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CFH Clearing Limited v Merrill Lynch International [2020] EWCA Civ 1064

24 September 2020. Published by Simon Hart, Partner

The Court of Appeal has held that "Market Practice" is too wide a term to be implied into an ISDA Master Agreement covering currency trading transactions, in dismissing a claim arising from the "de-pegging" of the Swiss Franc from the Euro.

Fact timeline

In 2011 the Swiss National Bank declared a floor on the EUR/CHF exchange rate at 1.2 CHF, thereafter intervening in the market to buy unlimited amounts of EUR at that rate to maintain that floor.

15 January 2015

  • At 9.30 am CET - the floor was unexpectedly removed, which led to an immediate and massive strengthening of the Swiss Franc against the Euro, causing severe fluctuations in the foreign exchange (FX) market for about 40 minutes.
  • At 9.47 am - CFH Clearing Limited (CFH) through its automated clearing system placed a total of 348 orders to liquidity providers in the FX market, including 27 electronic market orders with Merrill Lynch International (MLI) to trade a total of €20,479,000 for Swiss Francs at the next available price.  MLI's automated system filled the orders almost instantaneously at an extremely low average rate of 0.1821969 CHF and executed the trades.  On the main platform for EUR/CHF trading, the "official low" was declared at 0.85.
  • Later that day, Barclays, UBS and JP Morgan, the other liquidity providers that CFH had placed orders with during the period of volatility, each confirmed that any trade executed with CFH below 0.85 CHF would be re-booked at that rate to reflect the official low.  MLI however did not agree to adjust the rate for the 27 transactions to 0.85 CHF

16 January 2015

  • MLI offered to change the rate to 0.75 CHF after first making a margin call based on the average rate of 0.1821969 CHF.  It then notified CFH that MLI was terminating its prime brokerage relationship with CFH, with the effect that CFH had to agree a final settlement with MLI so that it could transfer its remaining balance to another prime broker.  

19 January 2015

  • CFH reluctantly accepted the adjustment of the rate for the 27 transactions to 0.75 CHF. 

19 September 2018

  • CFH issued a claim against MLI, contending that the effect of clause 7 of MLI's Terms and Conditions of Business (MLI's Terms) 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 market range, or otherwise to cancel them.

First Instance

The disputed transactions were concluded on the basis of a 2002 ISDA Master Agreement and schedule between CFH and MLI dated 27 June 2013 (the ISDA Master Agreement), supplemented by MLI's Terms.  Clause 7 of MLI's Terms (Clause 7) stated that "all transactions are subject to all applicable laws, rules, regulations…and, where relevant, the market practice of any exchange, market…including the FSA Rules."  

CFH argued that Clause 7 amounted to an express contractual term that the parties would act in accordance with market practice.  Moulder J rejected CFH's interpretation of Clause 7, holding that as a matter of construction, Clause 7 did not impose a contractual obligation to act in accordance with market practice but intended to relieve a party of contractual obligations where it was unable to perform those obligations because of relevant market practice (a workable construction).  In reaching this conclusion, Moulder J considered that if the words "subject to" in Clause 7 had the effect of incorporating all applicable laws, rules, regulations and market practices into the contract between CFH and MLI, as CFH contended, this would result in an unworkably uncertain contract.  As such, Moulder J found that CFH had no real prospect of success on the issue and dismissed their claim.  

The Appeal

CFH appealed Moulder J's decision, principally on the basis of what it submitted to be the true construction of Clause 7.  CFH submitted that Clause 7 was an express recognition that there might be a conflict between the terms of the transactions between MLI and CFH on the one hand and market practice on the other.  In that context, the clear intention of the phrase "subject to" in Clause 7 was that market practice would be binding.  CFH therefore submitted that market practice was incorporated into the transactions and was not merely a "get out clause."

The Court of Appeal dismissed CFH's appeal.  The starting point for the contractual analysis was that the parties had agreed that their FX transactions would be governed by a standard ISDA 2002 Master Agreement and a specifically negotiated schedule, which permitted them to provide for market disruption.  The contractual documentation extended to 42 pages of detailed provisions, including in relation to illegality and force majeure events.  That documentation did not incorporate "market practice" and neither did the parties adopt any of the options for dealing with market disruption, despite incorporating the 1998 FX and Currency Option Definitions.

Phillips LJ held that there was no arguable basis for finding that the parties had agreed to incorporate "market practice" generally, given that this was not reflected in the ISDA Master Agreement.  MLI's Terms stated at the very outset that their application was "subject to…documentation relating to a specific transaction or transaction", meaning that notwithstanding anything in MLI's Terms, the 27 transactions remained governed by the terms of the ISDA Master Agreement.  MLI's Terms would apply to the broader aspects of the relationship with CFH and to any transactions which were not covered by the terms of the transaction-specific documentation.  It followed, therefore, that CFH's contention that "market practice" was incorporated into the 27 transactions, overriding the express pricing and settlement provisions of the ISDA Master Agreement, failed on the basis of the express scope of MLI's Terms as set out in their pre-amble.

The Court of Appeal agreed with Moulder J that Clause 7 could not be read as incorporating market practice into the transactions between CFH and MLI, and that the alleged market practice was too vague and uncertain to be incorporated as a contractual term.  Accordingly, CFH's appeal was dismissed. 


The desire to maintain the certainty and stability of the relationship between those contracting on the basis of the ISDA Master Agreement underpins the Court of Appeal's decision in this case, and therefore explains the court's unwillingness to find that a party to such a contract should be required to act in accordance with a concept as potentially broad and uncertain as "market practice.