BARCLAYS BANK PLC V UNICREDIT BANK AG (FORMERLY KNOWN AS BAYERISCHE HYPO-UND VEREINSBAND AG) AND ANOTHER

[2014] EWCA Civ 302, Court of Appeal (Civil Division), Lord Justice Longmore, Lord Justice Patten and Lord Justice Christopher Clarke, 20 March 2014

Banking - "Commercially reasonable" in the context of determinations made by parties to financial instruments - Optional early termination of guarantees - Party's consent required for termination of agreement - Circumstances in which consent may be reasonably withheld

To reduce its credit risk, Unicredit transferred the credit risk in certain of its assets to Barclays Bank plc who would make quarterly payments to Unicredit in respect of relevant portfolio losses and in return Unicredit paid quarterly premiums to Barclays. There were three such guarantees given by Barclays as guarantor to Unicredit. The guarantees were for 11 or 19 years but contained provisions for optional early termination which included the language: "such consent to be determined by [Barclays] in a commercially reasonable manner". On 14 June 2010 the defendants sought Barclays' consent to an early termination on 30 June 2010 as a result of regulatory change. Barclays refused, essentially because early termination would be uncommercial for it. Unicredit argued that it was not reasonable for Barclays to refuse consent in circumstances where the guarantees no longer offered the intended benefit. At first instance, the judge held in broad terms that Barclays had withheld its consent to early termination in a commercially reasonable manner and that the defendants' purported designation of 30 June 2010 as the Optional Early Termination Date was invalid and of no effect. He held that Barclays were entitled to take primary account of their own interests in determining whether to consent to termination. Unicredit appealed.