will no doubt be welcomed by financial institutions as it shows the Court's unwillingness to interfere in a commercial contract at arm's length when the parties can "look after their own interest and contract on different terms if they wish to do so".
The full text of the judgment can be found here: http://www.bailii.org/ew/cases/EWCA/Civ/2014/302.html
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