Template:Isda 5(a)(ii) summ: Difference between revisions
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So rather than empowering a {{{{{1}}}|Non-defaulting Party}}, the addition of a narrow definition of what counts as repudiation makes their avenue of redress that teeny bit narrower. Doubtful it has ever made a difference, but — well, they said that about LIBOR didn’t they. | So rather than empowering a {{{{{1}}}|Non-defaulting Party}}, the addition of a narrow definition of what counts as repudiation makes their avenue of redress that teeny bit narrower. Doubtful it has ever made a difference, but — well, they said that about LIBOR didn’t they. | ||
Note that unlike {{{{{1}}}|Breach of Agreement}}, there is no [[grace period]] to cure a {{isdaprov|Repudiation of Agreement}}: If you say the magic words in writing and cast the spell<ref>[[NiGEL]] butted in at this point to suggest “''Confoundo pactotum''!” He says, “It fits with J.K. Rowling’s style of combining Latin words with a whimsical but scholarly vibe: “pactum” is Latin for “pact” or agreement. The echo of “factotum” (a person who does all kinds of work) gives it an almost comical suggestion of confounding an agreement-of-all-things or a do-everything-pact. You could imagine it being used to magically muddle or interfere with magical contracts or agreements.” Thanks for that, [[NiGEL]].</ref> | Note that unlike {{{{{1}}}|Breach of Agreement}}, there is no [[grace period]] to cure a {{isdaprov|Repudiation of Agreement}}: If you say the magic words in writing and cast the spell<ref>[[NiGEL]] butted in at this point to suggest “''[[Confoundo pactotum]]''!” He says, “It fits with J.K. Rowling’s style of combining Latin words with a whimsical but scholarly vibe: “pactum” is Latin for “pact” or agreement. The echo of “factotum” (a person who does all kinds of work) gives it an almost comical suggestion of confounding an agreement-of-all-things or a do-everything-pact. You could imagine it being used to magically muddle or interfere with magical contracts or agreements.” Thanks for that, [[NiGEL]].</ref> The death eaters will come and take your ISDA away at once, as surely as if you had failed to pay — sooner indeed: even there there is a short grace period. | ||
===== Hierarchy of Events===== | ===== Hierarchy of Events===== | ||
Note that a normal Section 5(a)(ii)(1) {{{{{1}}}|Breach of Agreement}} that also amounts to a Section 5(b)(i) {{{{{1}}}|Illegality}} or a Section 5(b)(ii) {{{{{1}}}|Force Majeure}} {{{{{1}}}|Termination Event}} will, thanks to section {{{{{1}}}|5(c)}}, be treated as the latter, but a ''[[Repudiatory breach|repudiatory]]'' {{{{{1}}}|Breach of Agreement}} under section {{{{{1}}}|5(a)(ii)}}(2) willl not enjoy the same leniency. If you have repudiated your contract, the fact that there happens to be a concurrent {{{{{1}}}|Illegality}} — it is hard to see how a repudiatory breach could be an {{{{{1}}}|Illegality}} ''in itself'' — will not save you from the full enormity of section {{{{{1}}}|5(a)(ii)}} {{{{{1}}}|Event of Default}} style close out. | Note that a normal Section 5(a)(ii)(1) {{{{{1}}}|Breach of Agreement}} that also amounts to a Section 5(b)(i) {{{{{1}}}|Illegality}} or a Section 5(b)(ii) {{{{{1}}}|Force Majeure}} {{{{{1}}}|Termination Event}} will, thanks to section {{{{{1}}}|5(c)}}, be treated as the latter, but a ''[[Repudiatory breach|repudiatory]]'' {{{{{1}}}|Breach of Agreement}} under section {{{{{1}}}|5(a)(ii)}}(2) willl not enjoy the same leniency. If you have repudiated your contract, the fact that there happens to be a concurrent {{{{{1}}}|Illegality}} — it is hard to see how a repudiatory breach could be an {{{{{1}}}|Illegality}} ''in itself'' — will not save you from the full enormity of section {{{{{1}}}|5(a)(ii)}} {{{{{1}}}|Event of Default}} style close out. | ||
Revision as of 18:51, 28 October 2024
A failure to perform any agreement, if not cured within 30 days, is an {{{{{1}}}|Event of Default}}, except for those failures which already have their own special {{{{{1}}}|Event of Default}} (i.e., {{{{{1}}}|Failure to Pay or Deliver}}, under Section {{{{{1}}}|5(a)(i)}}), those that relate to a pre-existing default (for example, default interest on unpaid amounts) and those that only bear on the “defaulting” party’s tax position, meaning that non-performance is punishment enough in itself (and does not affect the “non-defaulting” party) — that is, the non-compliant party will just get clipped for tax it could have avoided had it performed.
