Pia Dutton successful in Court of Appeal decision on FX trades

On 14 August 2020, the Court of Appeal handed down judgment in CFH Clearing Limited v Merrill Lynch International [2020] EWCA Civ 1064. Pia Dutton was instructed on the case by Stephenson Harwood LLP and led by Andrew Twigger QC.

On 15 January 2015, the Swiss National Bank unexpectedly removed the minimum exchange rate value in respect of the Euro, leading to severe market fluctuations. On the same day, CFH placed 27 spot foreign exchange (FX) transactions with MLI.

The turbulence in the market resulted in the average price of CFH’s 27 FX trades with MLI falling to 0.18. Later the same day, EBS (one of the principal FX trading platforms) declared an “official” low of EUR/CHF 0.85. The trades between MLI and CFH had not taken place via the EBS platform.

CFH alleged that MLI had a duty to retrospectively adjust the price to the EBS low. MLI applied for summary judgment against CFH and was successful in the Commercial Court before Moulder J: [2019] EWHC 963 (Comm).  The Judge found that the FX trades were governed by the standard ISDA 2002 Master Agreement and confirmations.  Moulder J held there was no duty, whether express or implied, upon MLI to retrospectively adjust the price of the 27 FX trades. It was held that a clause in MLI’s terms and conditions that stated that all transactions were “subject to all applicable laws, rules, regulations howsoever applying and, where relevant, the market practice of any exchange, market, trading venue and/or any clearing house and including the FSA Rules” did not amount to a contractual obligation to abide by market practice. To the contrary, the clause operated to relieve a party of its contractual obligations (such that it would not be in breach of contract) where the operation of the market practice of a particular exchange, market, trading venue and/or any clearing house would otherwise place it in breach.

CFH appealed Moulder J’s decision and the Court of Appeal gave permission on one Ground, namely, whether the effect of MLI’s terms and conditions was to import into the transactions a contractual obligation to comply with “market practice”, so as to require MLI to re-price the 27 transactions at 0.85 CHF, the “official low” of the EBS authenticated market range, or otherwise to cancel them.

The Court of Appeal dismissed CFH’s appeal and awarded MLI 100% of its costs summarily assessed.

The decision should provide reassurance to banks that terms will not be easily implied or incorporated into OTC transactions simply to accommodate severe market volatility. Parties will be bound by their agreements and vague terms such as “market practice” cannot be superimposed onto contracts, particularly those agreed between experienced commercial parties.

Click here to read the full judgment.

Related Barristers

Winner: UK Bar Awards 2023
The Lawyer Awards 2022: Chambers of the Year