Determining capacity to enter derivative contracts

Determining capacity to enter derivative contracts

What does the recent case of Credit Suisse International v Stichting Vestia Groep tell us about how the court determines capacity and authority to enter into derivative contracts?

Original news

Credit Suisse International v Stichting Vestia Groep [2014] EWHC 3103 (Comm), [2014] All ER (D) 58 (Oct)

The claimant (Credit Suisse) brought proceedings against the defendant company (Vestia) claiming €83,196,829 as money allegedly due under an International Swaps and Derivatives Association (ISDA) 2002 agreement (the master agreement) in respect of 11 transactions it had allegedly entered with Vestia between November 2010 and September 2011. Credit Suisse contended that it had duly terminated the master agreement after the defendant had failed to provide security due under a credit support annex. The Commercial Court held that, notwithstanding that three of the contracts, comprising six of the disputed transactions, had been outside Vestia's capacity—and therefore invalid because of warranties in additional representations in the master agreement—that did not affect Credit Suisse's rights or Vestia's obligations under the master agreement. Alternatively, Credit Suisse was entitled in damages for breach of the warranties to the amount that they could have recovered under the master agreement if all the agreements were valid and binding on Vestia.

What were the issues in the case?

Credit Suisse contended that it had duly terminated the ISDA master agreement on 19 June 2012 after Vestia had failed to provide security under a related credit support annex.

Vestia contended that:

  • certain of the transactions that had been entered into were outside the capacity of Vestia and so were not binding upon Vestia
  • the transactions had been entered into by parties which did not have authority to enter into the disputed transactions and so were not binding, and
  • the termination notice sent by Credit Suisse was invalid because, when it had been sent, Vestia had not been in default of its obligations to provide security

The issues for consideration were, among other

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.