Notices - 1992 ISDA Provision

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1992 ISDA Master Agreement
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Section 12 in a Nutshell

Use at your own risk, campers!
===12. Notices===

12(a) Effectiveness. Any communication under this Agreement may be given in any manner described below (except that communications about Events of Default and Termination Events or Early Termination may not be given by electronic messaging system) as set out in the Schedule) and will be effective when delivered:―

(i) By hand: when delivered;
(ii) By telex: when the recipient’s answerback is received;
(iii) By fax: when received in legible form (the burden of proof being on the sender: a transmission report won’t do);
(iv) By registered mail: when delivered (or when delivery is attempted);
(v) By electronic messaging system: when received; or

unless delivery or receipt happens outside ordinary business hours on a Local Business Day, in which case it will be deemed effective on the following Local Business Day.

12(b) Change of Details. Either party may change its contact details by notice.

Full text of Section 12

12. Notices

12(a) Effectiveness. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated:—

(i) if in writing and delivered in person or by courier, on the date it is delivered;
(ii) if sent by telex, on the date the recipient’s answerback is received;
(iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender’s facsimile machine);
(iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or
(v) if sent by electronic messaging system, on the date that electronic message is received,

unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day.

12(b) Change of Addresses. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it.

Related agreements and comparisons

Related Agreements
Click here for the text of Section 12 in the 2002 ISDA
Comparisons
Click to compare this section in the 1992 ISDA and 2002 ISDA.

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Content and comparisons

The major change between the versions of Section 12 (Notices) was the 2002 ISDA’s inclusion of e-mail as a means of communication in addition to the 1992 ISDA’s electronic messaging system. Also, fax and electronic messaging system are not permitted means of serving close-out communications (i.e., under Sections 5 and 6) under the 1992 ISDA, but fax is permitted under the 2002 ISDA, whereas electronic messaging system and email are not. Got all that?

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Summary

Who would have thought a Notices provision would be so controversial? Especially the question, “What is an electronic messaging system”?

No-one, it is humbly submitted, until Andrews, J. of the Chancery Division, was invited to opine on Greenclose v National Westminster Bank plc, the kind of “little old lady” case that makes bad law.[1] The learned judge does nothing to dispel the assumption that lawyers are technological Luddites who would apply Tip-Ex to their VDUs if they didn’t have someone to do their typing for them (and if they knew what a VDU was).

For there it was held that email is not an “electronic messaging system and, as such, was an invalid means for serving a close-out notice under the 1992 ISDA, which doesn’t mention email. Read in-depth about that case here.

And that was before the entire, interconnected world decided, as an orchestrated whole, to cease the conduct of the business as a physical idea for an indefinite period in early 2020. Suddenly, a widely-used and, it was assumed, well-tested notices regime started to look like it might not work.

Oh, and another thing: who seriously has a telex in this day and age?

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General discussion

Mandatory, or not?

Section 12 specifies a variety of different formats by which a party “may” deliver notices under the ISDA Master Agreement. Ordinarily “may” implies discretion and optionality on a party, such that if it wishes it might choose something different. We have waxed lyrical elsewhere about the potential redundancy of such optional clauses.[2] However, this is not how Andrews J saw this particularmay” in the idiosyncratic, but unappealed, case of Greenclose. This “may” means “must” and, as long as Greenclose remains the unchallenged last word in British jurisprudence, it excludes any other means of delivering a notice. Since hand-delivery and delivery by courier are mentioned but the ordinary post isn’t, this probably rules it out. (But if it’s important, who would use snail mail anyway?)

On the other hand it hardly needs to be said that all of the ordinary day-to-day communication under the ISDA Master Agreement between trading and back-office staff of each party — inconsequential matters like trading, payments, settlements, reconciliations, and margin — will happen by telephone and email, in naked disregard for the terms of the ISDA Master Agreement which, at that point, will be languishing languishing unobserved in an electronic document repository to which operations staff might not even have access. This somewhat gives the lie to Greenclose’s rather quaint apprehensions about how ISDA Master Agreements operate in practice.

Close-out notice restrictions

However curious Andrews J’s reasoning on “may”, note the overriding restriction on forms of notice for closing out: no email, no electronic messages. But note another dissonance: in the 1992 ISDA, close-out notification by fax was expressly forbidden; in the 2002, it is not: only electronic messaging systems and e-mail are verboten. Ironic, seeing how faxes have got on as a fashionable means of communication in the decades since they were sophisticated enough to be a plot McGuffin for a John Grisham novel.

Deliver

The Cambridge Dictionary says that to “deliver” is “to take goods, letters, parcels, etc. to people’s houses or places of work”.[3]

Merriam Webster says it means “to take and hand over to or leave for another”.[4]

The Collins Dictionary of British English, in a rather modishly modern English format, tells us “If you deliver something somewhere, you take it there”.[5]

A bit more challengingly, the Lexico Oxford Dictionary says it means “bring and hand over (a letter, parcel, or goods) to the proper recipient or address”. Oxford’s language suggests a “handing” from sender to recipient, though a commonsense application of delivery through a letterbox to an address says the only “hands” involved are the sender’s.

An agent for the recipient does not need to be there; just that the notice is conveyed to the appointed place. It is no good refusing to answer the door, hiding behind the sofa or blocking up your letterbox with Araldite: if the sender’s agent brings a notice to your designated address, even by regular post, the sender has “delivered” it.

If it is, literally, impossible to arrange even an agent to hand-deliver a package, what then? Before the spring of 2020, most learned commentators would have regarded such a scenario as so absurd as to not dignify an answer. By April, ISDA was seeking advice about it.

Email vs electronic messaging system

A John Grisham McGuffin yesterday. well, in about 1986 actually.

The well-intended and, we think, presumed harmless — even modern — addition of email in the 2002 ISDA, in addition toelectronic messaging system”, persuaded the Chancery Division of the High Court to conclude that “electronic messaging system” and “email” are mutually exclusive things, rather than a basic commentary on ISDA’s crack drafting squad™ inability to let things go — a conclusion which the JC finds hard to accept, as you will see if you read the Greenclose v National Westminster Bank plc case note.

CSA

Note that the 1995 CSA subjects its notice provisions to this provision (see Paragraph 9(c) and 11(g).

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See also

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References