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England and Wales High Court (Commercial Court) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Commercial Court) Decisions >> African Export-Import Bank & Anor v Shebah Exploration & Production Company & Ors  EWHC 311 (Comm) (19 February 2016)
Cite as:  EWHC 311 (Comm),  2 All ER (Comm) 307,  2 BCLC 412,  1 CLC 292
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QUEEN'S BENCH DIVISION
Fetter Lane, London, EC4A 1NL
B e f o r e :
|AFRICAN EXPORT-IMPORT BANK
|DIAMOND BANK PLC
|SKYE BANK PLC
|- and -
|SHEBAH EXPLORATION & PRODUCTION COMPANY LIMITED
|DR AMBROSIE BRYANT CHUKWUELOKA ORJIAKO
Richard Gillis QC (instructed by Winston & Strawn LLP) for the Defendants
Hearing dates: 22 July and 28 September 2015
Crown Copyright ©
Mr Justice Phillips :
i) that Shebah has a counterclaim against the first claimant ('Afrexim') for damages for alleged breaches of Afrexim's obligations as Arranger of the Facility Agreement. It is alleged that Afrexim, in breach of implied duties of care and skill, arranged both the original loan and the re-stated loan in a 'dilatory' fashion, causing Shebah to incur wasted expenditure and to lose revenue from the oil wells. The defendants claim that Shebah is entitled to set-off those damages, said to total US$137.1m, against the sums claimed by Afrexim in these proceedings;
ii) that Shebah has a counterclaim against the second claimant ('Diamond'), in respect of a previous loan to Shebah which was re-financed by the original loan pursuant to the Facility Agreement. Shebah asserts that Diamond breached an agreement that the previous loan would be 'capped' at US$60m, resulting in Diamond wrongly retaining US$10.8m from the sums advanced to Shebah under the Facility Agreement and causing Shebah consequential losses of at least US$20.4m. Again, the defendants claim that Shebah is entitled to set-off those sums against the sums claimed by Diamond in these proceedings;
iii) that the claimants, in commencing these proceedings, acted in breach of an alleged agreement, said to have been made on 16 May 2014, not to commence proceedings pending the conclusion of negotiations to refinance the debt with Zenith Bank. The defendants assert that the appropriate remedy for that breach is that these proceedings be stayed for 6 months. Alternatively, Shebah counterclaims damages on the basis that pursuit of these proceedings will cause the loss of Shebah's business, including its licence, resulting in damages estimated at US$830m.
iv) that the claimants' purported acceleration of the loan as of 16 October 2013 was ineffective, so that the only sums immediately due and owing (subject to the alleged defences referred to above) are quarterly repayment instalments which remained unpaid at the date proceedings were commenced. The defendants acknowledge that the claimants have subsequently served an effective notice of acceleration and valid demands on Allenne and Dr Orjiako, but contend that the causes of action arising from such service cannot be pursued in these proceedings as they post-date the issue of the claim form.
v) that certain default interest charges and hedging fees have been wrongly included in the sums claimed, in particular a hedging fee of US$150,000. The claimants, however, have confirmed that they have excluded the charges referred to and that they will not pursue summary judgment for the hedging fee. Therefore no issue remains between the parties in relation to this minor aspect of the alleged defence.
Whether the defendants have an arguable right to set-off any counterclaims
Clause 32.6 of the Facility Agreement provides:
"All payments to be made by an Obligor under the Finance documents shall be calculated and made without (and free and clear of any deduction for) set-off or counterclaim."
Clause 9.1 of the Personal Guarantee provides:
"All sums payable by the Personal Guarantor under this Deed shall be paid in full to the Security Trustee in the currency in which the Guaranteed Obligations are payable:
(a) without any set-off, condition or counterclaim whatsoever; and
(b) free and clear of any deductions or withholdings whatsoever except as may be required by law or regulation which is binding on the Personal Guarantor."
"(1) This section applies between contracting parties where one of them deals as a consumer or on the other's written standard terms of business.
(2) As against that party, the other cannot by reference to any other contract term –
(a) when himself in breach of contract, exclude or restrict any liability of his in respect of the breach; or
(b) claim to be entitled (i) to render a contractual performance substantially different from that which was reasonably expected of him, or (ii) in respect of the whole or any part of his contractual obligation, to render no performance at all,
except in so far as (in any of the cases mentioned above in this subsection) the contract term satisfied the requirement of reasonableness."
