Expenses - ISDA Provision

2002 ISDA Master Agreement A Jolly Contrarian owner’s manual™ Resources and navigation [[{{{1}}} - 1992 ISDA Provision|This provision in the 1992]] Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project Navigation Preamble | 1 • (a) (b) (c) | 2 • (a) (b) (c) (d) | 3 • (a) (b) (c) (d) (e) (f) (g) | 4 • (a) (b) (c) (d) (e) | 5 • 5(a) Events of Default: 5(a)(i) Failure to Pay or Deliver 5(a)(ii) Breach of Agreement 5(a)(iii) Credit Support Default 5(a)(iv) Misrepresentation 5(a)(v) Default Under Specified Transaction 5(a)(vi) Cross Default 5(a)(vii) Bankruptcy 5(a)(viii) Merger Without Assumption 5(b) Termination Events: 5(b)(i) Illegality 5(b)(ii) Force Majeure Event 5(b)(iii) Tax Event 5(b)(iv) Tax Event Upon Merger 5(b)(v) Credit Event Upon Merger 5(b)(vi) Additional Termination Event (c) (d) (e) | 6 • (a) (b) (c) (d) (e) (f) | 7 | 8 • (a) (b) (c) (d) | 9 • (a) (b) (c) (d) (e) (f) (g) (h) | 10 | 11 | 12 • (a) (b) | 13 • (a) (b) (c) (d) | 14 | Index: Click ᐅ to expand: 2002 ISDA 1992 ISDA Section 11 in a Nutshell™ Use at your own risk, campers! 11 Expenses A Defaulting Party will on demand indemnify the Non-Defaulting Party for all reasonable costs — including Stamp Tax — that the Non-Defaulting Party incurs in closing out Transactions and enforcing its rights against the Defaulting Party. view template Full text of Section 11 11 Expenses. A Defaulting Party will on demand indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees, execution fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. view template Related agreements and comparisons Click here for the text of Section 11 in the 1992 ISDA Click to compare this section in the 1992 ISDA and 2002 ISDA. Tell me more Sign up for our newsletter — or just get in touch: for ½ a weekly 🍺 you get to consult JC. Ask about it here.

Content and comparisons

Observers will note that, but for the odd comma, Section 11 in the 1992 ISDA and the 2002 ISDA are identical. And deliciously brief. Not that they couldn’t be improved, of course; they just weren’t.

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Summary

An indemnity is all very well ...

Bear in mind, also, that your operating theory here is that your counterparty is a Defaulting Party — i.e., for all intents and purposes, broke. So while it’s a fine thing, this indemnity might not be of much practical use.

Is it covered in the close-out calculation?

No. The “Expenses” referred to in this provision would not be captured by the definition of “Close-out Amount” or “Early Termination Amount” because, Q.E.D., they arise only once that amount has been determined and the Non-Defaulting Party is in the process of collecting it.

Stamp Tax and Section 4(e)

In the limited circumstance of default, this section modifies the arrangement for who pays Stamp Tax as set out in Section 4(e) (which says it is the person whose tax residence precipitates it).

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General discussion

Applies to Events of Default, not Termination Events

This section applies only following an Event of Default, and not on a termination following an Termination Event. There is some cognitive dissonance there: while Events of Default in the main are meant to be more worthy of outrage than Termination Events — thereby justifying stentorian measures to recover losses and costs as a result — some Termination Events, and most Additional Termination Events — are credit- and solvency-related, thus equally deserving of the kind of opprobrium that would warrant on on-slapping of an indemnity.

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See also

• Indemnity

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References

Observers will note that, but for the odd comma, Section 11 in the 1992 ISDA and the 2002 ISDA are identical. And deliciously brief. Not that they couldn’t be improved, of course; they just weren’t. The dear old Jolly Contrarian has improved it for you: in the panel top left.

Not covered in the Close-out calculation?

No. The “Expenses” referred to in this provision would not be captured by the definition of "Close Out Amount" or "Early Termination Amount" because, Q.E.D., they arise only once that amount has been determined and the Non-Defaulting Party is in the process of collecting it.

Stamp Tax and Section 4(e)

In the limited circumstance of default, this section modifies the arrangement for who pays Stamp Tax as set out in Section 4(e) (which says it is the person whose tax residence precipitates it).

Applies to Events of Default, not Termination Events

This section applies only following an Event of Default, and not on a termination following an Termination Event. There is some cognitive dissonance there: while Events of Default in the main are meant to be more worthy of outrage than Termination Events — thereby justifying stentorian measures to recover losses and costs as a result — some Termination Events, and most Additional Termination Events — are credit- and solvency-related, thus equally deserving of the kind of opprobrium that would warrant on on-slapping of an indemnity.

An indemnity is all very well ...

Bear in mind, also, that your operating theory here is that your counterparty is a Defaulting Party — i.e., it is broke. So while it’s a fine thing, this indemnity might not be of much practical use.