Template:Isda 5(a)(ii) summ

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 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.