Barclays Bank Plc v Unicredit Bank AG & Anor

A contractual consent provision requiring a party to act in a commercially reasonable manner imports an objective standard. The question is whether a reasonable commercial person in the decision-maker’s position might have reached the decision. The decision-maker may give priority to its own commercial interests and need not balance them against the other party’s interests, unless the requested protection is so disproportionate that no commercially reasonable person could have required it.

In this case, insisting on preservation of five years’ fee income was commercially reasonable. An entire agreement clause directed to contractual terms did not prevent reliance on negotiation evidence when assessing the exercise of the discretion. The guarantees therefore remained in force.

Barclays Bank Plc entered into three synthetic securitisation guarantees with UniCredit entities. The guarantees permitted early termination after a regulatory change, but only with Barclays’ prior consent, to be determined in a commercially reasonable manner.

UniCredit sought termination after a regulatory change affected the capital relief obtained from the transactions. Barclays refused consent unless it received the discounted balance of five years’ fees. UniCredit argued that this refusal was unreasonable, that an entire agreement clause excluded reliance on the parties’ negotiations, and that the guarantees had alternatively ended following UniCredit’s repudiatory breach.

The central issues were the meaning of commercial reasonableness, the relevance of Barclays’ commercial interests and negotiation understanding, the effect of the entire agreement clause, and the consequences of the alleged repudiation.

1. Commercial reasonableness. Barclays’ refusal of consent under clause 12.1(b) was subject to an objective standard. The question was whether a reasonable commercial person in Barclays’ position might have reached the decision, rather than whether the decision was justified or merely non-irrational. The relevant approach was distinct from the rationality standard applicable to an unfettered contractual discretion.
2. Barclays was entitled to prioritise its own commercial interests. Its legitimate interest was preserving the fee income from keeping the guarantees in force. It was not required to balance that interest against UniCredit’s interest in terminating agreements that no longer produced regulatory capital relief. The protection sought would be impermissible only if its nature or amount were so disproportionate to UniCredit’s continuing burden that no commercially reasonable person in Barclays’ position could have required it.
3. Insistence on five years’ fees was commercially reasonable. It reflected Barclays’ reasonable contractual expectation, the treatment of five years’ fees under other termination provisions, the express provision for equivalent payments after certain termination events, and the absence of any coherent basis for treating profit as inherently unreasonable. Barclays could also reasonably have required some payment for hedge-unwind costs, although it was unnecessary to decide what lesser sum might have sufficed.
4. The entire agreement and understanding clause concerned the identification of contractual terms. It did not exclude negotiation evidence relevant to whether a contractual discretion had been exercised commercially reasonably. Nor did it prevent reliance on an estoppel concerning the future exercise of that discretion. However, no shared understanding or estoppel was established on the facts.
5. UniCredit’s repudiation did not automatically terminate the guarantees. The elective theory of repudiation applied. The exceptional limitation based on lack of legitimate interest was not engaged, and the evidence did not establish that continued performance or reconstruction of the payment ledger was impossible or wholly unreasonable.
6. Barclays was entitled to declaratory relief. Its refusal of consent was commercially reasonable, and the guarantees had not been validly terminated or brought to an end.