ISDA Master Agreement – Court of Appeal favours chosen law over local

by Dentons


When commercial parties choose English law to govern their hedging or financing contracts, the English courts will usually apply that choice with very few exceptions. A recent Court of Appeal case further narrows one such exception (the Article 3(3) Exception): Dexia Crediop SpA v. Comune di Prato [2017] EWCA Civ 428.

In narrowing the Article 3(3) Exception, the court in Dexia applied another recent Court of Appeal ruling: Banco Santander Totta v. Companhia Carris De Ferro De Lisboa [2016] EWCA Civ 1267. This:

  • makes Dexia a particularly strong precedent; and
  • shows a strong trend in the case law towards giving participants in the swaps market who use the ISDA Master Agreement a high degree of certainty that the English courts will apply their chosen governing law.

The dispute

An Italian local authority (Prato) defaulted under a swap concluded with Dexia under the ISDA Master Agreement Multi-Currency – Cross-Border form (the Swap). The Swap contained an express choice of English governing law and jurisdiction. Among other arguments against making payment, Prato invoked the Article 3(3) Exception. They pointed to the fact that both parties were Italian and the Swap provided for payment in Italy. This, argued Prato, meant the Swap did not bind them, because it did not comply with certain "mandatory rules" of Italian law which, they argued, overrode the chosen English law.

The Article 3(3) Exception to the chosen law

For contracts concluded from 17 December 2009, this exception arises under article 3(3) of the Rome I Regulation (593/2008) (Rome I). For contracts made between 1 April 1991 and Rome I coming into force, the Article 3(3) Exception arises under the (similarly drafted) article 3(3) of the Rome Convention.

The Swap was entered into when the Rome Convention applied. The Rome Convention version of article 3(3) reads:

"The fact that the parties have chosen a foreign law … shall not, where all the other elements relevant to the situation at the time of the choice are connected with one country only, prejudice the application of rules of the law of that country which cannot be derogated from the contract, hereinafter called "mandatory rules".

So, under article 3(3):

  • parties may have chosen one state's laws as their governing law; but
  • if all elements (apart from that above choice) "relevant to the situation at the time of the choice are connected with one" other "country only":
  1.  the Article 3(3) Exception applies; and
  2. consequently, mandatory rules of that one other country may override the chosen law.

Relevant international element precludes all relevant "elements" being connected with one country only

Following the Banco Santander Totta ruling, the Court of Appeal in the Dexia case held that, as the Swap had an "international element", that meant:

  • the Swap could not be exclusively connected with a single country (Italy) other than the country of the chosen law; and
  • the chosen law applied, and not mandatory rules of Italian law under the Article 3(3) Exception.

Use of ISDA documents as international elements

The court found these features of the Swap gave it an international character:

  • use of the ISDA Master Agreement, which is inherently an international standard form rather than a contract connected with any one country;
  • in particular, use of the Multi-Currency – Cross-Border version of the ISDA Master Agreement, which, the court noted, envisaged more than one currency and country, and was in the English language, which was not the first language of either party to the Swap; and
  • the "highly significant" fact that Dexia had (as, the court recognised, was routine in this market) hedged its position under the Swap with back-to-back swaps with non-Italian banks. This showed "just how international the swaps market actually is", said the court.

Rome I

As noted above, the drafting of article 3(3) Rome I and article 3(3) of the Rome Convention is similar, if not identical. This makes the Dexia case highly relevant to the application of article 3(3) Rome I to contracts made on or after 17 December 2009.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:


Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.