Template:Misrepresentation by agent: Difference between revisions

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===Representations by [[agent]]s and [[investment manager]]s===
===[[Representations]] by [[agent]]s on [[agent]]’s own behalf===
Where your client’s obligations under the {{isdama}} are stewarded by an agent — quite common for investment managers who may be trading as agent on behalf of a fund principal you might think about having the agent make its own representations concerning its role as agent, in the ISDA.
Where your client’s obligations under the {{isdama}} are stewarded by an [[agent]] — quite common for an [[investment manager]] trading on behalf of a [[fund]] a [[broker]] might think about having the [[agent]] represent, on its own behalf, about its role as [[agent]]. It might ask the [[agent]] to do this in the ISDA. The sound of an [[asset manager]] confirming its ongoing authority to bind its [[principal]] gladdens a broker’s heart. A full-throated assertion of its own regulatory authorisation; its continued [[good standing]] with the companies office; the continued involvement of its [[key person]]s in making investment decisions — each is sure to put a jaunt in a [[broker]]’s stride. [[Mediocre lawyer|Imaginative in-house counsel]] for the [[broker]] will doubtless dream up others.
 
But tarry a while. Firstly, your [[investment manager]] will sign as [[agent]], for the [[client]], not on its own behalf. For many this will be an article of profound faith: they will be at some pains, which they will willingly inflict on you, to avoid the barest hint they are speaking for themselves. “When an [[agent]], ''as'' [[agent]] opens its mouth,” they will tell you, “it ''becomes'' its [[principal]] for all purposes that interest the law.”
 
And so it does. As far as the [[courts of chancery|Courts of Chancery]] are concerned, to be an [[agent]] is to be wholly transubstantiated ''into the person of one’s [[principal]]''. ''Transmogrified''. It is, for all forensic intents to disappear; one’s ghostly outline may still be there, but it is a chimera: one exists only to be the earthly representation of another.
 
Which cast a pall over the representations you are being asked to make.
 
Take the one that “the [[principal]] has duly authorised the [[agent]] to act on its behalf”. For the principal to say that, through the person of the very one whose agency is in question, is some kind of [[Möbius loop]]. The very comfort you might draw from what is being said is taken away by the person who is saying it.
 
Even if the fact of the agency is in no doubt, the statements as to the agent’s character may be problematic. The [[agent]] is speaking for the [[principal]], remember.
 
The exchange might go something like this: <br>
:'''Agent (''as [[agent]]'')''': Why would I be authorised by the FCA? I am not advising anyone. In fact, my [[investment manager]] is advising ''me''. Why don’t you ask ''{{sex|her}}''? <br>
:'''Broker''' (''rubbing its eyes and peering at the [[agent]]''): But I ''am'' asking {{sex|her}}. I mean ''you''.
:'''Agent (''as [[agent]]'')''': Who?
:'''Broker''': You! The [[investment manager]] for this blessed [[fund]]!
:'''Agent (''as [[agent]]'')''': Ah, but I am ''not'' me, for now, you see. I am the earthly representative of the fund. In my own personal capacity, [[Cogito ergo sum|I don’t exist]].
:'''Broker''': But you are here, aren’t you? Can’t I just quickly ask you? Can’t you just, you know, ''be yourself'' for a moment? It won’t take a mo —
:'''Agent (''as itself'')''':  What? ''Here''? In this ''ISDA''? You must be joking. I told you ''under no circumstances'' will I act as [[principal]].
:'''Broker''' (''A light-bulb comes on''): Aha! I've got it! All right then: can you make [[representations]] ''on behalf of your [[principal]]''?
:'''Agent (''as [[agent]]'')''' (''Thinks for a moment.''): Why yes! Yes, I can! That’s what I’m here, as [[agent]], to do! What would you like me to represent?
:'''Broker''': Could you represent that your [[investment manager]] is duly authorised by the FCA?
:'''Agent (''as [[agent]]'')''': WELL HOW THE HELL AM I SUPPOSED TO KNOW THAT??
:'''Broker''': ''What?''
:'''Agent (''as [[agent]]'')''':  Look: why don’t you ask the [[agent]]?
 
====But seriously====
Assuming you can persuade your agent to represent, on its own behalf, about itself, as to these matters (whether in the {{ma}} itself or in a side letter):
*'''Due appointment, [[Authority - Representation|authority]] etc''': This goes to the [[agent]]’s [[ostensible authority]] to bind its principal. If an [[investment manager]] breaches this kind or representation, then worst case the [[broker]] ''risks''<ref>Yes; the whys and wherefores of [[ostensible authority]] are an endless delight; but we can at least say the risk is increased.</ref> ''having no claim at all against the [[fund]]'' – if it can’t make out that there was [[ostensible authority]].
:*Now if (notwithstanding breach of this rep) the broker ''does'' still have a claim against the fund, then no harm no foul: we shouldn’t need to [[close out]] vs the fund unless/until there’s an independent [[failure to pay]], in which case rely on that. But now we have actual knowledge of the agent’s lack of authority we may find we have a second problem: that there is no ''no-one'' with ostensible authority to bind the fund, and it is drifting rudderless towards a wall. If so, see below.
:*If we ''don’t'' then our action is necessarily against the [[agent]] in its personal capacity and against its own assets, not the [[fund]]’s. It’s a claim in [[tort]] for [[negligent misstatement]]. Put yourself in the [[fund]]’s position here. Being itself a victim of the [[agent]]’s mendacity it will feel it is [[more sinn’d against than sinning]] and will not see why this should be a {{isdaprov|3(d)}} representation under the {{isdama}}. The [[fund]] will say “well hang on: ''I'' didn’t do anything wrong here: this [[asset manager]] is taking my name in vain without my consent – so how is it that you’re purporting to [[close out]] against ''me''?
*'''Loss of manager’s regulatory status, no manager, no [[good standing]] etc''': The other typical representations goes to a duly authorised [[manager]]’s continued ability to to act on the fund’s behalf: to manage positions, monitor risk tolerances and keep the ship steady. If the agent goes AWOL a [[[broker]] has some call to reduce risk against the [[fund]]. If the fund is a sports car, the [[broker]]’s ATEs are the measures it can take to prevent the car hitting a wall. As long as here is a competent agent driving the car, the broker can have some confidence the car will avoid walls by itself. If the driver is prevented from steering, the car ''will'', eventually, hit the wall. So it is fair enough for the [[broker]] to say “okay: you are out of control: unless you name a new driver, within a given period ~ ''and here you may treat yourself to a fun exchange with your counterpart about how long that period should be'' ~ we can call this an [[ATE]]”.

