Banking & financial disputes

Commercial Court provides guidance on ISDA swap claim for negative declaratory relief

Collyer Bristow LLP were instructed by Trattamento Rifuiti Metropoliani SpA (“TRM”) in proceedings issued by BNP Paribas SA (“BNPP” or the “bank”).



On 11 September 2020, Mrs Justice Cockerill handed down an important judgment ([2020] EWHC 2436 (Comm)) providing guidance on the Courts’ approach to a claim for declaratory relief (including negative declarations) in relation to an interest rate swap subject to standard ISDA terms (the “Swap”). In following its stated approach, the Court considered whether to grant the declarations which were intended to be used in foreign proceedings.  While declaratory relief is likely to be granted where they mirror the express provisions in an ISDA, the Court will carefully examine and, applying the principles of utility and justice, may refuse widely drafted declarations (particularly negative declarations as to liability). Collyer Bristow LLP were instructed by Trattamento Rifuiti Metropoliani SpA (“TRM”) in proceedings issued by BNP Paribas SA (“BNPP” or the “bank”).


TRM entered into an Italian law financing agreement (the “FA”) with BNPP in 2008 relating to the building of a power plant in Turin converting waste into energy.

In 2010, in connection with TRM’s borrowings under the FA, TRM and BNPP entered into the Swap on ISDA terms.  The Swap was governed by English law although the Schedule to the ISDA Master Agreement specifically referred to the parties’ rights under the FA.

BNPP commenced proceedings first against TRM in the English Court, seeking various declarations in relation to TRM’s obligations under the Swap.  Shortly afterwards, TRM issued proceedings against BNPP in Italy alleging, among other things, that the bank was in breach of contractual and non-contractual obligations under Italian law in connection with the FA and an implied advisory contract.  The bank confirmed to the English Court that it intended to use the declarations sought as a defence to TRM’s Italian proceedings.

The decision

The Judge had to consider whether to exercise her discretion to grant the declarations sought by BNPP which related to provisions in the ISDA.  Having regard to previous case law, she set out the framework which guided her in that exercise:

  • The touchstone is the utility of the declarations.
  • Negative declarations should be scrutinised carefully and should be refused where they would serve no useful purpose.
  • The prime purpose is to do justice in the particular case to both the claimant and the defendant which means:
    1. the Court will not entertain purely hypothetical questions.
    2. there must generally be a real and present dispute between the parties before the Court as to the existence or extent of a legal right between them.
    3. if the issue in dispute is not based on concrete facts the issue can still be treated as hypothetical.
  • The Court must consider whether the grant of declaratory relief is the most effective way of resolving the issues raised.
  • Where there is an absence of evidence of utility or concrete facts, the Court will not wish to grant any declarations which could create confusion.

Using these guidelines, the Judge agreed to grant those declarations which tracked express provisions in the ISDA, including standard non-reliance representations.

However, the wider declarations sought by the bank were refused.  In particular, the Judge refused to grant the most contentious declaration, which claimed that the bank could not be liable in respect of any claim relating to the Swap “including for losses in respect of any claim, under any system of law or regulation, in contract, tort/delict, statute or otherwise, and including but not limited to claims for breach of duty of care (including without limitation, a duty to advise), breach of contract, breach of fiduciary or other duty including any duty of good faith, nondisclosure, omission, misrepresentation (whether innocent, negligent or fraudulent) or breach of statutory or regulatory obligation arising out of or in connection with the [Swap] (including but not limited to its suitability, its pricing, its notional amount, its terms, its execution and the circumstances of the Defendant’s entry into it).

The Judge approached this negative declaration with the appropriate caution.  With regard to its utility, she considered it was essentially an insurance against issues which might arise in the future which, although not entirely hypothetical, were at best contingent.  She was also troubled by the wide wording of the declaration and the fact that it did not track any specific wording in the ISDA.  She also had regard to TRM’s proceedings in Italy and was concerned that granting such a wide and potentially ambiguous declaration could lead to future confusion.

She concluded that the declaration as to liability should be rejected.  The Judge also refused further declarations for an indemnity in the event of any such claim being brought by TRM and that any such claim would be statute-barred.  The Judge held that the utility of such declarations had not been made out in circumstances where TRM had confirmed it had no intention of commencing proceedings in England.

With regard to TRM’s ongoing proceedings against BNPP in Italy, the Judge made it clear that her Judgment was limited to the consideration of matters related to English law concerning the Swap.  In that regard, the Judge said: “I make very clear that I am not purporting to decide here any point which the Italian Court may have to decide about the way that the documents in this case interact as a matter of Italian law or the existence or extent of any qualification under that law which the Italian Court will be asked to rule on – if jurisdiction is accepted. I am considering only the questions of English Law, as to the meaning of provisions of the English Law agreement.

It is also worth noting that although the bank successfully argued (both in the High Court and the Court of Appeal) that the English Court should have jurisdiction in relation to the English claim, it did not automatically follow that the Court would grant the declaratory relief sought.  The Court held that no issue estoppel had been created in the bank’s favour in relation to the merits of whether any of the declarations should be granted as a result of the prior decisions on jurisdiction.


This Judgment will be of interest to financial counterparties in providing guidance on the likelihood of the Court granting declarations based on the provisions of ISDA or other industry-standard agreements.  It is clear from the Judgment that while standard declarations may be granted, the Court will carefully consider whether to grant wider declarations based on their utility and justice in the case.

The case will also be of interest to defendants to claims for negative declarations intended to be used in foreign proceedings.  Where the English Court has determined that it has jurisdiction to consider a claim for negative declaratory relief, it will look afresh at trial at the merits of the declarations on the basis of the principles of utility and justice.  A claimant who seeks to use negative declarations by the English Court as a defence to foreign proceedings should therefore not assume that they will be granted.




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Robin Henry

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