Key Point

A bank is able to defend a claim that a swap agreement was unenforceable because it was ultra vires the counterparty by pointing to carefully crafted Additional Representations made in the ISDA documentation.


What is it about swap agreements that make some counterparties think they can simply walk away from them? Those readers who have followed the numerous kinds of "non-profit making organisations" varied attempts to side step swaps when they go bad may already have a feeling of déjà vu. This is the latest battle in this seemingly never ending war.

Credit Suisse entered into some swap agreements with Stichting Vestia Groep (SVG) a dutch social housing provider. Some of these swaps were more complicated than others. SVG accepted two of the simpler swaps were binding on it. It claimed Credit Suisse was not entitled to recover approximately Euro 80 million under the others because they were connected with transactions which were ultra vires SVG's objects as an organisation and that the individual SVG officers involved had no authority to sign them so as to bind SVG.

Credit Suisse claimed the swaps were good and tagged on an alternative claim for damages for breach of representations made by SVG in the ISDA Agreement and certain associated documents.


The Court held that of the five more complex transactions three were ultra vires SVG. Under English law that meant the transactions were void. On Credit Suisse's arguments that it was entitled to damages for breach of the representations made by SVG as to its capacity in the Master Agreement and a related management certificate the Court held this did not cure the ultra viresproblem or prevent SVG from arguing that the transactions were ineffective or the authority of the signatories limited. However, it then looked at the Additional Representations specifically crafted for those transactions which were set out in the Schedule to the Master Agreement which were in the following form.

"[SVG] hereby represents and warrants to [Credit Suisse] (which representations will be deemed to be repeated by [SVG] on each date on which a Transactions [sic] is entered into that:

  • [SVG's] entry into and performance of its obligations under this Agreement and each Transaction hereunder is and will be in compliance with its articles of association (statuten), its financial rules (financieel statuut) and any other laws or regulations applicable to [SVG] from time to time including, but not limited to, the [BBSH] (as the same may be amended, supplemented or replaced); and
  • [SVG] is entering into each Transaction purely for the purpose of hedging its exposures and not for the purpose of speculation".

The Court considered that these statements were intended by the parties to have contractual effect rather than being mere representations. As the judge stated at para 300:

"They unambiguously refer to [SVG] warranting to Credit Suisse the matters therein stated, and to my mind the parties clearly intended them to take effect as contractual undertakings as well as representations"

As a result of these statements having contractual effect – it meant SVG had in broad terms contractually promised Credit Suisse it would not enter into a Master Agreement for any transaction which was outside of its objects – SVG was prevented from taking the stance that its agreements were ultra vires. Credit Suisse could recover the sums due under those agreements. The Court also thought that Credit Suisse was entitled to damages for breach of these provisions which would be in a sum equal to the termination sums being claimed.


This case together with an earlier Court of Appeal decision Standard Chartered Bank v Ceylon Petroleum Corp, [2012] EWCA Civ 1049 provides bank counterparties with a powerful suite of arguments with which to rebut any ultra vires or lack of capacity arguments by swap counterparties seeking to avoid liability. In the earlier case the Court of Appeal made it clear that the distinction that some counterparties seek to draw between transactions that "genuinely constituted hedges" and speculation is a false one which is not helpful in analysing these questions. In this case the Court has shown how a counterparty can protect itself against a later claim of ultra vires by adding express Additional Representations to cover off the point into a Schedule to the relevant Master Agreement. Although the judge criticised the drafting of these particular Additional Representations he still concluded they offered Credit Suisse full protection on the point.

> Credit Suisse International v Stichting Vestia Groep