Piedmontese Struggle To Consume Full English

• Published date: 04 November 2020
• Subject Matter: Finance and Banking, Litigation, Mediation & Arbitration, Financial Services, Commodities/Derivatives/Stock Exchanges, Trials & Appeals & Compensation
• Law Firm: Dillon Eustace
• Author: Mr Conor Keaveny and Richard Ambery

Court of Appeal in England holds that ISDA jurisdiction clause trumps competing provisions in related agreement

The recent decision in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2020] EWHC 2436 (Comm), examining a bank counterparty's rights under an interest rate hedging arrangement governed by the 1992 ISDA Master Agreement determined, as matter of English law, the effect of a range of 'boilerplate' provisions. However, of greatest interest to those of us practising outside of England and Wales, was the way in which the court resolved tensions arising from the choice of English law to govern hedging arrangements forming an integral part of complex local law governed financing. The judgment holds quite categorically that the English law governed ISDA is its own animal.

Buffet or à la carte?

In 2008, a syndicate of banks led by BNP Paribas SA (BNPP), entered into a loan agreement (the Facility Agreement) with Trattamento Rifiuti Metropolitani SPA (TRM), which is headquartered in Turin. TRM, an Italian public-private partnership, had sought funding to construct an energy plant. The Facility Agreement was governed by Italian law and contained a clause submitting to the jurisdiction of the Italian courts.

The Facility Agreement included an obligation for TRM to enter into interest rate swaps with BNPP to hedge interest rate risks associated with TRM's ongoing payment obligations to the syndicate of lenders under and on the terms of the Facility Agreement. In 2010, pursuant to that obligation, BNPP and TRM executed confirmations of swap transactions pursuant to a 1992 ISDA Master Agreement (the ISDA Master Agreement). As is common in relation to European bank financings, the ISDA Master Agreement contained an exclusive jurisdiction clause in favour of the English courts.

In correspondence some six years later, TRM alleged that BNPP had negligently advised TRM to enter into the hedging transactions, which (among other things) TRM said were mismatched with its real hedging requirements, generated a significant negative cash flow, and had a negative mark-to-market value. In September 2016, BNPP issued proceedings in the English Commercial Court against TRM seeking declarations of non-liability in relation to the hedging transaction, in most cases tracking the wording of the ISDA Master Agreement. In April 2017, TRM sued the Bank before the Italian court and then issued an application in the English Commercial Court to challenge its jurisdiction.

The...