8. Dezember 2020

Lending focus – December 2020 – 3 von 8 Insights

Dovetailing loan and hedging arrangements: English courts hold the line

  • Briefing

Trattamento Rifiuti Metropolitani SpA (TRM) is a project company, established to design, build and operate a waste-to-energy plant in Gerbido, near Turin. Its parent company is the multi-utility company IREN SpA, listed on the Milan Stock Exchange.

On 29 October 2008, TRM entered into a EURO 375 million syndicated facility agreement to finance construction costs; the Agent and Arranger of the facility was BNP Paribas SA (BNPP) (the Facility Agreement). Under the Facility Agreement, floating rate interest was payable. BNPP was described as the Hedging Bank but was not a party to the Facility Agreement in this capacity. The Facility Agreement was governed by Italian law with an exclusive jurisdiction clause in favour of the courts of Milan.

TRM and BNPP entered into hedging arrangements on 23 March 2010, consisting of a 1992 ISDA Master Agreement, Confirmation, and Schedule (the Transaction Documents). The Transaction Documents were governed by English law and the parties submitted to the jurisdiction of the English courts.

TRM later alleged that the hedge resulted in a significant negative cash flow which was not in line with its requirements. It wanted to prepay the entire outstanding amount under the Facility Agreement. In order to facilitate this, it requested that BNPP waive its right (as Hedging Bank) to designate this prepayment as an Early Termination Date. BNPP refused to do this. The early prepayment did not go ahead.

BNPP then issued a claim in the English courts for declaratory relief in accordance with the Transaction Documents. One month later, TRM commenced proceedings in the Italian courts. TRM also applied to the English courts to dismiss BNPP's claim for lack of jurisdiction. However, this was unsuccessful in both the High Court and the Court of Appeal. 

Here, we summarise some of the issues arising from BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2020] EWHC 2436 (Comm), the subsequent hearing concerning declaratory relief.

The claim

BNPP sought various declarations from the English courts, with the intention of relying on them in the proceedings in Italy. These included the following declarations:

  • that the Transaction Documents constituted the entire agreement of the parties
  • that on their true construction, the Transaction Documents accorded priority to the provisions of the Facility Agreement only when this conflicted with a substantive provision of the Transaction Documents
  • that TRM had made its own independent decision to enter into the Transaction Documents based on its own judgment
  • that it had not been relying on any communication of BNPP as investment advice or a recommendation
  • that in relation to points three and four, it was contractually estopped from contending to the contrary.


The ISDA Entire Agreement clause

The Master Agreement contained the usual ISDA standard terms, providing that the Transaction Documents constituted the "entire agreement and understanding of the parties with respect to [their] subject matter and supersede[s] all oral communication and prior writings with respect thereto". Cockerill J found this provision was "clear and unambiguous".

Conflicts between the provisions of the Transaction Documents and the Facility Agreement

Cockerill J accepted BNPP's argument that in the case of an actual conflict between the Facility Agreement and the Transaction Documents, the latter would lose. However, priority was only accorded in the event of a substantive conflict between the two sets of provisions.

BNPP was not a party to the Facility Agreement in its capacity as the Hedging Bank. It "would be something of an oddity" if the terms of a separate agreement in which BNPP participated in a different role could qualify the Agreement.

Moreover, the previous decisions of the courts had found that the obligations in the Transaction Documents were entire and separate from the Facility Agreement, and the Schedule itself stated that the Transaction was entered into "in connection" with the Facility Agreement, indicative of the documents being distinct.

The Judge reiterated that they were separate agreements, notwithstanding the conflicts provisions, and that this was the only sensible construction that also sat comfortably with the Court of Appeal's decision on jurisdiction.

The ISDA Non-Reliance provisions

In considering whether TRM was contractually estopped from suggesting that it had relied on representations by BNPP to enter into the Transaction, Cockerill J found that the court was bound by the Court of Appeal's decision in Springwell Navigation Corpn v JP Morgan Chase Bank [2010] EWCA Civ 1221. This supported BNPP's argument that contractual estoppel arose from the non-reliance clauses in the Master Agreement.

Cockerill J also went further and found that even without the decision of Springwell, she still would have reached the same conclusion that a contractual estoppel could be made out. This was because the material question would be whether the parties intended to agree to the contractual estoppel when considering the relevant background and nature of the clauses.

TRM had also argued that the non-reliance provisions in the Master Agreement sought to exclude liability for misrepresentation under the Misrepresentation Act 1967, and so were subject to the requirement of reasonableness under the Unfair Contract Terms Act 1977.

However, Cockerill J found that this argument was unfounded. She further suggested that, in any event, the clauses would be reasonable; the provisions were either standard terms in the Master Agreement or bespoke terms agreed between two commercial parties of assumed equal bargaining power in the Schedule.


The decision of Cockerill J provides guidance to financial parties on the terms of the Master Agreement, particularly the Entire Agreement clause and Non-Reliance provisions. It is a useful reminder of the courts' endorsement of market acceptance of the Master Agreement.

Find out more

To discuss any of the issues raised in this article in more detail, please reach out to a member of Banking & Finance team.

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