In BNP Paribas SA v Trattamento Rifuti Metropolitani SpA [2020] EWHC 2436 (Comm), the English Commercial Court awarded BNP negative declaratory relief, holding that an ISDA Entire Agreement clause was effective in the context of a broader financing and that the counterparty was estopped from claiming it had relied on advice in entering into an interest rate swap. This decision follows last year’s Court of Appeal ruling that the English courts had jurisdiction under the swap despite an Italian jurisdiction clause in a related financing agreement. This judgment provides further certainty for financial institutions hedging under ISDA terms in cross-border transactions.

Trattamento entered into a financing agreement subject to Italian law and jurisdiction with a syndicate led by the bank. As part of the hedging arrangements contemplated by the financing agreement, Trattamento and the bank entered into a 1992 ISDA Master Agreement, which contained a jurisdiction clause in favour of the English courts. The Schedule stated that, in the event of conflict between the ISDA and the financing agreement, the latter should prevail.

The parties fell out over the swap and engaged in a jurisdictional skirmish between the English and the Italian courts. Trattamento complained of a “significant negative cash flow … as well as a negative mark-to-market” generated under the swap and alleged the bank had provided inadequate consultancy services.The bank issued proceedings in England for negative declaratory relief. The company began proceedings against the bank in Italy in tort and for breach of contract and statutory duty under Italian law. It objected to the jurisdiction of the English court, arguing that the declarations sought by the bank fell within the Italian jurisdiction clause in the financing agreement. Ultimately, the Court of Appeal ruled that the English courts had jurisdiction to hear the bank’s claim, as the claim arose under the swap rather than the broader financing agreement and so the conflicts provision in the financing agreement did not come into play. The case returned to the Commercial Court for a trial of the substantive dispute.

As a preliminary matter, in her judgment, the Judge summarised the general principles to be applied when considering whether to grant negative declaratory relief (as a discretionary remedy). Mrs Justice Cockerill DBE explained that the Court must have regard to the utility of the relief, the need to do justice between the parties, and whether the relief is the most effective way of resolving the issue. The Court must not, the Judge said, entertain hypothetical questions. In applying these principles, the Judge concluded that the question as to whether the ISDA Master Agreement framed the parties’ rights fell “comfortably on the right side of the hypothetical/actual divide”. The Judge could see utility in some declarations (see below), explaining that a judgment in England as to the meaning and legal effect of the relevant ISDA terms would be enforceable in the ongoing proceedings in Italy and could assist the Italian courts in interpreting the agreement.

The Judge enforced the ISDA’s Entire Agreement clause. Cockerill Jrejected Trattamento’s argument that the Entire Agreement clause was unenforceable because the terms of the financing agreement (referenced in the swap’s Schedule) prevailed over standard form ISDA terms. The Judge stated that the meaning of the clause was “clear and unambiguous”, reflecting Longmore LJ’s statement in Deutsche Bank v Commune di Savona [2018] EWCA Civ 1740 that the ISDA Master Agreement is a “self-contained’ agreement, exclusive of prior dealings”. The Judge said that to hold otherwise would sit uneasily with authorities on the “importance of certainty and clarity in interpreting the ISDA Master”, citing Briggs J in Lomas v Firth Rixson [2010] EWHC 3372.

The Judge also upheld certain non-reliance representations. Cockerill J held that, on the basis of certain non-reliance representations set out in the ISDA Schedule and the trade Confirmation, Trattamento had “made its own independent decision” to enter into the swap, and that it had not relied on any communications from the bank as advice or a recommendation. The Judge also held (based on the Court of Appeal's decision in Springwell Navigation Corpn v JP Morgan Chase Bank [2010] EWCA Civ 1221) that these non-reliance provisions gave rise to contractual estoppel, which prevented Trattamento from claiming otherwise. Trattamento argued that the estoppel should not be granted because the clauses were subject to a reasonableness requirement under s.3 of the Misrepresentation Act 1967 (and therefore, s.11 of the Unfair Contract Terms Act 1977). The Judge was “entirely unpersuaded” by this, not least because the swap was negotiated on market standard terms, subject to amendments agreed in the Schedule between sophisticated commercial parties of equal bargaining power.

However, the Judge refused to grant broader declarations. It is worth noting that Cockerill J did not grant other declarations sought by the bank, including (i) a wide declaration of non-liability, (ii) an indemnity and (iii) a pre-emptive declaration in relation to limitation.

Benjamin Sidbury, Associate in London

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