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July 13, 2020

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English Court of Appeal judgment recognises the importance of industry standard ISDA Master Agreement terms when challenged by a competing jurisdiction clause in a financing agreement

The Court of Appeal has confirmed that a jurisdiction clause that elects the English courts in an ISDA Master Agreement prevails when the underlying swap transaction forms part of a wider financing arrangement that is subject to the jurisdiction of the Turin courts: BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2019] EWCA Civ 768.

The case highlights many important points for market participants that enter into loan arrangements and linked hedging arrangements (typically interest rate and/or FX hedging products):

  • A loan agreement and an ISDA Master Agreement (which typically sets out the legal and commercial terms of a hedge) are different legal instruments that set out the terms of different financial products. The negotiated ISDA Master Agreement in this case stated that in the event of a conflict, the terms of the financing agreement prevailed. The Court found no such conflict for a variety of reasons, including that the two agreements documented distinct and separate legal relationships.
  • The commercial court “…considered the most powerful point of context to be the use of the ISDA documentation and the ISDA jurisdiction clause within it”. This is a powerful reinforcement of the legal certainty provided by the English law ISDA documentation framework irrespective of the jurisdiction of incorporation of the contracting parties (an Italian company and a French bank in this instance). The Court of Appeal confirmed the “acknowledged importance of interpreting the standard terms of the ISDA Master Agreement … to provide clarity, certainty and predictability”.
  • ISDA have relatively recently launched ISDA Master Agreements that are governed by the laws of jurisdictions other than England and New York, such as French law and Irish law (perhaps influenced by Brexit). The continued legal certainty that the English law governed ISDA Master Agreement continues to provide may mean market participants are reluctant to transition to the laws of jurisdictions that have not tested the terms of the ISDA Master Agreement and to courts that lack the specialist expertise of the English courts in this field.
  • In this case, the dispute was a perceived competition between jurisdiction clauses. It is arguable that other apparently duplicated terms in an ISDA Master Agreement and a credit agreement that together form a part of a wider financing arrangement, should be treated as separate contractual terms. Therefore if it is commercially agreed that only one set of legal terms (such as representations, covenants and events of default) should apply, the applicable contract should make that clear. The template contract terms in an ISDA Master Agreement and industry template loan documentation (such as that published by the Loan Market Association) are not the same.

This case is a reminder that ISDA Master Agreements should be carefully considered and negotiated as standalone agreements.


© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume IX, Number 255


About this Author

Jeremy Ladyman, Financial Services Lawyer, Squire Patton Boggs, Leeds Law Firm

Jeremy is a partner in our Financial Services Practice Group. He advises on a broad range of investment management, derivatives and financial services matters for a client base that includes banks, building societies, investment funds, pension trustees and corporates.

Jeremy trained and qualified at a magic circle firm where he worked for over four years. Jeremy has completed client secondments to Drax Power’s treasury team and to The Norinchukin Bank, where he supported the treasury and compliance teams in particular. 

+44 113 284 7250

Chris Webber specializes in resolving financial services disputes and regulatory investigations. He represents clients including banks, broker dealers, corporate trustees, bondholders, issuers, mortgage servicers, borrowers, insolvency office-holders, regulatory bodies, investment funds, and individuals. He also acts for corporate clients in contractual, investment, and shareholder disputes.

+44 20 7655 1655