Court of Appeal Gives Certainty to Financial Traders

Court of Appeal Gives Certainty to Financial Traders

The ISDA Master Agreement, has been held by the Court of Appeal to take precedence over a bank's general terms of business where these are in conflict.

Author: MatterSmith –


A widely used contract in finance, the ISDA Master Agreement, has been held by the Court of Appeal to take precedence over a bank’s general terms of business where these are in conflict.


On 14 August, the Court of Appeal handed down judgment in CFH Clearing Limited v Merrill Lynch International [2020] EWCA Civ 1064. The decision followed Merrill Lynch International’s (MLI) earlier success at first instance of having all of CFH’s heads of claim dismissed.


The courts have in the past indicated that the ISDA Master Agreement should be construed so as to create certainty. They are also generally reluctant to accept novel arguments as to the meaning of market standard documents like the ISDA Master Agreement because of their application to the number of trades in progress at any one time, governed by them.


The Facts

The case arose out of the ‘Swiss flash crash’ of 2015 when the Euro/Swiss Franc exchange rate wildly fluctuated for a short period. CFH Clearing (CFH) suffered serious losses in a large number of automated foreign exchange (FX) trades handled by MLI. Other banks that CFH was dealing with at the time on other trades, all agreed to limit CFH’s losses by applying a market-recognised ‘official low’ (0.85), which was much higher than the rate at which CFH’s trades had been executed by MLI (0.182). The trades via MLI were governed by an ISDA Master Agreement; an FX Confirmation Agreement; and the MLI terms of business (MLI Terms).

CFH advanced its appeal upon the basis that MLI had breached clause 7 of the MLI Terms, which provided that:

“… All transactions are subject to all applicable laws, rules, regulations however so applying and, where relevant, the market practice of any exchange, market, trading venue and/or any clearing house and including the FSA Rules”

As such, CFH said, FX market practice was incorporated into the terms of its agreement with MLI.

CFH argued that what the other banks had done was recognised FX market practice (per the Financial Markets Association Model Code, when trades were executed outside the authenticated market range, the parties should immediately either adjust the price to the relevant end of the authenticated range (as the other banks had done) or cancel the trades altogether).


The Court’s Decision

CFH were unsuccessful in proving that such market practice was incorporated into the contractual terms of the trades, with the Court dismissing CFH’s appeal by finding that:


  1. 1. It was expressly stated in the MLI Terms that the terms of specific transactions would take precedence over the general provisions of the MLI Terms themselves.


  1. 2. Even if the provisions of the ISDA Master Agreement could have been overridden to account for market practice (and they could not), Clause 7 of the MLI Terms could was not a reference to FX market practices, but rather to specific markets like the EBS platform used for the Swiss Franc/Euro exchanges in this case (and from which, CFH had not shown any loss-limiting market practice arose).


  1. 3. Even if Clause 7 of the MLI Terms had referred to FX market practice, the alleged market practice was too vague and uncertain to be incorporated as a contract term. The Court added that in fact, the way to so incorporate would be by formalising such relations through an ISDA Master Agreement – the very document CFH sought to override.


The Court of Appeal also noted that CFH “was bound by the terms of those transactions according to the ISDA Master Agreement it had negotiated and agreed with MLI, an agreement which could have made, but did not make, provision for market disruption. I see no reason why CFH should not be held to its bargain.”



While each case will turn on its own facts, the Court of Appeal’s decision underlines that parties are unlikely to have intended to agree unspecified terms which contradict the terms of ISDA documentation, and the lower courts are likely to follow this decision where there are similar attempts to contradict other recognised terms. Parties in similar instances who wish to try to recoup losses by an argument to incorporate external terms in market standard documents, should proceed with extreme caution. Those wishing to vary the terms of ISDA Master Agreements or other recognised templates, should do so explicitly.


For any queries, please get in touch with us at [email protected]


Mattersmith is a regulated legal practice committed to improving the productivity of legal and contractual processes, especially in the Investment and Tech sectors. We support you by taking the load off your everyday matters so that you can concentrate on the big and strategic issues for your business.

Make possibility reality

Become an IA FinTech Member
and see where it takes you.

Login to your account