Breach of Agreement - ISDA Provision
2002 ISDA Master Agreement
Section 5(a)(ii) in a Nutshell™
Full text of Section 5(a)(ii)
Related agreements and comparisons
Content and comparisons
Note the addition of Repudiation of Agreement to the 2002 ISDA. Common law purists like the JC will grumble that you don’t really need to set out repudiation as a breach justifying termination of a contract, because that’s what it is by definition but stating the bleeding obvious has never stopped ISDA’s crack drafting squad™ before.
A failure to perform any agreement, if not cured within 30 days, is an Event of Default, except for:
- (i) those failures which already have their own special Event of Default (i.e., Failure to Pay or Deliver under Section 5(a)(i)) or
- (ii) those that relate to tax, and which mean the party not complying will just get clipped for tax it rather would not.
These are the boring breaches of agreement: those of a not immediately existential consequence to a derivative relationship (like Failure to Pay or Deliver, or a party’s outright Bankruptcy) but which, if not promptly sorted out, justify shutting things down with extreme prejudice.
All rendered in ISDA’s crack drafting squad™’s lovingly tortured prose, of course: note a double negative extragvaganza in 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.
Note that a normal Section 5(a)(ii)(1) Breach of Agreement that also comprises a Section 5(b)(i) Illegality or a Section 5(b)(ii) Force Majeure Termination Event will, courtesy of section 5(c), be treated as the latter, but a repudiatory Breach of Agreement under section 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 Illegality — it is hard to see how a repudiatory breach could be an Illegality in itself — will not save you from the full enormity of section 5(a)(ii) Event of Default style close out.
Failure to Pay or Deliver carve-out
Why is Section 5(a)(i) specifically carved out? No good reason, other than ISDA’s crack drafting squad™’s general neurosis/delight in over-communicating. Yes, it has its own separate Event of Default, with a much tighter timeline, so in practice one would never realistically trigger a failure to pay as a 5(a)(ii) event, but it is still a bit fussy carving it out.
It is an Event of Default not to supply documents for delivery
A failure to Furnish Specified Information — ie those documents for delivery specified in Part 3 of the ISDA Master Agreement, adverted to in Section 4(a)(ii) will therefore be an Event of Default, although you have to navigate a needlessly tortured string of clause cross references and double negatives to settle upon this conclusion.
- Furnish Specified Information and sub-limb 4(a)(ii) (documents for delivery) but not 4(a)(i) or 4(a)(iii) (which relate to tax documents).
- Section 3(d) representations.