Force Majeure Event - ISDA Provision

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 Deliver • 5(a)(ii) Breach of Agreement • 5(a)(iii) Credit Support Default • 5(a)(iv) Misrepresentation • 5(a)(v) Default Under Specified Transaction • 5(a)(vi) Cross Default • 5(a)(vii) Bankruptcy • 5(a)(viii) Merger without Assumption • Termination Events: 5(b)(i) Illegality • 5(b)(ii) Force Majeure Event • 5(b)(iii) Tax Event • 5(b)(iv) Tax Event Upon Merger • 5(b)(v) Credit Event Upon Merger • 5(b)(vi) Additional Termination Event Index: Click ᐅ to expand: 2002 ISDA 1992 ISDA 2002 ISDA - New Section 5(b)(ii) in a Nutshell™ Use at your own risk, campers! 5(b)(ii) Force Majeure Event. A force majeure occurring after any Transaction is executed means:― (1) the Affected Party’s relevant Office cannot practicably perform any obligation under the Transaction; or (2) the Affected Party or its Credit Support Provider cannot practicably perform any obligation under the Transaction; if the force majeure is outside the Affected Party’s control and it could not, using all reasonable efforts (without incurring more than incidental expenses by way of loss), overcome the necessary prevention; view template Full text of Section 5(b)(ii) 5(b)(ii) Force Majeure Event. After giving effect to any applicable provision, disruption fallback or remedy specified in, or pursuant to, the relevant Confirmation or elsewhere in this Agreement, by reason of force majeure or act of state occurring after a Transaction is entered into, on any day:― 5(b)(ii)(1) the Office through which such party (which will be the Affected Party) makes and receives payments or deliveries with respect to such Transaction is prevented from performing any absolute or contingent obligation to make a payment or delivery in respect of such Transaction, from receiving a payment or delivery in respect of such Transaction or from complying with any other material provision of this Agreement relating to such Transaction (or would be so prevented if such payment, delivery or compliance were required on that day), or it becomes impossible or impracticable for such Office so to perform, receive or comply (or it would be impossible or impracticable for such Office so to perform, receive or comply if such payment, delivery or compliance were required on that day); or 5(b)(ii)(2) such party or any Credit Support Provider of such party (which will be the Affected Party) is prevented from performing any absolute or contingent obligation to make a payment or delivery which such party or Credit Support Provider has under any Credit Support Document relating to such Transaction, from receiving a payment or delivery under such Credit Support Document or from complying with any other material provision of such Credit Support Document (or would be so prevented if such payment, delivery or compliance were required on that day), or it becomes impossible or impracticable for such party or Credit Support Provider so to perform, receive or comply (or it would be impossible or impracticable for such party or Credit Support Provider so to perform, receive or comply if such payment, delivery or compliance were required on that day), so long as the force majeure or act of state is beyond the control of such Office, such party or such Credit Support Provider, as appropriate, and such Office, party or Credit Support Provider could not, after using all reasonable efforts (which will not require such party or Credit Support Provider to incur a loss, other than immaterial, incidental expenses), overcome such prevention, impossibility or impracticability; view template Related agreements and comparisons Click here for the text of Section Force Majeure Event in the 1992 ISDA There is no Force Majeure Event in the 1992 ISDA (but there is an ISDA Illegality/Force Majeure Protocol). Comments? Questions? Suggestions? Requests? Insults? We’d love to 📧 hear from you. Sign up for our newsletter.

Content and comparisons

Numbering Discrepancy: Note the numbering discrepancy in Section 5(b) between the 1992 ISDA and 2002 ISDA. This is caused by a new 5(b)(ii) (Force Majeure Event) in the 2002 ISDA before Tax Event, which is thus shunted from Section 5(b)(ii) (in the 1992 ISDA) to Section 5(b)(iii) (in the 2002 ISDA).

Note that, while the 1992 ISDA does not contain the concept of force majeure, there is an ISDA Illegality/Force Majeure Protocol (see here) which can be signed to adopt/incorporate the relevant parts.

Numbering Discrepancy: Note the numbering discrepancy in Section 5(b) between the 1992 ISDA and 2002 ISDA. This is caused by a new 5(b)(ii) (Force Majeure Event) in the 2002 ISDA before Tax Event, which is thus shunted from Section 5(b)(ii) (in the 1992 ISDA) to Section 5(b)(iii) (in the 2002 ISDA).

Depending on your edition of the ISDA Master Agreement, “5(b)(ii)” could be a reference to:

• Tax Event (1992 ISDA)
• Force Majeure Event (2002 ISDA)

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Summary

For the last word on force majeure, the JC’s ultimate force majeure clause is where it’s at. Breaking what must be a habit of a lifetime, somehow ISDA’s crack drafting squad™ managed to refrain from going crazy-ape bonkers with a definition of force majeure and instead, didn’t define it at all.

I don’t know this, but I am going to hazard the confident hypothesis that what happened here was this:

ISDA’s crack drafting squad™, having convened its full counsel of war, fought so bloodily over the issue, over so long a period, that the great marble concourse on Mount Olympus was awash with the blood of slain legal eagles, littered with severed limbs, wings, discarded weapons, arcane references to regional variations of tidal waves, horse droppings from Valkyries etc., that there was barely a soul standing, and the only thing that prevented total final wipeout was someone going, “ALL RIGHT, GOD DAMN IT. WE WON’T DEFINE WHAT WE MEAN BY FORCE MAJEURE AT ALL.”

There was then this quiet, eerie calm, when remaining combatants suddenly stopped; even those mortally wounded on the floor looked up, beatifically; a golden light bathed the whole atrium, choirs of angels sang and the chairperson said, right, well that seems like a sensible, practical solution. What next then?

“We thought we should rewrite the 2002 ISDA Equity Derivatives Definitions in machine code, your worship.”

Excellent idea! Let’s stop faffing around with this force majeure nonsense and do that then!

Act of state: Note reference to “act of state”. Now a state, rather like a corporation, is a juridical being — a fiction of the law — with no res extensa as such. It exists on the rarefied non-material plane of jurisprudence. There are, thus, only a certain number of things that, without the agency of one if its employees, a state can do, and these involve enacting and repealing laws, promulgating and withdrawing regulations, signing treaties, entering contracts and, where is has waived its sovereign immunity, litigating their meaning.

Thus, a force majeure taking the shape of an act of state is, we humbly submit, a change in law which makes it impossible for one side or the other to perform its obligations. Compare, therefore, with Illegality.

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General discussion

Note a few caveats with regard to Force Majeure Events:

• Hierarchy of Events: Under Section 5(c) an Illegality or a Force Majeure Event "trumps" a Failure to Pay or Deliver, Breach of Agreement or Credit Support Default Event of Default occasioned by the same circumstances (e.g. a Failure to Pay or Deliver occasioned by an act of God is a Force Majeure Event and not an Event of Default). this doesn't apply with respect to other Events of Default though (such as Bankruptcy or Cross Default).
  
• Deferral of Payments and Deliveries During Waiting Period: Upon an Illegality or Force Majeure Event, payments and deliveries are deferred until the earlier of (a) the expiry of any Waiting Period; and (b) the date on which the Illegality or Force Majeure Event is cured.

Waiting Period

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See also

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