Notice clauses in ISDA Agreements

A recent decision of the English Commercial Court (the “Court”)  – Alfred Street Properties Limited (formerly known as Killultagh Estets Limited) v National Asset Management Agency [2020] EWCK 397 – has given guidance on the interpretation of the International Swaps and Derivatives Association (“ISDA”) 1992 Master Agreement (the “ISDA Master Agreement”) and of the 2000 ISDA Definitions (the “ISDA Definitions”).

While reasserting the need – constant in all rulings on ISDA documentation – to interpret standard documentation strictly so as to provide certainty, the Court made it clear that spurious claims based upon “unreasonable” and “overly pedantic” points were not to be entertained.


The parties are: the claimant, Alfred Street Properties Limited (“ASPL”), a Northern Irish commercial property developer and the defendant, the National Asset Management Agency (“NAMA”), the statutory corporation created by the Irish Government in response to the 2008 global financial crisis, which acquired loans and financial instruments from various financial institutions, including Anglo Irish Banking Corporation (“Anglo”).

ASPL had entered into a number of banking facilities with different commercial lenders, including Anglo. By facility letter dated 4 August 2007, Anglo agreed (amongst other things) to extend its facilities of around £111.5 million to ASPL, thereby consolidating and replacing the earlier facilities. The new facilities were available to ASPL on an interest only basis until 30 September 2011, and thereafter repayable on demand. ASPL covenanted that a minimum of 50% of the facilities would be hedged at all times to the satisfaction of Anglo.

On 4 March 2008, as agreed, ASPL and Anglo entered into five extendable interest rate swaps (the “Swaps”), with options to extend the Swaps for a further three years (the “Options”). Anglo was the floating rate payer and ASPL was the fixed rate payer, the fixed rate being 4.5% until 1 April 2012 and 4.75% until 2 April 2012. The Swaps were evidenced by five identically-worded confirmations from Anglo to ASPL, sent to ASPL’s postal address (the “Confirmations”). The Confirmations expressly incorporated the ISDA Definitions, and were governed by the ISDA Master Agreement. The Confirmations also set out the terms which would result from the exercise by Anglo of its right to extend, i.e. a further swap from 2 April 2012 to 1 April 2015 on the same terms as the original Swap, save that the fixed rate to be paid by ASPL was increased to 5.42%.

On 13 December 2010, NAMA became the beneficial owner of Anglo’s rights under the Swaps (Anglo retaining the legal ownership) and on 22 December 2011 NAMA notified ASPL that it had acquired ASPL’s indebtedness.

Finally, on 2 April 2012, NAMA, through its agent, notified ASPL by telephone at about 9.15 am that the extension right had been exercised. This call was recorded and transcribed by NAMA, with a timestamp of the call. At 3.01 pm the agent under the facility sent an email to their contact at ASPL attaching five separate notices giving notice that on 2 April 2012 “the Transaction was exercised” and attaching a copy of the relevant Swap. ASPL subsequently made all the quarterly payments (at the increased fixed rate) in accordance with the extended terms of the Swap. Despite this, and a year after the terms of the extended Swaps had expired, on 23 June 2016, ASPL claimed that the exercise of the options by NAMA had been invalid and sought repayment of the £4.78 million paid by it thereunder, plus interest.


ASPL claimed that the notification of the exercise of the Options by telephone was invalid. Although the ISDA Definitions allowed notification by telephone under s.12.2, ASPL claimed that s.12.2 was not engaged because:

  1. the Confirmations did not expressly identify with capitalised terms that the transactions were “Option Transactions” or “Swaptions”; and
  2. ASPL alleged that NAMA’s agent did not exercise the Options on the telephone call, but simply indicated NAMA’s intention to exercise the Options.

The claim focused on contractual interpretation and whether or not NAMA was entitled to exercise the routes specified in the ISDA Definitions, which included exercise of notices by telephone.


