Absence of Litigation - 1992 ISDA Provision

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1992 ISDA Master Agreement
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Section 3(c) in a Nutshell
Use at your own risk, campers!

3(c) Absence of Litigation. There is no pending or threatened litigation against it or its any Affiliates that could affect the legality, enforceability or its ability to perform this Agreement or any Credit Support Document to which it is a party. view template

Full text of Section 3(c)

3(c) Absence of Litigation. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document.
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Related agreements and comparisons

Related Agreements
Click here for the text of Section 3(c) in the 2002 ISDA
Comparisons
Click to compare this section in the 1992 ISDA and 2002 ISDA.

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Content and comparisons

Section 3(c) was one of the bits of the 1992 ISDA that ISDA’s crack drafting squad™ “got mostly right” at the first time of asking. But still, some bright sparks on the ’Squad took it upon themselves, in the 2002 ISDA, to switch out reference to “Affiliates” which — I don’t know, might take in some distant half-bred cousin you don’t enormously care about and who doesn’t cast any real shadow on your creditworthiness — with “Credit Support Providers” and “Specified Entities” who no doubt more keenly do, but this leads to just more fiddliness in the Schedule over-stuffed with fiddliness, since one must then go to the trouble of specifying, and then arguing with your counterparties about, who should count as a Specified Entity for this remote and rather vacuous purpose.

Keeps the home fires burning in the hobbity shires where ISDA negotiators make their homes, we suppose.
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Summary

Reference to Affiliates can be controversial, particularly for hedge fund managers.

More generally, absence of litigation it is roundly pointless representation, but seeing as (other than unaffiliated Hedge Fund managers) no-one really complains about it, it is best to just leave well alone. It is one for the life’s too short file.

But if you do see your life stretching away unendingly to the horizon, and you haven’t got anything else in the calendar in the next half hour, go west, young man. Or woman.
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General discussion

Absence of litigation generally

An absence of litigation representation seeks to address litigation carrying two particular risks:

  • Enforceability: Litigation that could somehow undermine or prejudice the very enforceability of life was we know it (a.k.a the agreement you are presently negotiating);
  • Credit deterioration: Litigation that is so monstrous in scope that it threatens to wipe your counterparty from the face of the earth altogether, while it still owes you under the agreement you’re negotiating.

Enforceability-threatening litigation

Firstly, Earth to Planet ISDA: what kind of litigation or regulatory action — we presume about something unrelated to this agreement since, by your theory, it doesn’t damn well exist yet — could adversely impact in the enforceability of this future private legal contract between one of the litigants and an unrelated, and ignorant, third party?

Search me. But still, I rest assured there will an ISDA boxwallah out there somewhere who could think of something.

Existentially apocalyptic litigation

Look, if your counterparty is banged up in court proceedings so awful to behold that an adverse finding might bankrupt it altogether, and your credit sanctioning team hasn’t got wind of it independently then, friend, you have way, way bigger problems than whether you have this feeble covenant in your docs. And, if you are only catching it at all thanks to a carelessly given absence of litigation rep, by the time said litigation makes itself known to you.[1] won’t it be a bit late?

Deemed repetition

Ah, you might say, but what about the deemed repetition of this representation? Doesn’t that change everything?

And what of this idea that one not only represents and warrants as of the moment one inks the paper, but also is deemed to repeat itself an the execution of each trade, on any day, or whenever a butterfly flaps its wings on Fitzcarraldo’s steamer[2]? Do we think it works? Do we? Given how[3] practically useless even explicit representations are, does it really matter?

And, having given it, how are you supposed to stop a continuing representation once it has marched off into the unknowable future, like one of those conjured brooms from the Sorcerer’s Apprentice? If you don’t stop it, what then? This may seem fanciful to you, but what are buyside lawyers if not creatures of unlimited, gruesome imagination? Are their dreams not full with flights of just this sort of fancy? Rest assured that, as you do, they will be chewing their nails to the quick in insomniac fever about this precise contingency.

For which reason — it being a faintly pointless representation in the first place and everything — it might be best just to concede this point when it arises, as inevitably it will.

Pick your battles

All that said, and probably for all of the above reasons, parties tend not to care less about this representation, so your practical course is most likely to leave it where you find it.
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See also

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References

  1. Judgment day, in other words.
  2. Or whatever. WHATEVER DUDE.
  3. WARNING: CONTRARIAN VIEW COMING UP.