Breach of Agreement - ISDA Provision

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2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™

Resources and navigation

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14
Events of Default: 5(a)(i) Failure to Pay or Deliver5(a)(ii) Breach of Agreement5(a)(iii) Credit Support Default5(a)(iv) Misrepresentation5(a)(v) Default Under Specified Transaction5(a)(vi) Cross Default5(a)(vii) Bankruptcy5(a)(viii) Merger without Assumption
Termination Events: 5(b)(i) Illegality5(b)(ii) Force Majeure Event5(b)(iii) Tax Event5(b)(iv) Tax Event Upon Merger5(b)(v) Credit Event Upon Merger5(b)(vi) Additional Termination Event

Index: Click to expand:

Section 5(a)(ii) in a Nutshell
Use at your own risk, campers!

5(a)(ii)Breach of Agreement” means:
(1) a party breaches any of its obligations under the Agreement and doesn’t remedy the breach within 30 days of the other party’s notice other than the following:
(a) a Failure to Pay or Deliver;
(b) owning up to a Termination Event;
(c) not providing any necessary tax documents;
(d) any of its tax representations not being true; or
(2) a party repudiates this ISDA Master Agreement or any Transaction.

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Full text of Section 5(a)(ii)

5(a)(ii) Breach of Agreement; Repudiation of Agreement.
(1) Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery under Section 2(a)(i) or 9(h)(i)(2) or (4) or to give notice of a Termination Event or any agreement or obligation under Section 4(a)(i), 4(a)(iii) or 4(d)) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied within 30 days after notice of such failure is given to the party; or
(2) the party disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, this Master Agreement, any Confirmation executed and delivered by that party or any Transaction evidenced by such a Confirmation (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf);

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Related agreements and comparisons

Related Agreements
Click here for the text of Section 5(a)(ii) in the 1992 ISDA
Click to compare this section in the 1992 ISDA and 2002 ISDA.

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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.

Hierarchy of Events

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.

General discussion

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.

ISDA’s crack drafting squad™. Never knowingly outfussed.™

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.

See also