Barclays v Unicredit

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A good outing for the Civil Division of the Court of Appeal (Queen’s Bench Division) which raises the question of what is “commercially reasonable” in the context of determinations made by parties to financial instruments. Certain guarantees issued by Barclays granted Unicredit optional termination rights some of which required Barclays’ prior consent “to be determined by [Barclays] in a commercially reasonable manner.”

The trial judge held in broad terms that Barclays was entitled to take primary account of its own interests in determining whether to consent to termination. It had a reasonable expectation of 5 years’ worth of premiums, and as it had sought the PV of those fees as a price for termination, it had acted commercially reasonably.

One then has to ask whether, in determining whether or not to consent to early termination, Barclays can take account of its own interest in preference to the interest of Unicredit. 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.

[Counsel for Unicredit] submitted that the purpose of requiring the determination to be made by Barclays in a commercially reasonable manner was to require Barclays to have regard to the interests of Unicredit as its counterparty in order that a mutual (or a mutually satisfactory) outcome could be achieved. Attractively as the submission was put, it is impossible to see how it could work in practice. Bankers, as commercial men, have a keen instinct for where their own interests lie. But if they are asked to have regard to the interests of the other party to the contract, how do they begin to assess what those interests are, let alone weigh those interests in comparison to their own interests? If the clause is to work in the way [Counsel for Unicredit] suggests, there would have to be some method of discovering and assessing the counterparty’s interests. The obvious way to do so would be to ask the counterparty what their interests were. But is Barclays to be expected to take the answer at face value? That might be beneficial to the counterparty but not be a balanced or accurate assessment of the counterparty’s interest. Could Barclays ask that the counterparty’s account of its own interests be backed up with documentary evidence? If so, it might be a long process; if not, it might lead to an unfair result. If this sort of exercise were envisaged, one would expect a neutral third party to be allotted the task of determining whether consent should be given but that is not what the clause says. Of course the requirement that consent be determined in a commercially reasonable manner must be intended to be a control exercise of some kind. If, therefore, Barclays had said that they would not consent at any price or if it had said that they wanted 11 years’ (or 19 years as the case might be) fees as being the full term of the guarantees, that might well not have been “commercially reasonable”. But that is not this case.

It is not easy to express a test for commercial reasonableness for the purpose of this (let alone any other) contract but I would tentatively express it by saying that the party who has to make the relevant determination will not be acting in a commercially reasonable manner if he demands a price which is way above what he can reasonably anticipate would have been a reasonable return from the contract into which he has entered and which it is sought to terminate at an early date.


The Court cited favourably the famous case of AP Picture Houses v Wednesbury.

Barclays v Unicredit has since been cited favourably, since in Mercuria v Citibank at para 116. (see judgment transcript)

See also