(a) The facts relating to the provenance of the Facilities Agreement
i) The initial draft was sent by Afrexim to Shebah on 1 April 2011;
ii) On 13 May 2011 Winston & Strawn sent a 'redline' re-draft (heavily marked with their proposed revisions) to Afrexim, copied to their client, Shebah. Winston & Strawn stated that although they had had input from Shebah, the draft remained subject to further comments or amendments from Shebah;
iii) On 16 May 2011 Winston & Strawn referred in an email to the fact that they were discussing the draft with Clifford Chance the following day;
iv) On 24 May 2011 Afrexim sent a revised draft to Shebah and Winston & Strawn, the covering email referring to the fact that one change which was not incorporated in the draft was that a floating rate of interest would be retained, but that there would be a side-letter setting a ceiling at 10% as per the parties' last call.
v) On 25 May 2011 Winston & Strawn referred in an email to the fact that the account structure for the facility (which had been added by them in the 13 May draft) has been "agreed commercially". Winston & Strawn added that a further revised draft of the Facility Agreement would be circulated once they had Shebah's further instructions.
vi) Although the details are not in evidence, there must have been further discussions leading to the final version of the original Facility Agreement, executed on 1 July 2011.
(b) The relevant legal principles
"78. The concept underlying the provisions of Unfair Contract Terms Act 1977 s.3, in my judgment, is that there should exist a stock of written, no doubt usually, at any rate, printed, contract conditions which was simply drawn from as a matter of routine and intended to be adopted or imposed without consideration or negotiation specific to the individual case in which they were to be used. That seems to me to be the force of the words "written" and "standard" in the expression "written standard terms of business". In other words, it is not enough to bring a case within Unfair Contract Terms Act 1977 s.3 that a party has established terms of business which it prefers to adopt, as, for example, a form of draft contract maintained on a computer, or established requirements as to what contracts into which it entered should contain, as for example, provision for arbitration in the event of disputes. Something more is needed, and on principle that something more, in my judgment, is that the relevant terms should exist in written form prior to the possibility of the making of the relevant agreement arising, thus being "written", and they should be intended to be adopted more or less automatically in all transactions of a particular type without any significant opportunity for negotiation, thus being "standard".
"21. ... The conditions have to be standard in that they are terms which the company in question uses for all, or nearly all, of its contracts of a particular type without alteration (apart from blanks which have to be completed showing the price, name of the other contracting party and so on). One encounters such terms on a regular basis – whether when buying goods over the internet or by mail order or when buying a ticket for travel by air or rail.
22. In my view, it is the essence of such terms that they are not varied from transaction to transaction …"
"… it does seem to me that one essential for the application of the Act to such forms would be proof that the Model Form is invariably or at least usually used by the party in question. It must be shown that either by practice or by express statement a contracting party has adopted a Model Form as his standard terms of business. For example, an architect might say, "My standard terms of business are on the terms of the RIBA Form of Engagement". Without such proof, it could not be said that the Form is, in the words of the Act, "the other's" standard terms of business. I leave open the question what would be the position where there is such proof, and whether such proof either alone or with other features would make section 3 of the Act applicable."
(c) The defendants' contentions as to the applicability of s 3 of UCTA
(d) My findings as to whether it is arguable that section 3 of UCTA applies
i) There is simply no basis for inferring that the claimants, or any of them, habitually put forward the LMA form (or a tailored version of it) as a basis for their syndicated loan transactions. Indeed, there is no evidence as to how the LMA form came to be chosen as the starting point in the case of the instant transaction. The most likely scenario is that it was chosen or selected by the claimants' lawyers (English solicitors in the present case) and that they will have adapted it to reflect the specifics of the transaction. It is impossible to draw any inferences as to what starting points may have been taken in other transactions, involving other permutations of lenders and other lawyers. The same or other lawyers may have provided their own templates for other transactions, not necessarily governed by English law. This is confirmed by the express evidence of the claimants' solicitor to the effect that documentation for the claimants' syndicated lending is negotiated and agreed on a transaction by transaction basis. Mr Gillis criticises that evidence on the grounds that Ms Patel does not state what enquiries were made and of whom, but I consider that it is straightforward evidence, given on the basis of her client's instructions, which comes as no surprise. The defendants have demonstrated no basis for doubting or going behind that evidence.
ii) There is even less basis for inferring, even it could be shown that the claimants habitually proffer the LMA form, that the claimants always refuse to negotiate the terms it contains. The likely permutations of lenders and borrowers and their respective bargaining strengths and the range of lawyers and their respective skills, are far too great to permit such a conclusion.
