Simon Duncan provides an update on the test for commercial reasonableness
The question “what is commercially reasonable?” came before the Court of Appeal in Barclays Bank Plc v Unicredit Bank AG and another [2014] EWCA Civ 302, [2014] 2 All ER (Comm) 115.
The facts
In 2008, Unicredit was under pressure to improve its capital reserves. It entered into a “synthetic securitisation” with Barclays, whereby Unicredit transferred the credit risk on their loan portfolio to Barclays by procuring three guarantees against losses from Barclays. This allowed Unicredit to hold less capital against the risk of loss.
Unicredit paid premiums to Barclays, and received credit protection payments to cover portfolio losses in return.
The guarantees were to last for 11 years (the first two) and 19 years (the third.) Unicredit had an option to terminate after five years or if a regulatory change made the guarantees subject to a less favourable treatment. If the latter, then Unicredit could designate the next payment date as the early termination date provided that it obtained consent from Barclays: “Such consent to be determined by [Barclays] in a commercially
