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New case law on contractual estoppel

The doctrine of contractual estoppel looms large in cases where a counterparty to a bank alleges that the bank is liable to make good losses suffered as a result of entering into a financial transaction that has turned out to be unfavourable to the counterparty.

A formidable body of banking cases shows that parties to a transaction may agree that a particular state of affairs is to be the basis on which they are contracting, regardless of whether or not that state of affairs is true, and that such an agreement may give rise to a contractual estoppel, precluding the assertion of facts inconsistent with those that have been agreed to form the basis of the contract: see the archaeology of modern banking cases starting with Peekay (CA) and galvanised by Springwell (Gloster J/CA).

It is unsurprising then that, in response to the recent wave of complaints by counterparties to interest rate derivatives, banks have pointed to the banking documentation to show that no advice was given or representations made that could be relied on. International Swaps and Derivatives Association (ISDA) and similar bank treasury documentation confirming and governing interest rate derivatives contains standard clauses by which the parties agree that no advice is given or representation is made or can be relied on. These clauses were considered and upheld in Cassa di Risparmio (Hamblen) and Standard Chartered (also Hamblen J)…

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