Latest revision as of 08:38, 26 April 2020

Representations by agents on agent’s own behalf

Where your client’s obligations under the ISDA Master Agreement are stewarded by an agent — quite common for an investment manager trading on behalf of a fund — a broker might think about having the agent represent, on its own behalf, about its role as agent. It might ask the agent to do this in the ISDA. The sound of an asset manager confirming its ongoing authority to bind its principal gladdens a broker’s heart. A full-throated assertion of its own regulatory authorisation; its continued good standing with the companies office; the continued involvement of its key persons in making investment decisions — each is sure to put a jaunt in a broker’s stride. Imaginative in-house counsel for the broker will doubtless dream up others.

But tarry a while. Firstly, your investment manager will sign as agent, for the client, not on its own behalf. For many this will be an article of profound faith: they will be at some pains, which they will willingly inflict on you, to avoid the barest hint they are speaking for themselves. “When an agent, as agent opens its mouth,” they will tell you, “it becomes its principal for all purposes that interest the law.”

And so it does. As far as the Courts of Chancery are concerned, to be an agent is to be wholly transubstantiated into the person of one’s principal. Transmogrified. It is, for all forensic intents to disappear; one’s ghostly outline may still be there, but it is a chimera: one exists only to be the earthly representation of another.

Which cast a pall over the representations you are being asked to make.

Take the one that “the principal has duly authorised the agent to act on its behalf”. For the principal to say that, through the person of the very one whose agency is in question, is some kind of Möbius loop. The very comfort you might draw from what is being said is taken away by the person who is saying it.

Even if the fact of the agency is in no doubt, the statements as to the agent’s character may be problematic. The agent is speaking for the principal, remember.

The exchange might go something like this:

Agent (as agent): Why would I be authorised by the FCA? I am not advising anyone. In fact, my investment manager is advising me. Why don’t you ask her?
Broker (rubbing its eyes and peering at the agent): But I am asking her. I mean you.
Agent (as agent): Who?
Broker: You! The investment manager for this blessed fund!
Agent (as agent): Ah, but I am not me, for now, you see. I am the earthly representative of the fund. In my own personal capacity, I don’t exist.
Broker: But you are here, aren’t you? Can’t I just quickly ask you? Can’t you just, you know, be yourself for a moment? It won’t take a mo —
Agent (as itself): What? Here? In this ISDA? You must be joking. I told you under no circumstances will I act as principal.
Broker (A light-bulb comes on): Aha! I've got it! All right then: can you make representations on behalf of your principal?
Agent (as agent) (Thinks for a moment.): Why yes! Yes, I can! That’s what I’m here, as agent, to do! What would you like me to represent?
Broker: Could you represent that your investment manager is duly authorised by the FCA?
Agent (as agent): WELL HOW THE HELL AM I SUPPOSED TO KNOW THAT??
Broker: What?
Agent (as agent): Look: why don’t you ask the agent?

But seriously

Assuming you can persuade your agent to represent, on its own behalf, about itself, as to these matters (whether in the master agreement itself or in a side letter):

  • Now if (notwithstanding breach of this rep) the broker does still have a claim against the fund, then no harm no foul: we shouldn’t need to close out vs the fund unless/until there’s an independent failure to pay, in which case rely on that. But now we have actual knowledge of the agent’s lack of authority we may find we have a second problem: that there is no no-one with ostensible authority to bind the fund, and it is drifting rudderless towards a wall. If so, see below.
  • If we don’t then our action is necessarily against the agent in its personal capacity and against its own assets, not the fund’s. It’s a claim in tort for negligent misstatement. Put yourself in the fund’s position here. Being itself a victim of the agent’s mendacity it will feel it is more sinn’d against than sinning and will not see why this should be a 3(d) representation under the ISDA Master Agreement. The fund will say “well hang on: I didn’t do anything wrong here: this asset manager is taking my name in vain without my consent – so how is it that you’re purporting to close out against me?
  • Loss of manager’s regulatory status, no manager, no good standing etc: The other typical representations goes to a duly authorised manager’s continued ability to to act on the fund’s behalf: to manage positions, monitor risk tolerances and keep the ship steady. If the agent goes AWOL a [[[broker]] has some call to reduce risk against the fund. If the fund is a sports car, the broker’s ATEs are the measures it can take to prevent the car hitting a wall. As long as here is a competent agent driving the car, the broker can have some confidence the car will avoid walls by itself. If the driver is prevented from steering, the car will, eventually, hit the wall. So it is fair enough for the broker to say “okay: you are out of control: unless you name a new driver, within a given period ~ and here you may treat yourself to a fun exchange with your counterpart about how long that period should be ~ we can call this an ATE”.
  1. Yes; the whys and wherefores of ostensible authority are an endless delight; but we can at least say the risk is increased.