Offices; Multibranch Parties - ISDA Provision
2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
10 in all its glory
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A bit of development from the 1992 ISDA to cater for the more fiddlesome nature of the 2002 ISDA (in particular the effect of Illegalities and Force Majeure events that affect some branches of a Multibranch Party but not others). See the comparison in the panel
Section 10 of the ISDA Master Agreement allows parties to specify whether they are Multibranch Parties. Electing “Multibranch Party” status allows you to transact out of the named branches of the same legal entity.
A seldom-regarded but basically potty representation thrown in to allow parties to represent that if it trades through a minor branch, recourse against it will be no different from the recourse it would have had it traded though its head office.
Law students of all vintages will remember from Company Law class that this is necessarily the case: this is what the legal fiction of the “corporate legal personality” is designed to do: create a new, unitary “person” who is liable at law, can sue and be sued, live, love and survive independently of its stakeholders, for anything done in the name of that company — as long as intra vires and properly authorised by the company, regardless of where and through whose agency it is done.
Now it may be the case that certain primitive jurisdictions, for certain primitive entity types, this is not the case but, if so, the answer ought to be do not trade with entities like that or, if you really must, do not trade with entities like that out of branches that won’t bind the legal entity.
There is a chicken-and-egg problem here: if you do, then Q.E.D. the entity is not bound. Yes, you may be left with an action for damages (in tort — there is no contract, remember) for misrepresentation, but we think the better approach is for your onboarding and credit sanctioning teams to do their due diligence before you start trading, and avoid trading with entities like this.
The one place where all this lofty talk about “legal personhood” and “it not mattering a jot which part of a corporate organisation makes the promise to be bound by the contract” falls about is when it comes to taxation. Taxation authorities don’t care about holistic entities, only the bits of them that are in their jurisdiction and over whose income and outgoing they have power to tax. so while it might not matter to you or your counterparty which bit of your organisation “did the deed” or “reaped its rewards”, it will matter to their respective tax departments, and the taxing authorities to which appendages of the entity are beholden. Yes, the net tax burden on the whole entity is the same, but one still tries to “optimise” that burden as best one can, by arranging things to be as far beyond the reach of nefarious excise authorities as can be plausibly arranged. Don’t @ me folks: I don’t make the rules.
Again, a provision largely there to keep the respective tax departments happy. Each books the transaction depending on certain tax representations from the other; if the other then changes Offices or some such thing in a way that upsets that careful tax analysis, well —
Simple: just don’t fiddle with Offices and Branches post execution. Why would you? (Unless to correct an error you made on the Trade Date ... )
- The JC’s famous Nutshell™ summary of this clause
- More on taxation
- Must you complete onboarding in each jurisdiction though?
- Netting: could the validity of close-out netting depend on the branch through which the entity transacts?
- Force Majeure and Illegality and what happens in Section 5(e) if they occur to one or more branches but not the head office
- Branches generally
- Close-out netting generally