These are the boring breaches of agreement: those of a not immediately existential consequence to a derivative relationship (like {{{{{1}}}|Failure to Pay or Deliver}}, or a party’s outright {{{{{1}}}|Bankruptcy}}), which are not therefore hugely time critical, but which, if not promptly sorted out, justify shutting things down with extreme prejudice. Note that, while the 2002 truncates a bunch of other grace periods in the agreement (notably for a {{{{{1}}}|Failure to Pay or Deliver}}, and for discharging a {{{{{1}}}|Bankruptcy}} petition) it does not truncate the grace period for “boring” defaults, which stays at the glacially long 30 days.
All rendered in ISDA’s crack drafting squad™’s lovingly tortured prose, of course: note a double negative extragvaganza in {{{{{1}}}|5(a)(ii)}}(1): not complying with an obligation that is not (inter alia) a payment obligation if not remedied within a month. High five, team ISDA.
Repudiation
New in the 2002 ISDA: repudiation of contract. Not actually breaching it, per se, but high-handedly saying that you are going to. In writing. Could you argue that by codifying that a repudiation must be in writing to count, in a counter-intuitive way this new clause dilutes the common law rules, rather than reinforcing them? A common law repudiation can, if clear enough, be oral, by conduct, body language, morse code, semaphore and so on,
So rather than empowering a {{{{{1}}}|Non-defaulting Party}}, the addition of a narrow definition of what counts as repudiation makes their avenue of redress that teeny bit narrower. Doubtful it has ever made a difference, but — well, they said that about LIBOR didn’t they.
Note that unlike {{{{{1}}}|Breach of Agreement}}, there is no grace period to cure a Repudiation of Agreement: If you say the magic words in writing and cast the spell[1] The death eaters will come and take your ISDA away at once, as surely as if you had failed to pay — sooner indeed: even there there is a short grace period.
Hierarchy of Events
Note that a normal Section 5(a)(ii)(1) {{{{{1}}}|Breach of Agreement}} that also amounts to a Section 5(b)(i) {{{{{1}}}|Illegality}} or a Section 5(b)(ii) {{{{{1}}}|Force Majeure}} {{{{{1}}}|Termination Event}} will, thanks to section {{{{{1}}}|5(c)}}, be treated as the latter, but a repudiatory {{{{{1}}}|Breach of Agreement}} under section {{{{{1}}}|5(a)(ii)}}(2) willl not enjoy the same leniency. If you have repudiated your contract, the fact that there happens to be a concurrent {{{{{1}}}|Illegality}} — it is hard to see how a repudiatory breach could be an {{{{{1}}}|Illegality}} in itself — will not save you from the full enormity of section {{{{{1}}}|5(a)(ii)}} {{{{{1}}}|Event of Default}} style close out.
- ↑ NiGEL butted in at this point to suggest “Confoundo pactotum!” He says, “It fits with J.K. Rowling’s style of combining Latin words with a whimsical but scholarly vibe: “pactum” is Latin for “pact” or agreement. The echo of “factotum” (a person who does all kinds of work) gives it an almost comical suggestion of confounding an agreement-of-all-things or a do-everything-pact. You could imagine it being used to magically muddle or interfere with magical contracts or agreements.” Thanks for that, NiGEL.