Barclays Bank Plc v Unicredit Bank Ag & Anor

Where a contract requires a party to determine consent in a commercially reasonable manner, the requirement ordinarily controls the manner of determination rather than prescribing an objectively reasonable outcome. Its meaning depends on the language and context of the particular contract.

A party entrusted with the decision may give primary regard to its own commercial interests. The discretion remains subject to control: it cannot demand a price far above the return which it could reasonably have anticipated from the contract. An entire agreement clause identifying the parties’ contractual terms does not ordinarily exclude evidence or argument about how a contractual right was exercised.

Three guarantees transferred credit risk from UniCredit banks to Barclays in return for premiums. Following a regulatory change, UniCredit sought early termination under a clause requiring Barclays’ prior consent, with that consent to be determined in a commercially reasonable manner. Barclays sought the discounted value of five years’ fees as the price of consent. UniCredit purported to terminate without consent and stopped paying premiums.

The Commercial Court held that Barclays had withheld consent in a commercially reasonable manner and that the purported termination was ineffective. UniCredit appealed, challenging Barclays’ entitlement to prefer its own interests, the amount demanded, and the treatment of the guarantees’ entire agreement clause. The central issue was the meaning and application of the contractual requirement of commercial reasonableness.

1. Appeal dismissed. The requirement that Barclays determine consent in a commercially reasonable manner controlled the manner of its determination. It did not necessarily require the resulting decision or price to be objectively commercially reasonable, although an unreasonable outcome could prompt close examination of the decision-making process (per Longmore LJ, Patten and Christopher Clarke LJJ agreeing).
2. Because the guarantees entrusted the decision to Barclays itself, Barclays could give primary regard to its own commercial interests. The clause did not require Barclays to balance its interests against UniCredit’s interests or achieve a mutually satisfactory outcome. Such an exercise would have required a method for discovering and assessing the counterparty’s interests which the contract did not provide.
3. The contractual control was real, though not rigorous. A refusal to consent at any price, or a demand for fees over the full 11- or 19-year term, might have been commercially unreasonable. Longmore LJ tentatively stated that the decision-maker would act unreasonably if it demanded a price far above the return which it could reasonably have anticipated from the contract sought to be terminated early.
4. Barclays’ demand for the discounted value of five years’ fees was determined in a commercially reasonable manner. Barclays had not refused consent outright. The sum was consistent with the return reasonably expected over the guarantees’ anticipated course and constituted a rough assessment of lost profit. UniCredit had made no counter-offer, although that omission did not give Barclays unrestricted freedom.
5. The entire agreement clause identified the terms of the parties’ contract and excluded reliance on an unrecorded mutual understanding as an additional contractual term. It did not exclude admissible material concerning the exercise of rights conferred by the written contract. In any event, disregarding Barclays’ own understanding would not alter the conclusion that its demand had been determined in a commercially reasonable manner.

1. Court of Appeal (Civil Division): The appeal was dismissed. The court upheld the conclusion that Barclays had withheld consent in a commercially reasonable manner and that UniCredit’s purported early termination was invalid: [2014] EWCA Civ 302.
2. High Court, Queen’s Bench Division, Commercial Court: Popplewell J held that Barclays was entitled to take primary account of its own interests, had withheld consent in a commercially reasonable manner, and that the purported termination was ineffective. The neutral citation is not stated in the judgment.