Litigationey
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Litigationey
/ˌlɪtɪˈɡeɪʃᵊni/
(Also suish, squabblative (adj.)
of a commercial issue, important, basically straightforward, but thanks to the intervention of professional advisors, rendered in language so opaque that no-one knows what is really going on. It often describes commercial endeavours that are predicated on plausible deniability — for example, that credit default swaps are not insurance contracts, or that equity swaps aren’t stampable investments in shares — which fictions oblige practitioners to adopt silly walks, secret handshakes and elliptical ways of describing ordinary things, all in the service of not uttering inconvenient realities.
They become squabblative because while the practitioners who propagate these arrangements are well drilled, fluent and strongly incentivised to maintain this theatre, their counterparts in the litigation department, at the bar and on the bench are not.
We have remarked before about the differing functions a contract has during its lifecycle, for sales, operations and trading departments. When it reaches cataclysm, the parties find a different purpose again: to deny utterly the tacit accommodations they made to each other in fair times to reach mutual goals in a compliant and tax efficient manner. This is the great disadvantage of hindsight: how we are goaded to forget.
But litigation advisers and those who adjudicate disputes don’t have even that much incentive, and none of the practical experience. There are $60 trillions of derivative notionals outstanding at any time: documenting and day-to-day managing them keeps a military-industrial complex of worker bees gainfully employed from Nashville to Manila.
ISDAs come before the courts one at a time. They are exotic specimens, rather like those rare ghost orchids retrieved from the sweaty depths of a tropical swamp. It is usually obvious that no-one conducting the argument has much of a sense of what they are for or how they work, and those adjudicating certainly don’t.
And here ISDA’s crack drafting squad™’s vernacular plays into the hands of caprice and obstrepereity. That wanton left-handedness begs to be misunderstood. Just try asking a non-specialist to glom onto a flawed asset clause,[1] a credit derivative Event Determination Date, or even the Notices provisions of an ISDA Master Agreement.[2]
There are some cases where the confusion goes deeper: the JC’s contention is that credit default swaps are an intrinsically left-handed way of solving a straightforward problem, and as such are bound to create fear and loathing.