Significant High Court rulings and their impact on ISDA term agreements

There have been two recent rulings in the High Court in London, both of which impact on the way ISDA agreement terms can be modified and how the confirmation of terms should be made.

In the first case, AS Klaveness Chartering v Pioneer Freight Futures Co., Ltd, Pioneer Metals Co., Ltd [2009] EWHC 3386 (Comm), the High Court held that ISDA terms can be modified by oral agreement, despite this oral agreement amending the terms of Section 9(b) of the ISDA Master Agreement, which requires amendments to be in writing.

This decision must be interpreted in light of its specific facts, and it is doubtful that oral agreements between commercial parties to the ISDA Master Agreement will automatically be considered a valid amendment. Nevertheless, it is a reminder that parties should be very careful in oral discussions with counterparties and make clear that any amendments need to be in writing to vary the ISDA master agreement terms and to be otherwise legally effective between the parties.

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In the second case, CALYON v Wytwornia Sprzetu Komunikacynego PZL Swidnik SA [2009] EWHC 1914 (Comm), the High Court was asked by the defendant to declare that it had no jurisdiction to consider the claim brought by CALYON in relation to a series of transactions governed by a substantially unamended form of the 1992 Master Agreement (Multicurrency Cross Border) referred to in a long-form confirmation. On interpreting the Brussels Regulation, the High Court held that it did have jurisdiction to consider the claim.

The effect of this case is that when a party relies on the deemed execution of the ISDA Master Agreement, it should be clearly spelt out to the counterparty that the ISDA Master Agreement applies (including the governing law and jurisdiction clauses) and that any transactions governed by such deemed ISDA Master Agreement will be governed by English law. In addition, acknowledgements of confirmations should be obtained, even where the confirmation contains a deemed acceptance clause.

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