UT/2024/000002 - [2025] UKUT 00188 (TCC)

In relation to the concept of “negotiation” the CJEU in CSC explained:

“38.

Clearly, the words ‘including negotiation’ are not intended to define the principal object of the exemption laid down in the provision, but to extend the scope of the exemption to negotiation.

39.

It is not necessary to consider the precise meaning of the word ‘negotiation’, which also appears in other provisions of the Sixth Directive, in art 13B(d)(l)-(4), in order to hold that, in the context of art 13B(d)(5), it refers to the activity of an intermediary who does not occupy the position of any party to a contract relating to a financial product, and whose activity amounts to something other than the provision of contractual services typically undertaken by the parties a to such contracts. Negotiation is a service rendered to, and remunerated by a contractual party as a distinct act of mediation. It may consist, amongst other things, in pointing out suitable opportunities for the conclusion of such a contract, making contact with another party or negotiating, in the name of and on behalf of a client, the detail of the payments to be made by either side. The purpose of negotiation is therefore to do all that is necessary in order for two parties to enter into a contract, without the negotiator having any interest of his own in the terms of the contract.

40.

On the other hand, it is not negotiation where one of the parties entrusts to a sub-contractor some of the clerical formalities related to the contract, such as providing information to the other party and receiving and processing applications for subscription to the securities which form the subject-matter of the contract. In such a case, the sub-contractor occupies the same position as the party selling the financial product and is not therefore an intermediary who does not occupy the position of one of the parties to the contract, within the meaning of the provision in question.”

Mr Hitchmough emphasises the non-exhaustive nature of the CJEU’s discussion on what negotiation meant. In particular it covered other sorts of intermediary activity, not just negotiations in terms of bringing relevant parties together before conclusion of the contract.

On the facts here the FTT had found that the Operations team were, as well as being responsible for discussing with the client the amount and type of collateral needed, responsible for managing any disputes as to the collateral required and that resolving disputes was a large part of the collateral team’s responsibilities ([214(4)]). The FTT also found at [187] that CBNA were responsible for resolving any breaks in the clearing and settlement process and resolving issues where the netting calculations did not match.

It is true, as Mr Hitchmough points out, that, the FTT did not expressly deal with the question of whether and if so what any activity fell within the exemption insofar as it concerned “negotiation”. But it should be recalled this part of the FTT judgment concerning exemption was obiter; it was not strictly necessary for the FTT to address the argument in order to dispose of the appeal. If it had become necessary to deal with matter then we would not consider the services offered of collateral and payment dispute resolution to fall within what the CJEU had in mind when it spoke of as a service “rendered to, and remunerated by a contractual party as a distinct act of mediation”. Rather, although not clerical in character, it seems to us to more readily be characterised as an activity SPLC has entrusted to CBNA to carry out on its behalf and which it would otherwise have carried out itself.