In a separate Bulletin we look at why the English High Court in Credit Suisse International v
Stichting Vestia Groep  EWHC 3103 (Comm) upheld Credit Suisse International's contractual
claim for the Early Termination Amount under an English law-governed 2002 ISDA Master Agreement
notwithstanding that some of the trades were ultra vires its counterparty Stichting Vestia Groep
("Vestia"). This was not the only issue the judge (Mr Justice Andrew Smith) had to address. In this
Bulletin we look at the judge’s decision that although there were 11 trades between Credit Suisse
International ( “CSI”) and Vestia entered into over a period of 10 months, those trades should be
grouped into just 7 Transactions or separate contracts.
Why is this important
As the judge pointed out: “in English law a single contract cannot be in part ultra vires: a contract
is either within a party’s capacity or it is not.” It is therefore not possible to enforce a contract pro
tanto where only some aspect of the contract is ultra vires the other party – instead, that contract
is void in its entirety. CSI argued that each of its trades with Vestia represented a distinct contract
and accordingly if any of them was outside Vestia’s capacity and was therefore void, this did not
affect the validity of any other of the trades. Vestia on the other hand argued that the trades were
grouped into 7 Transactions or contracts and claimed that 5 of these contracts were void. The court
agreed with Vestia on the grouping of the trades. The court went on to hold that 3 of the 7
Transactions were (as a matter of Dutch law) ultra vires Vestia – in other words, all of the trades
making up those 3 Transactions were void.
The question is also important for the purposes of netting under the ISDA Master Agreement.
Section 2(c) of the Master Agreement provides for netting where on any date amounts would
otherwise be payable (i) in the same currency and (ii) in respect of the same Transaction, by each
party to the other. Thus netting will only apply where amounts would otherwise be payable with
regard to the same Transaction.
Financial Services Client Service GroupBryan Cave LLP America | Europe | Asia www.bryancave.com
The identity of a Transaction may also be relevant for the purposes of termination under Section 6
of the Master Agreement in circumstances where not all Transactions are terminated.
Another reason on the facts here was highlighted by the judge when reviewing the documentation
for the trades. The early termination right granted in the Confirmations in his view could only be
interpreted as exercisable in relation to all of the trades in the relevant Transaction and not some
The court's reasoning on the number of Transactions
The trades comprised 5 plain vanilla interest rate swaps, 3 swaptions, 2 constant maturity swaps
and what was referred to as a callable range accrual swap. The judge agreed with Vestia that the
Transactions (ie separate contracts) were made up of the following of those trades: Transaction (i),
an interest rate swap and a swaption; Transaction (ii), a constant maturity swap, an interest rate
swap and a swaption; Transaction (iii), an interest rate swap; Transaction (iv), a constant maturity
swap and a swaption; Transaction (v), the callable range accrual swap; Transaction (vi), an interest
rate swap; and Transaction (vii), an interest rate swap. Transactions (ii), (iv) and (v) were
ultimately held by the court to be ultra vires Vestia.
Relevant to this was how trades had been discussed together, how they had been agreed on the
same telephone call and how they had been dealt with in the same Confirmation. The judge
considered at length the exchanges between CSI and Vestia and looked to the intentions of the
parties: “the question is how a reasonable man versed in the business would have understood the
exchanges”. The judge agreed with Vestia that the trades should be grouped into these separate 7
Transactions either on the basis of the telephone exchanges or on the basis of the documentation.
Vestia also had an alternative argument, what the judge called the “conditional contracts”
argument – if, contrary to Vestia’s view, the parties did enter into more contracts, those contracts
should be grouped as above and the intention of the parties was that each contract should be
conditional on the other contract(s) in its group being entered into. Therefore, Vestia argued, if
one contract in a group was outside Vestia’s capacity and so void, the parties were not bound by
any contract in the same group. This argument found favour with the judge as well.
Either way, all of the trades within a group were unenforceable if any one of them was void.
Banks undertaking a number of trades with the same counterparty will want to take note of this
aspect of the case and take care to be clear as to the separate Transactions or contracts that are
being entered into with their counterparty.