In Credit Suisse International v Stichting Vestia Groep1 the High Court held that “additional representations” in a schedule to the International Swaps and Derivatives Association (ISDA) master agreement relating to the counterparty’s ability to enter into derivative transactions were enforceable warranties.

The court held that the breach of these warranties led to a contractual estoppel. This prevented the counterparty to a number of derivative transactions entered into under an ISDA master agreement from disputing liability on the grounds that the contracts were ultra vires because they were made without capacity or authority and were thus invalid.


Stichting Vestia Groep is a Dutch social housing association with substantial capital requirements and borrowing costs, the risks associated with which it wished to reduce through a hedging programme with various banks. Between November 2010 and September 2011 Vestia entered into 11 transactions with Credit Suisse International under the ISDA master agreement (2002 version).

Credit Suisse contended that it had duly terminated the master agreement on June 19 2012 after Vestia failed to provide security under a related credit support annex. Credit Suisse brought proceedings claiming €83,196,829. Vestia disputed the claim on the basis that:

  • certain transactions were outside its objects and Vestia did not have capacity to make them,
  • these transactions had been entered into by individuals without authority from Vestia and were not binding, and
  • the termination notice sent by Credit Suisse was invalid, because at the time of sending Vestia had not been in default of its obligations to provide security.

Analysis of transactions

The judgment considered two separate but linked questions:

  • Were the transactions entered into by Vestia ultra vires?
  • If so, what was the effect of the representations in the master agreement?

In English law, a single contract cannot be partly ultra vires; the contract is either within a party’s capacity or it is not. Therefore, the first half of the judgment analysed the 11 transactions made between the parties – nine of which were disputed – to establish how many contracts existed. Vestia contended that there were only five contracts, because:

  • transactions discussed during a single telephone exchange formed only one contract,
  • oral contracts were superseded by documentation creating five contracts, and
  • certain transactions were conditional on others and if one transaction in a group was void, the parties were not bound by the others.

The judge analysed the disputed contracts in turn and accepted all three of Vestia’s arguments. Thus, if a single transaction under one of the five contracts was entered into without capacity or authority, all of the transactions in the relevant contractual group would be ultra vires.

Capacity and authority

Vestia argued, as a matter of its own constitutional documents, that it lacked capacity to enter into contracts which were not hedging contracts. The judge held that the burden was on Credit Suisse to prove that the contracts were within Vestia’s capacity. Both parties accepted, in view of the Court of Appeal decision in Haugesund Kommune v Depfa ACS Bank2, that whether Vestia had transgressed its objects in making the disputed transactions was a question of capacity that should be decided according  to Dutch law, the Netherlands being Vestia’s place of incorporation. However, the legal consequences of this fell to be determined under English law, being the law of the ISDA master agreement.

After hearing evidence from Dutch law experts and considering Vestia’s articles of association, the judge held that a transaction would be within Vestia’s capacity if it were part of a hedging strategy, but Credit Suisse could demonstrate that only two of the five contracts formed part of a hedging strategy. In respect of the remaining three contracts, the judge applied the general rule of English law that a legal entity lacking capacity cannot make a valid contract (despite Credit Suisse’s argument that this is not a blanket rule).

The judge held that the contracts outside Vestia’s capacity were also void on the basis that they were made without authority. He reached this conclusion because Vestia had authorised no one to represent that the transacting parties had authority to make or ratify contracts outside Vestia’s objects.

Additional representations

Having found that some of the transactions were ultra vires, the court went on to consider the effect of the representations in the master agreement.

The parties did not dispute that Vestia had capacity to enter into the master agreement (as opposed to contracts entered into  under the master agreement), or that the master agreement was binding. The master agreement contained certain representations which the judge held were made by the parties to each other at the time of entry into the master agreement and again on entry into each transaction. These representations included that:

  • the parties had the power to execute the master agreement and each transaction under it,
  • such execution and performance did not conflict with applicable laws or constitutional documents, and
  • all relevant consents had been granted and all obligations were legal and binding.

Further representations were made in the management certificate accompanying the master agreement.

The judge held that none of these representations assisted Credit Suisse. First, following Westdeutche Landesbank Girozentrale v Islington LBC3, if the representations were repeated at the time of the transactions, they too were ultra vires when repeated. Second, these were mere representations as to facts and not contractual warranties. Therefore, they were repeated only at the time that  a valid transaction was entered into and were not repeated at the time of the ultra vires contracts.

Credit Suisse raised a further argument that Vestia was contractually estopped from disputing the validity of the disputed transactions, while Vestia argued in response that an ultra vires contract is void and cannot be validated. As the judge had established, the mere representations in the master agreement and management certificate did not apply to the disputed transactions. Nonetheless, he concluded that the ‘additional representations’ in the schedule to the master agreement “unambiguously” referred to Vestia warranting to Credit Suisse the matters set out therein. The judge held that the parties intended these additional representations to take effect as contractual undertakings as well as representations. The additional representations comprised both a compliance provision, by which Vestia warranted that its entry into and performance of each transaction would comply with its articles, and a hedging provision, by which Vestia warranted that it entered each transaction to hedge exposures.

Warranties, rather than mere representations, engaged the principle of contractual estoppel as set out in Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd, in which Lord Justice Moore-Bick stated that “[t]here is no reason in principle why parties to a contract should not agree that a certain state of affairs should form the basis for the transaction, whether it be the case or not”4While the judge in this case agreed with Vestia that a contractual estoppel could not validate the disputed transactions, he held that the fact that the transactions were made ultra vires and without authority was an “incident” of the breach of the compliance provision; as these were not transactions made as part of a hedging strategy, there was also a breach of the hedging provision. Therefore, Vestia could not dispute its liability to Credit Suisse on the grounds that the ultra vires contracts were made without capacity.

In the alternative, the judge concluded that Credit Suisse’s claim for damages for breach of warranty succeeded, because the bank had suffered losses as a result of the invalidity of the ultra vires contracts.

Notice defence

Vestia raised two further arguments in its defence. The first related to the validity of the early termination notice, because by the time that it was served by Credit Suisse, Vestia’s exposure under the master agreement was below the applicable threshold. The second related to the effect of Credit Suisse’s failure to provide a statement of exposure under Section 2(a)(iii) of the master agreement.

The judge rejected both arguments. First, the failure to pay had occurred and was continuing, and the provision of collateral was market practice; second, following Lomas v JFB Firth Rixon Inc5, the exposure notice was a condition precedent to future payment obligations arising, but did not suspend obligations which had already accrued.


The High Court’s decision to allow Credit Suisse’s claim turned on a novel use of the principle of contractual estoppel. The judge noted that the principle of contractual estoppel had hitherto applied to agreements as to present or past states of affairs, but he could see no reason for the principle to be so confined or why it could not apply to an agreement about a future state of affairs.

The judge noted that lawyers advising Credit Suisse had initially proposed that the additional representations be omitted during the negotiations over the master agreement.

Credit Suisse insisted that, given that the provisions are market standard, they should be included. Consequently, the judge’s novel application of the principle of contractual estoppel is an important precedent for finance lawyers drafting documents under an ISDA master agreement, as well as banking litigators. It will undoubtedly generate further debate over the controversial principle of contractual estoppel.