The Court ruled that NAMA was entitled to exercise the Options by giving notice by telephone, had validly done so, and rejected ASPL’s claim for, amongst others, the following noteworthy reasons:

  • failure to use the capitalised term definitions did not invalidate the notification by telephone under s.12.2. In line with well-established case law, the Court reinforced that ISDA documents need to be construed strictly in order to provide certainty for the parties; however, where necessary they are still subject to the general rules of contractual interpretation, as confirmed by the Supreme Court, e.g. in Wood (Respondent) v Capita Insurance Services Limited (Appellant) [2017] UKSC 24, and should be interpreted under those rules. The ISDA Definitions were only required to clearly identify the transaction as an option transaction or swaption, and they did not require the use of precise capitalised terms;
  • even if the Court were wrong in its analysis, the s.12.2 procedure had been incorporated into the Confirmations because, amongst other things, the Options and their terms were structured by reference to terms defined in s.12 of the ISDA Definitions;
  • the Court rejected the claim by ASPL that the telephone conversation with NAMA’s agent was only a notice of intention to exercise, rather than an actual exercise of the Options. The test to be applied was an objective one and the recording of the telephone call, together with the factual and commercial context of the need to exercise the Options within a specific time limit, showed that the Options had been exercised on the telephone call. Therefore, the Court concluded that the Options has been exercised effectively; and
  • the Court concluded that, regardless of the correctness of this analysis, NAMA would be able to rely on the defenses of estoppel by convention or by conduct, or change of position in any event, given the parties’ conduct since the allegedly defective exercise of the Options.

The theory of “estoppel” is a judicial device based in common law and equity, whereby a court may prevent or “estop” a person from making assertions or from going back on his or her word; the person being sanctioned is therefore “estopped”. Estoppel may prevent someone from bringing a particular claim. In the case of ASPL, the Court noted that ASPL’s contention that the notices were not served properly was “remarkably opportunistic and unattractive” given that ASPL had had the benefit of the protection of the extended Swaps and the fulfilment of its contractual requirement to hedge 50% of its borrowing from NAMA: “the belated assertion of invalidity was a classic case of a party claiming to have the benefit of a one-way bet, seeking the return of its stake when the bet was lost”. This was a “clear case where the doctrine of estoppel by convention applies with full force….” and “it was plainly unconscionable for ASPL to assert the invalidity of the extensions of the Swaps after June 2014”.


The decision provides some helpful guidance on the approach to contractual interpretation of the ISDA Master Agreement and the ISDA Definitions. In interpreting the validity of the notice given by NAMA, according to s.12.2 of the ISDA definitions, the Court noted that while a strict approach, favouring clarity, certainty and predictability is required in interpreting the terms of standard market agreements, any questions as to incorporation and variation of such provisions should be interpreted according to the recognised principles of general contractual interpretation.

Adopting a “unitary” approach, which involves an iterative process by which rival interpretations are checked against the provisions of the contract and the commercial consequences investigated, the Court considered (in particular) Article 10 of the ISDA Definitions (containing the definitions of “Option Transaction” and “Swaption”). The Court held that there is no requirement under Article 10 of the ISDA Definitions for parties to use the precise name or label “Option Transaction” or “Swaption” in the confirmation evidencing the swap transaction. It is sufficient for a transaction to be identifiable as such, e.g. by defining or describing either the transaction or its operation, in terms which “make it clear that it falls within the provisions dealing with those transactions.

The Court therefore labelled ASPL’s claims as “highly opportunistic and meritless [….] to make it worse, the technical point was itself based on an overly-pedantic and unreasonable interpretation of commercial confirmations of the relevant contracts.” The Court concluded that the “claim should not have been brought, [and] was pursued unreasonably”.


In an uncertain economic climate, this case serves as a useful reminder to parties of the importance of ensuring that notice clauses under ISDA documentation and other contracts are properly and carefully drafted and closely complied with. If there are shortcomings in the notice, though, the receiving party should raise any objections with the serving party promptly; the courts may well not entertain claims of this nature at a later date.

The decision is also a reminder that, whilst standard documents such as an ISDA Master Agreement (in both 1992 and 2002 versions) will be interpreted strictly so as to promote certainty, the courts will not find attractive overly “pedantic” constructions which are inconsistent with what was, objectively speaking, the commercial bargain reached by the parties.

For more information, and any guidance or advice on drafting and negotiating your ISDA agreements and confirmations, Cleveland & Co External in-house counselTM, your specialist outsourced legal team, are here to help.


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