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13 Oct 2020

Jurisdiction, negative declarations and estoppel: BNP Paribas SA (BNP) v Trattamento Rifiuti Metropolitani SPA (TRM)

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Claims for declaratory relief should be as focussed as possible and clearly serve a useful purpose. In BNP v Trattamento1, the court issued a reminder that its power to issue negative declarations should be exercised with caution. Although most of the declarations requested by BNP were granted, the court made it clear that it will not grant sweeping declarations as “insurance” against hypothetical or contingent issues.  In this case, the court also addressed the thorny questions of res judicata/issue estoppel in relation to decisions on jurisdiction, and the scope of the doctrine of contractual estoppel.

Background

The background to the claim is set out in our earlier articles on the jurisdictional decisions of the High Court and the Court of Appeal here and here. In brief, the parties entered into a finance agreement subject to Italian law and jurisdiction (the “FA”); and an interest rate hedging swap providing for the non-exclusive jurisdiction of the English courts (the “Swap”). The Swap was on the terms of a standard ISDA Master Agreement but with a negotiated schedule referencing the FA.

A dispute arose regarding the Swap. BNP issued a claim for declaratory relief in England concerning the status of the Swap. A month later, TRM issued a claim in Italy alleging breach of contract and other issues arising under Italian law. The High Court and subsequently the Court of Appeal dismissed TRM’s challenges to the jurisdiction of the English courts. The declaratory relief given by the English court is now likely to be deployed in the Italian proceedings, which remain ongoing.

The parties agreed for this trial to take place under the Shorter Trials Scheme with no witness evidence called by either side. TRM (consistent with its position that the substance of the dispute was subject to Italian law and jurisdiction) did not seriously challenge the declarations sought which expressly mirrored the ISDA terms. It focussed its challenge on those declarations which were broader in nature.

Res judicata/issue estoppel

BNP argued that the earlier decisions reached by the High Court and subsequently the Court of Appeal on all issues (not just the construction of the relevant jurisdiction clauses) were binding determinations giving rise to issue estoppels. It also argued that it was an abuse of process for TRM to seek to “re-argue” those points. The court disagreed, finding that it should be “slow to find an issue estoppel arising out of a jurisdictional determination”. It held that there had been no relevant finding “on the merits” outside of the context of a preliminary evaluation in the context of jurisdiction. Whilst it was not appropriate simply to ignore the analysis conducted on the jurisdictional decisions, the court acknowledged that it could diverge from it.

Contractual estoppel

BNP sought individual declarations tracking the non-reliance clauses in the ISDA Master Agreement, including, for example, that TRM had “made its own independent decision” to enter the transaction. It also sought, in the alternative, a declaration that TRM was estopped by contract from contending otherwise. TRM argued at the hearing (although not earlier in proceedings) that these clauses: i) could not give rise to a contractual estoppel because they were acknowledgments not warranties; and/or ii) that they should be subject to the reasonableness test under section 3 of the Misrepresentation Act 1967.

The court dismissed the argument that previous authority prevented a contractual estoppel arising. It held that comments on acknowledgments being insufficient to found estoppels in cases such as First Tower Trustees v CDS2 were obiter and that the Court of Appeal’s decision in Springwell v JP Morgan3 remained binding.

As to misrepresentation, the court held that TRM had not identified which clauses it considered to be exclusion clauses and had not even adequately met the burden of “raising the issue”. Further, the evidence before the court on the point was in BNP not TRM’s favour. This was not a consumer transaction, there was equal bargaining power and if any party was at a disadvantage it was potentially BNP given that it had been selected following a tender process. The court also rejected TRM’s argument that there was no utility in granting the declaration, holding that although the issue was not central to the dispute, it was “in focus” and the precise ambit of the dispute was unclear in any event given it was in its early stages.

Negative declaratory relief

In keeping with a long line of authority from the English courts emphasizing the need to interpret ISDA documentation with consistency, predictability and certainty, the court granted those declarations which tracked the wording of the ISDA Master Agreement.

On the question of negative declaratory relief, the court held that it should exercise caution but not necessarily reluctance. It also rejected TRM’s assertion that in cases where foreign proceedings are in issue, it should exercise “extreme caution”. Highlighting the discretionary nature of the remedy, the court listed the following issues as relevant to its consideration:

  • Utility – negative declarations should not be granted unless they can be shown to serve a useful purpose
  • Justice – the primary purpose is to do justice to both parties
  • Effectiveness – is a declaration the most effective way of resolving the issue?
  • Real dispute – the court will not entertain purely hypothetical questions. There must be a real dispute as to the existence or extent of a legal right

Bearing in mind those principles, the court considered what it described as the “single most contentious declaration” sought by BNP, which was worded as follows:  

“1g)…the Claimant is not liable in respect of any claim relating to the Transaction, including for losses in respect of any claim, under any system of law or regulation, in contract, tort/delict, statute or otherwise, and including but not limited to claims for breach of duty of care (including without limitation, a duty to advise), breach of contract, breach of fiduciary or other duty including any duty of good faith, non-disclosure, omission, misrepresentation (whether innocent, negligent or fraudulent) or breach of statutory or regulatory obligation arising out of or in connection with the Transaction (including but not limited to its suitability, its pricing, its notional amount, its terms, its execution and the circumstances of the Defendant’s entry into it)”

Applying the tests outlined above, the court held that this declaration was, in substance, a negative one and should be approached with caution. It also found the language to be “boilerplate” and not designed to address any actual or anticipated claims. Further, it found the focus to be largely hypothetical and an attempt to insure against unspecified future events. Finally, it considered the wording to be “a recipe for confusion” which might give rise to injustice. The court therefore refused to grant the declaration. It also applied similar reasoning to its decision to reject a declaration for an indemnity in the event of TRM bringing any such claim.

Practical points on parallel proceedings

In this case, the court concluded that no issue estoppel arose from any decisions reached in the earlier jurisdictional hearings. It did, however, observe that it should not ignore those earlier decisions. This case highlights the careful path that the courts, as well as the parties, need to tread when proceedings are ongoing in multiple jurisdictions. TRM had requested that any declaration granted should be stated to be subject to the provisions of the individually negotiated schedule to the ISDA Master Agreement (which in turn referenced the FA and its Italian law and jurisdiction clause). The court refused this request, in part because it was concerned that it would leave the Italian Court unclear as to exactly what the English Law position was. The court made it clear, however, that it was not purporting to reach any conclusions about the way in which the documents might be interpreted under Italian law by the Italian courts: “I am considering only the questions of English Law, as to the meaning of provisions of the English Law agreement”.

 

1 BNP Paribas S.A. v Trattamento Rifiuti Metropolitani S.P.A [2020] EWHC 2436 (Comm)

 2 First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396

3 Springwell Navigation Corp v JP Morgan Chase Bank (formerly Chase Manhattan Bank) [2010] EWCA Civ 1221

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