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04 Jun 2019

No express or implied term in relation to market practice: CFH Clearing Limited ("CFH") v Merrill Lynch International ("MLI")


The Commercial Court has found that a clause in a bank's terms and conditions stating that: "All transactions are subject to all applicable laws, rules … and, where relevant, the market practice of any exchange, market, trading venue and/or any clearing house …" did not operate to incorporate "market practice" as an express term of the contract, and neither was such a term implied.

The decision is also of note because it confirms that the bank's "Best Execution" policy was not incorporated as a contractual term governing the parties' relationship. Had it been, the Court found that it would not in any event have operated in the way CFH claimed.


On 15 January 2015, the parties entered into a series of foreign exchange transactions involving Swiss francs. The transactions were "spot" FX transactions, documented by an ISDA Master Agreement and electronic confirmation. On the day in question, the Swiss National Bank unexpectedly removed the minimum exchange rate value in respect of the Euro, leading to severe market fluctuations.

The turbulence in the market resulted in the average price of CFH's 27 trades with MLI falling to 0.18. Later the same day, EBS (one of the principal FX trading platforms) declared an "official" low of EUR/CHF 0.85.  The trades between MLI and CFH had not taken place via the EBS platform.  MLI subsequently repriced its 27 trades with CFH to 0.75, which CFH accepted, albeit "under protest". 

CFH's claim

CFH claimed that "market practice" required MLI to retrospectively adjust the price of the trades to the official EBS "low" of 0.85. It argued that that market practice created a legally binding obligation for the following reasons:

  • an alleged express or implied contractual term as to market practice;
  • an alleged contractual term as to "best execution";
  • a duty to avoid a conflict of interest and to treat CFH fairly; and/or
  • a tortious duty to take reasonable care to ensure that transactions were priced correctly.

CFH's claim was largely predicated on a clause in MLI's terms and conditions which stated that all transactions were "subject to all applicable laws, rules, regulations howsoever applying and, where relevant, the market practice of any exchange, market, trading venue and/or any clearing house and including the FSA Rules."

MLI's terms and conditions also, however, contained a clause expressly confirming that the FSA (now FCA) rules were not incorporated.


In granting summary judgment for the defendant bank, the Court made the following key findings:

  • There was no express term as to market practice. The clause in MLI's terms only operated to relieve a party of its contractual obligations (such that it would not be in breach of contract) where the operation of the market practice of a particular exchange, market, trading venue and/or any clearing house would otherwise place it in breach. In reaching that conclusion the Court was strongly influenced by the fact that incorporating all of those matters listed in the clause (applicable laws, market practice, FSA rules etc) would result in: 1) a contract too uncertain to be workable; and 2) a direct conflict with other provisions (namely the exclusion of the FSA rules).
  • A term as to market practice was also not implied, because where the parties had entered into an ISDA Master Agreement, it could not be said that the incorporation of market practice was either necessary for business efficacy or so obvious that it went without saying.
  • MLI's "Best Execution" policy was not incorporated as a contractual term, and even if it were it would not operate to oblige MLI retrospectively to adjust the pricing of the trades. The Court concluded that the policy derived from regulatory rules. Although the terms and conditions referred to MLI's obligation to follow its policy, this did not confer a direct right on MLI's clients, save where such a right was expressly provided for by a relevant statute.
  • The Court dismissed CFH's argument that MLI was under a duty to avoid a conflict of interest and to act in CFH's best interest. MLI's terms and conditions provided that: "You agree that we…are entitled to…effect transactions with or for you notwithstanding that we may have a material interest in or a conflict of duty in relation to the transaction…and consent to our acting", and this clearly operated to defeat such a claim.
  • Finally, the Court found that there was no reason why a duty of care in tort would arise in the circumstances on the basis of the relationship between these two “arm’s length” professional parties.


The judgment is a reassuring one for banks as it confirms that the Courts will not allow terms to be implied or construed simply to compensate a party for volatile market activity. The Court followed the test set out in Wood v Capita, finding that the literal meaning of the words did not allow CFH's interpretation. Going further, it held that even if it did, the overall contractual framework and factual context showed that there was no obligation on MLI retrospectively to adjust pricing for market volatility. The ISDA Master Agreement provided an option for the parties to specify alternate express provision in the event of market disruption and they had not chosen to do so. The Court would not retrospectively intervene in that decision.

Stephenson Harwood LLP acted for MLI in this case.



Edward  Davis

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