CFH Clearing Ltd v Merrill Lynch International (2020)


A standard 2002 ISDA Master Agreement governing certain foreign exchange transactions was not varied by the defendant bank’s standard terms so as to incorporate an alleged market practice of retrospectively adjusting prices where there had been market disruption.

Andrew Twigger QC was instructed at first instance and on appeal by Donna Newman of Stephenson Harwood LLP on behalf of Merrill Lynch International, leading Pia Dutton of 3 Verulam Buildings.


The Claimant (“CFH”) regularly entered bilateral electronic FX spot transactions with the Defendant (“MLI”), back to back with orders placed with CFH by its clients. The transactions between CFH and MLI were governed by an ISDA 2002 Master Agreement dated 27 June 2013. MLI’s relationship with CFH was also governed by MLI’s standard Terms and Conditions of Business (“the Standard Terms”).

At 09.30 on 15 January 2015 the Swiss National Bank unexpectedly removed the “floor” it had previously imposed on the EUR/CHF exchange rate of 1.2 CHF. This resulted in a period of volatility, which triggered the automatic liquidation of certain positions of CFH’s clients. This in turn caused CFH to send 27 market orders to MLI. MLI’s automated system filled the 27 orders almost instantaneously at the low rates being streamed by MLI at the time, which resulted in an average price for the 27 trades of around 0.182 CHF. MLI subsequently offered to re-price these transactions at 0.75 CHF.

CFH alleged that the “official low” for EUR/CHF trading on the EBS platform on 15 January 2015 was 0.85 CHF. Its claim was for the 0.10 CHF per Euro difference between the alleged “official low” of 0.85 CHF and the 0.75 CHF offered by MLI. CFH relied on Clause 7 of the Standard Terms, which provided that “All transactions are 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 (together, the ‘applicable rules’)” (emphasis added). CFH contended that the effect of the emphasised words was to impose a contractual obligation on MLI to comply with a practice alleged to be followed in the foreign exchange market, whereby deals occurring during extreme events at prices outside the authenticated market range were either retrospectively re-priced within that range, or cancelled.

Moulder J struck out the claim. CFH appealed.


Phillips LJ (with whom Holroyde and McCombe LJJ agreed) dismissed the appeal. The 27 trades were governed by the ISDA Master Agreement, which was on industry standard terms. The suggestion that the parties had agreed to incorporate “market practice” generally should be treated with caution, because it would undermine the objectives of clarity, certainty and predictability which the ISDA Master Agreement was intended to achieve. The preamble to the Standard Terms stated that they were subject to any documentation relating to specific transactions, such that there was no scope for the Standard Terms to override the express pricing and settlement provisions of the ISDA Master Agreement.

The expression “subject to”, used in Clause 7 of the Standard Terms, meant that neither party was obliged to act in a way which breached any applicable rules, but did not result in the incorporation of those rules as contractual terms. The incorporation into every transaction of all the diverse rules and practices referred to in Clause 7 would result in uncertainty as to what the parties’ agreement was, to a degree which would render those transactions unworkable. Moreover, the expression “market practice of any … market” was intended to refer to the practice of a specific exchange or venue, rather than the FX market generally. The 27 trades were over-the-counter, so did not take place on any specific exchange or venue. Furthermore, the alleged market practice was itself too vague and uncertain to be incorporated as a contractual term: it was not clear when a party must re-price (or what the new price should be) and when it must cancel the trade.