2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
2(e) in a Nutshell™
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2(e) in all its glory
2(e) Condition End Date
- (i) If an Event of Default occurs, the Defaulting Party may, by notice to the non-Defaulting Party identifying the Event of Default and confirming its occurrence, specify that clause (iii) will apply to that Event of Default.
- (ii) If a Potential Event of Default occurs with respect to a party, that party may, by notice to the other party identifying the Potential Event of Default and confirming its occurrence:
- (A) waive any requirement that notice be given or that any period of time elapse, by virtue of which waiver the Potential Event of Default will become an Event of Default; and
- (B) specify that clause (iii) will apply to that Event of Default.
- (iii) If this clause (iii) applies to an Event of Default, then the condition precedent specified in Section 2(a)(iii)(1) with respect to that Event of Default will cease to be a condition precedent to each obligation of the non-Defaulting Party on the relevant Condition End Date. Any obligation that would have been payable or deliverable by the non-Defaulting Party but for Section 2(a)(iii)(1) will become payable or deliverable on the first Local Business Day falling after the Condition End Date (together with interest payable on demand in accordance with Section 9(h)(i)(3)(A) or compensation and interest payable on demand in accordance with Section 9(h)(i)(4)(A), as the case may be).
- (iv) Subject to clause 2(e)(v) below, if, after a party has given a notice under clause (i) or (ii) above with respect to an Event of Default or Potential Event of Default, another Event of Default or Potential Event of Default occurs with respect to that party, then, with respect to the earlier Event of Default, no Condition End Date will occur and therefore clause (iii) will not apply. This will not affect the right of that party to give a notice under clause (i) in respect of the subsequent Event of Default or under clause (ii) in respect of the subsequent Potential Event of Default. This clause (iv) is without prejudice to the right of the Defaulting Party to give a new notice to the non-Defaulting Party under clause (i) with respect to the earlier Event of Default.
- (v) If the Defaulting Party has given a notice under clause (i) above in respect of an Event of Default under Section 5(a)(vii), then clause (iv) will not apply.”
Section 14 of the Agreement is amended to add in the appropriate alphabetical position a new definition of “Condition End Date”, reading in its entirety as follows:
“Condition End Date” means, with respect to an Event of Default, the day falling 90 days after a notice given by the Defaulting Party under Section 2(e)(i) or Section 2(e)(ii) is effective if the Event of Default is still continuing on that day.”
Related agreements and comparisons
Click here for the text of Section 2(e) in the 1992 ISDA
It is really not worth even trying a comparison between Section 2(e) and Section 9(h) — trust me on this. What? You don’t trust me?
Oh, all right then:have it your way: Click to compare this section in the 1992 ISDA and 2002 ISDA. See?
Resources and Navigation
Well, it would be wrong not to compare it to dear old Section 2(a)(iii) wouldn’t it?
There isn’t a Section 2(e), but there almost was, when ISDA went through a period of hand-wringing after the financial crisis, which revealed to the world how unsatisfactory the existing section 2(a)(iii) was.
The idea was to allow the victim — Affected Party, however you want to call it — to preempt the condition precedent, and say, well use it or lose it within 90 days — the titular Condition End Date.
Well, the moment passed, but there are those who have adopted this as a standard in their schedules — good sports, for the most part — but regulator angst has long since moved on, as did legal eagle appetite to amend swathes of standard contracts for a contingency no-one in their right mind would use, or for that matter can make head or tail of.
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- The JC’s famous Nutshell™ summary of this clause
- How and when 2(a)(iii) is or, more to the point not, triggered.
- The confusion, fear and loathing that can arising from no-one knowing whether 2(a)(iii) applies.
- The confusion arising from not knowing when the condition precedent is meant to apply.
- The JC’s idiosyncratic theory about why anyone thought 2(a)(iii) was a good idea in the first place.
- The JC’s impassioned argument that, even if once upon a time it was, Section 2(a)(iii) is no longer fit for purpose.
- How Section 2(a)(iii) held up during the sanctions extravaganza when Russia invaded Ukraine (hint: it didn’t help!)
- How Section 2(a)(iii) operates in the case of non-payment-or-delivery defaults.
- How corporate buyers of fully paid options might feel about 2(a)(iii) (hint: not happy!) and the sorts of amendments they might think about making if they want to feel happier
- Why regulators don’t like 2(a)(iii)
- What the courts think of 2(a)(iii) — in a nutshell, they are confused — plus a table comparing the six major decisions on the clause
- The famous, infamous, much-misunderstood, dare we say flawed Section 2(a)(iii) of the ISDA, and our summary of the litigationey cases surrounding it.