Barclays Bank plc v UniCredit Bank AG
[2014] EWCA Civ 302
Independent editorial summary — not the official judgment. Read the full judgment via the source link.
Ratio Decidendi
Where a contract lets one party terminate early only with the other party's consent, 'such consent to be determined by [that party] in a commercially reasonable manner', it is the manner of the determination — not necessarily its outcome — that must be commercially reasonable, and the party determining consent may have primary regard to its own commercial interests rather than its counterparty's. The clause is still a control of sorts: demanding a price far above the reasonable return anticipated from the contract would not be commercially reasonable.
Facts
In 2008-2009 Barclays gave UniCredit's German and Austrian banks three 'synthetic securitisation' guarantees, taking the credit risk on portfolios of assets in return for quarterly premiums so that UniCredit could reduce its regulatory capital requirements. Clause 12.1 allowed UniCredit to terminate early on a Regulatory Change, but only with Barclays' prior consent, 'such consent to be determined by the Guarantor in a commercially reasonable manner'. After a Regulatory Change deprived UniCredit of capital relief, UniCredit sought consent to terminate in June 2010; Barclays in effect made its consent conditional on being paid the discounted balance of five years' fees, and UniCredit declared the guarantees terminated anyway and stopped paying premiums.
Judgment Summary
The Court of Appeal dismissed UniCredit's appeal. Longmore LJ held that Barclays was entitled to put its own commercial interests first, and that the price it sought — broadly the discounted value of five years' fees, a rough and ready assessment of its loss of profit — was not out of line with the return it reasonably expected, so its determination was made in a commercially reasonable manner. The entire agreement clause did not help UniCredit: such clauses identify the terms of the contract and do not control how parties exercise rights the contract gives them. UniCredit's purported designation of 30 June 2010 as the early termination date was therefore invalid and the guarantees remained in force.
Key Quotes
"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."
— Longmore LJ at [15](verbatim, verified against the judgment)
"To my mind the answer is that it can, because any commercial man whose consent to a course of action is required but to whom the determination (whether to give that consent) is entrusted would think it commercially reasonable to have primary regard to his own commercial interests."
— Longmore LJ at [16](verbatim, verified against the judgment)
Subsequent Treatment
Leading authority on clauses requiring consent to be determined 'in a commercially reasonable manner'; the court treated its approach as according with the contractual discretion line of cases such as Socimer v Standard Bank.
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