Ultra Vires Still A Live Issue In OTC Derivatives Contracts But All May Not Be Lost

Author:Mr Daniel Franks, Guy Usher and Edward Miller
Profession:Field Fisher Waterhouse

In the recent case of Credit Suisse International v Stichting Vestia Groep [2014] 1 - the English High Court considered a host of issues arising in connection with some OTC derivatives entered into by Credit Suisse with a Dutch social housing association, Vestia.

The specific vires issues are local to the Netherlands but the judgment, which runs to 120 pages, addresses a number of issues which are of general application to English law governed ISDA Master Agreements.

The key issues which were considered are:

Whether the standard representations in Section 3(a) provide protection to a bank when facing vires issues. Whether alternative representations and warranties can provide that protection. Whether multiple related transactions can be regarded as a single trade/contract - with potential unanticipated cross-linkage/contamination (in this context for vires purposes). Whether collateral demanded under a CSA has to be posted even where the market has moved to eliminate the requirement. Whether the failure to provide a statement of Exposure under a CSA constitutes a Potential Event of Default for the purposes of Section 2(a)(iii), meaning that the person on whom the demand is made does not have to provide the collateral demanded. Our briefing note on the case reviews the facts and main issues but, in summary we can take some useful guidance:

If a counterparty is an entity in relation to which vires is likely to...

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