CFH Clearing Ltd v Merrill Lynch International

Where parties use a detailed standard-form master agreement for financial transactions, a general reference to market practice will not readily override its express terms. Words such as “subject to” do not invariably incorporate every rule or practice mentioned. A purported market practice must also be sufficiently certain to operate as a contractual term. A practice leaving unclear the applicable price, the circumstances requiring adjustment, or the choice between adjustment and cancellation is not enforceable. Summary judgment is appropriate where the claim has no realistic prospect of success and no fuller trial could affect the result.

CFH Clearing Limited used an automated system to place 27 foreign-exchange market orders with Merrill Lynch International during exceptional volatility following the removal of the Swiss franc’s peg to the euro. The trades were executed at very low rates. Merrill Lynch later repriced them to 0.75 CHF per euro, while CFH contended that clause 7 of Merrill Lynch’s Terms incorporated a market practice requiring repricing to the official low of 0.85 CHF or cancellation.

Moulder J dismissed the claim summarily under CPR 24.2, holding that the relevant wording did not incorporate general market practice and that the alleged practice was uncertain. The appeal concerned whether that argument was sufficiently arguable to require a trial.

1. Appeal dismissed. Lord Justice Phillips held, with Lord Justices Holroyde and McCombe agreeing, that CFH had no real prospect of establishing that the alleged market practice formed part of the 27 transactions.
2. The parties had adopted a detailed ISDA 2002 Master Agreement, incorporating the 1998 FX Definitions, and had intended a single comprehensive contractual regime. That context required caution before inferring an agreement that general market practice could override express pricing and settlement provisions. The master agreement could have made provision for market disruption, but did not do so (paras [37]-[41]).
3. The preamble to Merrill Lynch’s Terms made their application subject to documentation relating to a specific transaction. The 27 transactions were governed by the ISDA Master Agreement and its Confirmations. To the extent the Terms conflicted with that transaction-specific documentation, the latter prevailed (paras [42]-[43]).
4. The words “subject to” did not necessarily incorporate the matters described in clause 7. Read with clause 2, which expressly excluded incorporation of the FSA Rules, the wording did not support incorporation of all the diverse matters collectively called applicable rules. Nor did the reference to “market” extend to the foreign-exchange market in the broad sense; in context it referred to specific markets or venues (paras [44]-[47]).
5. The Model Code did not support contractual variation of the master agreement. Read as a whole, it recognised that market practices and exceptional circumstances should be addressed through a master agreement. The alleged practice was also too vague and uncertain: it did not identify the applicable repricing rate or determine when repricing, rather than cancellation, was required. It therefore amounted at best to an unenforceable agreement to agree (paras [48]-[49]).
6. No evidence likely to emerge at trial could realistically alter that conclusion. CFH had entered automated transactions at the next available price without a limit and was bound by the contractual bargain it had negotiated. There was no compelling reason to permit a trial (paras [50]-[52]).

• Court of Appeal (Civil Division): The appeal was dismissed on 14 August 2020. Lord Justice Phillips gave the judgment, with Lord Justices Holroyde and McCombe agreeing.
• High Court, Commercial Court: Moulder J dismissed CFH’s claim summarily under CPR 24.2 in [2019] EWHC 963 (Comm).