Notices - ISDA Provision
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2002 ISDA Master Agreement
Section 12 in a Nutshell™ Use at your own risk, campers!
Full text of Section 12
Related agreements and comparisons
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Content and comparisons
The major change between the versions of Section 12 (Notices) was the 2002 ISDA’s inclusion of e-mail as a means of communication in addition to the 1992 ISDA’s electronic messaging system. Also, fax and electronic messaging system are not permitted means of serving close-out communications (i.e., under Sections 5 and 6) under the 1992 ISDA, but fax is permitted under the 2002 ISDA, whereas electronic messaging system and email are not. Got all that?
Summary
Who would have thought a Notices provision would be so controversial? Especially the question, “What is an electronic messaging system”?
This is defined, by the way, in Section 14 as:
“electronic messages” does not include e-mails but does include documents expressed in markup languages, and “electronic messaging system” will be construed accordingly.
No-one, it is humbly submitted, until Andrews, J. of the Chancery Division, was invited to opine on it in Greenclose v National Westminster Bank plc.
Mr Greenclose was the kind of “little old lady” — well, Welsh hotelier, but you get the picture — who induces judges to make bad law.[1]
This decision does nothing to dispel the assumption that lawyers are technological Luddites who would apply Tip-Ex to their VDUs if they didn’t have someone to do their typing for them (and if they knew what a VDU was).
For there it was held that email is not an “electronic messaging system” and, as such, was an invalid means for serving a close-out notice under the 1992 ISDA, which doesn’t mention email. Read in-depth about that case here.
And that was before the entire, interconnected world decided, as an orchestrated whole, to cease the conduct of the business as a physical idea for an indefinite period in early 2020. Suddenly, a widely-used and, it was assumed, well-tested notices regime started to look like it might not work.
Oh, and another thing: who seriously has a telex in this day and age?
General discussion
Mandatory, or not?
Section 12 specifies a variety of different formats by which a party “may” deliver notices under the ISDA Master Agreement. Ordinarily “may” implies discretion and optionality on a party, such that if it wishes it might choose something different. We have waxed lyrical elsewhere about the potential redundancy of such optional clauses.[2] However, this is not how Andrews J saw this particular “may” in the idiosyncratic, but unappealed, case of Greenclose. This “may” means “must” and, as long as Greenclose remains the unchallenged last word in British jurisprudence, it excludes any other means of delivering a notice. Since hand-delivery and delivery by courier are mentioned but the ordinary post isn’t, this probably rules it out. (But if it’s important, who would use snail mail anyway?)
On the other hand it hardly needs to be said that all of the ordinary day-to-day communication under the ISDA Master Agreement between trading and back-office staff of each party — inconsequential matters like trading, payments, settlements, reconciliations, and margin — will happen by telephone and email, in naked disregard for the terms of the ISDA Master Agreement which, at that point, will be languishing languishing unobserved in an electronic document repository to which operations staff might not even have access. This somewhat gives the lie to Greenclose’s rather quaint apprehensions about how ISDA Master Agreements operate in practice.
Close-out notice restrictions
However curious Andrews J’s reasoning on “may”, note the overriding restriction on forms of notice for closing out: no email, no electronic messages. But note another dissonance: in the 1992 ISDA, close-out notification by fax was expressly forbidden; in the 2002, it is not: only electronic messaging systems and e-mail are verboten. Ironic, seeing how faxes have got on as a fashionable means of communication in the decades since they were sophisticated enough to be a plot McGuffin for a John Grisham novel.
“Deliver”
The Cambridge Dictionary says that to “deliver” is “to take goods, letters, parcels, etc. to people’s houses or places of work”.[3]
Merriam Webster says it means “to take and hand over to or leave for another”.[4]
The Collins Dictionary of British English, in a rather modishly modern English format, tells us “If you deliver something somewhere, you take it there”.[5]
A bit more challengingly, the Lexico Oxford Dictionary says it means “bring and hand over (a letter, parcel, or goods) to the proper recipient or address”. Oxford’s language suggests a “handing” from sender to recipient, though a commonsense application of delivery through a letterbox to an address says the only “hands” involved are the sender’s.
An agent for the recipient does not need to be there; just that the notice is conveyed to the appointed place. It is no good refusing to answer the door, hiding behind the sofa or blocking up your letterbox with Araldite: if the sender’s agent brings a notice to your designated address, even by regular post, the sender has “delivered” it.
If it is, literally, impossible to arrange even an agent to hand-deliver a package, what then? Before the spring of 2020, most learned commentators would have regarded such a scenario as so absurd as to not dignify an answer. By April, ISDA was seeking advice about it.
Email vs electronic messaging system
The well-intended and, we think, presumed harmless — even modern — addition of email in the 2002 ISDA, in addition to “electronic messaging system”, persuaded the Chancery Division of the High Court to conclude that “electronic messaging system” and “email” are mutually exclusive things, rather than a basic commentary on ISDA’s crack drafting squad™ inability to let things go — a conclusion which the JC finds hard to accept, as you will see if you read the Greenclose v National Westminster Bank plc case note.
CSA
Note that the 1995 CSA subjects its notice provisions to this provision (see Paragraph 9(c) and 11(g).
See also
References
- ↑ As the JC always says, anus matronae parvae malas leges faciunt.
- ↑ See: I never said you couldn’t.
- ↑ https://dictionary.cambridge.org/dictionary/english/deliver. Make your words meaningful™.
- ↑ https://www.merriam-webster.com/dictionary/deliver.
- ↑ https://www.collinsdictionary.com/dictionary/english/deliver.