iii) In any event, I do not accept that the evidence demonstrates that the claimants refused to negotiate in the present case, or that the version of the LMA form they put forward remained 'effectively untouched'. It is noticeable that, despite filing voluminous evidence on behalf of their clients in opposition to this application (at very considerable cost), Winston & Strawn have not themselves given any evidence as to the negotiations, let alone suggested that the claimants refused to negotiate on any substantive aspect of the LMA form. Further, although it is true that the claimants reversed many of Winston & Strawn's proposed changes, not all were rejected:a) at Winston & Strawn's request, the Material Adverse Effect clause was revised so as to apply only to changes in the business of the Borrower (Shebah) and not also to those in the business of any Obligor (a definition which includes Allenne), a substantive change to the standard wording of the LMA form which could have important consequences;b) again at Winston & Strawn's request, the proposed requirement that the Lenders' Engineer certify the Proved Reserves (of oil) on a monthly basis was changed to provide for certification by an Independent Engineer on an annual basis;c) Winston & Strawn inserted a section dealing with Project Accounts, setting out the manner in which revenue from the oil wells would be collected and disbursed. This section, which is of considerable commercial significance, appears to have been the subject of substantial commercial negotiation. Winston & Strawn's proposed drafting appears to have been accepted.
The alleged 16 May 2014 agreement not to bring proceedings
"During the meeting, Dr Oramah and I agreed that the Zenith offer would be acceptable to the Claimants if certain amendments were made. As litigation would no longer be necessary if the proposal was acceptable to all parties, the clear understanding was that, if agreement was reached, litigation would not be pursued. Dr Oramah then dictated to me an email to be sent to ... Zenith, setting out the amendments they required. I sent two emails that day as a result of that meeting …"
i) On 20 May 2014 Zenith responded to the proposal that the facility be increased to US$220m by simply re-sending its term sheet dated 9 May 2014. In other words, Zenith did not make any amendments at all to its original offer, let alone accept the claimants' alleged revisions;
ii) On 21 May Dr Orjiako forwarded Zenith's response to Afrexim. Far from asserting an agreement binding the claimants, he requested the Lenders "to kindly give the Zenith offer consideration towards final resolution of this matter" and "not to go back to court … as we have an imminent resolution."
iii) When these proceedings were commenced on 2 June 2014 the defendants made no complaint and did not seek an injunction to restrain the claimants pursuing them. Instead they filed an acknowledgement of service and agreed directions for the service of evidence for this application. The point was raised for the first time in Dr Orjiako's evidence.
Whether the claimants can rely on their acceleration notices and letters of demand
"On and at any time after the occurrence of an Event of Default the Facility Agent may, and shall if so directed by the Majority Lenders, by notice to the Borrower:
(b) declare that all or part of the Loans, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents be immediately due and payable, at which time they shall become immediately due and payable ..."
"3. NOTICE OF ACCELERATION
Notice is hereby given in terms of clause 24.17 of the Facilities Agreement that if all sums due under the Facility are not paid, and all other Events of Default not remedied by at the latest one month after the instalment due on 16 September 2013, the entire Loan, together with accrued interest, and all other amounts accrued or outstanding under the Finance Documents shall be immediately due and payable, and we shall commence legal proceedings for recovery of the Loan with no further reference to yourselves."
Note 1 Comprising outstanding principal of US$143,888,888.89 and management fees of US$400,000. [Back] Note 2 The defendants do, however, contend that the claimants cannot rely on the accelerations and the demands in these proceedings: see paragraphs [40-47] below. [Back] Note 3 The defendants also agreed to pay the claimants’ costs of US$295,834.27 within 14 days, but in the event only paid US$110,801.10. [Back] Note 4 This was also a claim against all the defendants in respect of the unpaid costs. [Back] Note 5 The defendants do not assert that UCTA applies to the Personal Guarantee. [Back]
Note 1 Comprising outstanding principal of US$143,888,888.89 and management fees of US$400,000. [Back]
Note 2 The defendants do, however, contend that the claimants cannot rely on the accelerations and the demands in these proceedings: see paragraphs [40-47] below. [Back]
Note 3 The defendants also agreed to pay the claimants’ costs of US$295,834.27 within 14 days, but in the event only paid US$110,801.10. [Back]
Note 4 This was also a claim against all the defendants in respect of the unpaid costs. [Back]
Note 5 The defendants do not assert that UCTA applies to the Personal Guarantee. [Back]