Template:Isda 9(d) summ

Over the centuries the common law, as we know, has done a fine job of shaping and polishing a merchant’s remedies for breach of contract: — remedies which are, broadly, indifferent to what the contract happens to say.

The reason for that is simple: by the time a merchant comes to ask about its rights upon breach, the instrument that conferred them is broken.

Fruity expectations of a healthy, long and fecund forward relationship lie suffocating upon the salted earth. The contract is the proverbial “ex parrot”: it is no longer a reliable guide to how one should expect the other to behave. The defaulter is a defaulter and cannot be relied upon to do what she promised to do. So, nor is the aggrieved party be expected to carry on doggedly popping coppers in the slot: the common law asks that she conducts herself reasonably and with good faith in the circumstances; it does not demand a total want of common sense.

The sacred pact having fractured, it is for the court to draw upon its centuries of analogy to put the matters right.

It does that by reference to its own principles, not the contract’s: causation, contribution, foreseeability and determinacy of loss. the court applies these to the deal the suitor thought it had to work out a juridical compensation for its loss of bargain.

That is the magnificent furniture the laws of England bestow upon us. It seems counterproductive — passive aggressive, almost — for a party to insist, in detail, on what should happen its customer does not do it promises to do. Bloody-minded, almost.

Where the contract involves a bank, though — especially one that is lending you money — it is de rigueur. Banks like to rule out doubt, help themselves to extra rights: liens, set-off, netting of liabilities — banking contracts are a kind of research and development department where clever people contrive intricate clockwork escapements governing the grounds on which they deploy capital. Here “ex-parrotness” is the overriding mischief a lender seeks to manage, and legal eagles like to reinforce the ancient customary rules of contract.

It isn’t that the common law is no good; it is just that where you clearly foresee a specific breach, a contract can be better. The law of unintended consequences rules the world of finance, though, and it is not hard to imagine carefully drawn contractual terms working out worse than the general rules relating to fundamental breach. Hence this boilerplate: careful provisions designed to assist a wronged party should not be allowed to get in the way of general law of contract if it would work out to be better, and this slug of boilerplate is meant, to ensure — by means of contractual term — that they do not.

Yet, that is exactly what the ISDA Master Agreement spends its crucial central passages doing.

Finance contracts tend to be far more categorical about how innocent parties can detonate defaulters than anything else: there is not much to be said on the happy dimensions of lending money, after all: I give it to you, you give it back, you pay me some interest in the meantime.

So, legislating for defaults, potential defaults, terminations, close out, and exercise of drastic rights. We are amongst financiers; we should expect paranoia.

There is one last paranoia. It is a sort of meta-paranoia. It is this: What happens if, in carefully writing down all my rights upon your Event of Default, I inadvertently undo some better right that I might have at common law? Does my right to send a Section {{ {{{1}}}|6(a)}} and kick off that infernal close-out process cut off some better, quicker remedy I might access just by declaring a repudiation of the contract and suing for damages?

Most of the time, you would think, it should not, but if it does, Section {{ {{{1}}}|9(d)}} is your chosen slug of boilerplate. This vouches safe your common law rights notwithstanding anything explicit in the contract.