Force Majeure Event - ISDA Provision

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2002 ISDA Master Agreement

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ISDA Text: Force Majeure

Force Majeure Event” has the meaning specified in Section 5(b).

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;

Related agreements and comparisons

Click here for the text of Section Force Majeure in the 1992 ISDA
There is no Force Majeure Event in the 1992 ISDA, so no comparison.

Resources and Navigation

This provision in the 1992

Resources Wikitext | Nutshell wikitext | 1992 ISDA wikitext | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | JC’s ISDA code project
Navigation Preamble | 1(a) (b) (c) | 2(a) (b) (c) (d) | 3(a) (b) (c) (d) (e) (f) (g) | 4(a) (b) (c) (d) (e) | 55(a) 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 5(b) 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 (c) (d) (e) | 6(a) (b) (c) (d) (e) (f) | 7 | 8(a) (b) (c) (d) | 9(a) (b) (c) (d) (e) (f) (g) (h) | 10 | 11 | 12(a) (b) | 13(a) (b) (c) (d) | 14 |

Index: Click to expand:

Overview

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Force Majeure Event: There is no Force Majeure in the 1992 ISDA, though parties would habitually negotiate one in, and by the time the 2002 ISDA was published it was in fairly standardised. For those who didn’t negotiate it in there was also the ISDA Illegality/Force Majeure Protocol (see here) which they could sign — upon payment of the suitable fee is ISDA — to adopt/incorporate the relevant parts.

Summary

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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. In the 1992 ISDA they didn’t even include the concept.

Interlude: if you are in a hurry you can avoid this next bit.

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 wipe-out 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!”

Ok back to normal.

Force Majeure in the 1992 ISDA

We may have said this before but, just because there isn’t a Force Majeure proper in the preprinted 1992 doesn’t mean people don’t borrow the concept from the 2002 — which has been around for, you know, 21 years now — and put it in anyway. One thing we can’t fathom is what possessed ISDA’s crack drafting squad™ to put it in at Section 5(b)(ii), rather than Section 5(b)(iv) just before the Additional Termination Event section, because for absolute shizzle anyone familiar with one version of the ISDA Master Agreement is going to get confused as hell if they start misunderstanding clause references in the other.

Act of state

Note the 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.

Premium content

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  • The JC’s famous Nutshell summary of this clause
  • How the hierarchy works between Illegalities, Force Majeure and Events of Default, should they all descend on your Counterparty at once, in the shape of the same event
  • Deferral of payments and deliveries during the Waiting Period
  • Waiting Periods generally

See also

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References