Force Majeure Event - ISDA Provision
Section 5(b)(ii) 2002 ISDA
2002 ISDA
5(b)(ii) Force Majeure Event. After giving effect to any applicable provision, disruption fallback or remedy specified in, or
pursuant to, the relevant Confirmation or elsewhere in this Agreement, by reason of force majeure or act of state occurring
after a Transaction is entered into, on any day:―
- (1) the Office through which such party (which will be the Affected Party) makes and receives payments or deliveries with
respect to such Transaction is prevented from performing any absolute or contingent obligation to make a payment or delivery
in respect of such Transaction, from receiving a payment or delivery in respect of such Transaction or from complying with
any other material provision of this Agreement relating to such Transaction (or would be so prevented if such payment,
delivery or compliance were required on that day), or it becomes impossible or impracticable for such Office so to perform,
receive or comply (or it would be impossible or impracticable for such Office so to perform, receive or comply if such
payment, delivery or compliance were required on that day); or - (2) such party or any Credit Support Provider of such party (which will be the Affected Party) is prevented from performing
any absolute or contingent obligation to make a payment or delivery which such party or Credit Support Provider has under
any Credit Support Document relating to such Transaction, from receiving a payment or delivery under such Credit Support
Document or from complying with any other material provision of such Credit Support Document (or would be so prevented if
such payment, delivery or compliance were required on that day), or it becomes impossible or impracticable for such party or
Credit Support Provider so to perform, receive or comply (or it would be impossible or impracticable for such party or
Credit Support Provider so to perform, receive or comply if such payment, delivery or compliance were required on that day),
so long as the force majeure or act of state is beyond the control of such Office, such party or such Credit Support
Provider, as appropriate, and such Office, party or Credit Support Provider could not, after using all reasonable efforts
(which will not require such party or Credit Support Provider to incur a loss, other than immaterial, incidental expenses),
overcome such prevention, impossibility or impracticability;
(view template)
Section 5(b)(ii) in the 1992 ISDA
There is no equivalent to the Force Majeure Event in the 1992 ISDA. An Impossibility clause was frequently written into the schedule, which endeavoured to do the same thing.
Incorporating Force Majeure into the 1992 ISDA
One can incorporating Force Majeure into the 1992ma as long as you carry the concept through to its logical conclusion i.e.:
- Include a Hierachy of Events;
- Consider the impact re a deferral of Early Termination Amount etc.
The concept also impacts the basis of Close Out because the 2002ma requires use of true mids for valuation i.e, not the mean of each party's view of the bid/offer where a Force Majeure Event (or Illegality) occurs, which is effectively what you get under the 1992 ISDA with a "Two Affected Parties" option.