The Unfair Contract Terms Act 1977 (UCTA) prohibits unfair exclusion clauses in contracts. In particular, section 3 of UCTA prohibits such clauses where one party deals as a consumer or enters into a contract on the other party's "written standard terms of business".

What amounts to "written standard terms of business" is not clearly defined. A model form of contract can be regarded as written standard terms of business where a party has expressly or by practice adopted it as its standard terms of business. 

UCTA has been in the spotlight again recently, this time in the Court of Appeal in the case of African Export-Import Bank and Others v Shebah Exploration & Production Company Limited and Others [2017] EWCA Civ 845, the appeal by the Defendant against the decision at first instance reported in our earlier article referred to above. Whilst this is not a construction case, it still has significance for the construction sector.

The case centres around a facility agreement under which the First Defendant borrowed money from three banks, the Claimants. The Second and Third Defendants were guarantors. The facility agreement was based on the form of syndicated facility agreement recommended by the Loan Market Association (LMA) which was adapted and amended during negotiations between the parties. The Defendant defaulted on the loan and so under the terms of the facility agreement, the Claimants issued a notice which meant the loan was immediately due and payable. Proceedings were issued by the Claimant for summary judgment.

In February 2016, the High Court heard this case and ruled that a party could be held to have contracted on its written standard terms where it had adopted a third party's written terms as its own (British Fermentation Products Ltd v Compare Reavell Ltd [1999] 2 All E.R (Comm) 389), even where there had been some negotiation between the parties but where the terms were left effectively untouched (St Albans City Council v ICL Limited [1996] 4 All E.R. 481 CA). In the African Export-Import Bank case, the Court held that there was no evidence put forward to suggest that the lenders habitually used the LMA form as a basis for their syndicated loan deals nor that the version of the LMA form put forward had remained virtually untouched following negotiations (the Claimants had in fact accepted some of the Defendant's requested amendments).

Mr Justice Phillips said "In circumstances where commercial parties, represented by solicitors, have utilised a ‘neutral’ industry model form as the basis for a complex and detailed financial contract, executed after the usual process of negotiation, including revising a travelling draft, it will require cogent evidence to raise even an arguable case that the resulting contract is made on the written standard terms of one of those parties."

Summary judgment was awarded in favour of the Claimants and the Defendants appealed this decision.

In the judgment handed down on 28 June 2017, the Court of Appeal held that for section 3 of UCTA to apply, the Defendant had to show that the agreement was based on the Claimant's written standard terms of business and that these were habitually used by the Claimant. This also raised the question of whether UCTA would apply where there had been negotiations between the parties which resulted in some, but not necessarily all, of one party's standard terms applying. In this situation, the correct approach was to consider whether there has been more than insubstantial variations to the standard terms. If there had been substantial variations, it is unlikely that the Court would find that the contract had been made on the written standard terms of business.

The Defendant failed to adduce evidence that the contract was made on the Claimant's standard terms. In any event, substantial and detailed negotiations had taken place between the parties before the contract was entered and so it could not be said that they were on the Claimant's standard terms of business. It is also worth noting that there was no requirement that negotiations had to relate to the exclusion clause itself in order for UCTA not to apply. In short, the Court of Appeal upheld the Judge at first instance.

Model form contracts and written standard terms of business are commonly used within the construction sector and there is always a risk of a challenge under section 3 of UCTA. The result of such challenges will be very much dependant on the facts of the case. In the African Export-Import Bank decision it was fairly clear that the contract had not been made on the Claimant's written standard terms, but this is by no means always the case, and the concept of what "written standard terms" means is constantly being tested in the Courts.