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| ===Commentary===
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| Paragraph 10 of the {{isdama}} allows parties to specify whether they are multibranch parties or not.
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| ====Branches====
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| A "branch" in this context is a presence in a jurisdiction other than the jurisdiction in which the counterparty is incorporated. For example:
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| *"Deutsche Bank AG, London Branch" is a physical manifestation of the German [[Aktiengesellschaft]], albeit located in London, with no other standing under English law and is a "branch".
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| *"Goldman Sachs International", on the other hand, is an unlimited liability company incorporated in England and Wales which is legally distinct from The Goldman Sachs Group, Inc., and would not count as a "branch", and indeed has its own ISDA.
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| Electing "multibranch party" status allows a [[counterparty]] to transact swap confirms out of various different branches of the same legal entity. Deutsche may wish to transact out of its Frankfurt HQ and also out of its London branch.
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| Details fans will immediately note that, from the point of view of legal and corporate philosophy - surely a subject dear to every attorney's heart - the differing branches of a legal entity have no distinct legal personality any more than does a person's arm or leg have different personality from her head. So being a "multibranch" party seems immaterial.
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| ===Taxation===
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| Those details fans will have overlooked the strange, parallel universe of taxation. Here it is presence and not legal personality is important. Specifying that your counterparty may trade from its offices in, for example, [[Prague]], [[Kabul]] or [[The Sudan]] may impact the tax payable on payments under the relevant transactions under the [[ISDA]]. Where both parties are multibranch parties and have numerous overseas branches, a complex multilateral analysis of all the different permutations is assured.
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| Quoth, elegantly, the great Alistair Fulton (now departed):
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| :"The risk for {{Bank}} is essentially a [[withholding tax]] gross-up risk. If withholding tax arises in relation to a payment made to a counterparty through our NYK office, and the counterparty hasn't provided us with evidence of an exemption from withholding, the counterparty may argue that {{Bank}} is obliged to [[gross-up]] the payment on the basis that, but for our failure to disclose to them that payments may be made from NYK, they would have provided evidence of their exemption. So, by failing to disclose that USD payments will originate in NYK, we make a misrepresentation by omission of something that may be material to the counterparty.
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| :"So you end up in a double-jeopardy, in that counterparties may refuse to make a US {{isdaprov|Payee Tax Representation}} on the grounds that, in the absence of the disclosure that NYK is a {{Bank}} settlement centre, there's nothing to convince them that payments will be made to them (as Payee) from NYK. So, no [[Payee Tax Representation]] (or [[W-8BEN]] form) + no multibranch election = potential withholding tax gross up by {{Bank}}. And/or a possible Misrepresentation [[Event of Default]]".
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| :"Of course there are other ways to get around it: disclosure of the branch in a Confirmation (operational risk, and of no use in electronically booked txns), or more detailed reps in Part 5 - but none is as simple or uncomplicated as simply putting "New York" in the Multibranch election"
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| ====Netting====
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| While, by dint of the legal personality, it wouldn't make any difference under English or New York law, and really shouldn't anywhere else, there are those jurisdictions which are not so theroetically pure in their conceptualisation of the corporate form. Your counterparty may have the misfortune to be incorporated in such a place.
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| If so, the validity of close-out [[netting]] against that entity may indeed depend on the branch from which it transacts - and indeed there is a possibility that the governing law of the jurisdiction of the branch may endeavour to intervene (particularly relevant if it has assets). Another reason, perhaps, to disapply the "multibranch party" for a counterparty incorporated in such a jurisdiction. The way to check this is at the netting opinion review sheet contains the following question:
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| Does the opinion confirm that close-out netting under the agreement is enforceable notwithstanding the
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| inclusion of branches in non netting jurisdictions? Yes/No
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| {{isdaanatomy}}
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Latest revision as of 12:03, 5 January 2024
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2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
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| ISDA Text: 10
10. Offices; Multibranch Parties
- 10(a) If Section 10(a) is specified in the Schedule as applying, each party that enters into a Transaction through an Office other than its head or home office represents to and agrees with the other party that, notwithstanding the place of booking or its jurisdiction of incorporation or organisation, its obligations are the same in terms of recourse against it as if it had entered into the Transaction through its head or home office, except that a party will not have recourse to the head or home office of the other party in respect of any payment or delivery deferred pursuant to Section 5(d) for so long as the payment or delivery is so deferred. This representation and agreement will be deemed to be repeated by each party on each date on which the parties enter into a Transaction.
- 10(b) If a party is specified as a Multibranch Party in the Schedule, such party may, subject to clause (c) below, enter into a Transaction through, book a Transaction in and make and receive payments and deliveries with respect to a Transaction through any Office listed in respect of that party in the Schedule (but not any other Office unless otherwise agreed by the parties in writing).
- 10(c) The Office through which a party enters into a Transaction will be the Office specified for that party in the relevant Confirmation or as otherwise agreed by the parties in writing, and, if an Office for that party is not specified in the Confirmation or otherwise agreed by the parties in writing, its head or home office. Unless the parties otherwise agree in writing, the Office through which a party enters into a Transaction will also be the Office in which it books the Transaction and the Office through which it makes and receives payments and deliveries with respect to the Transaction. Subject to Section 6(b)(ii), neither party may change the Office in which it books the Transaction or the Office through which it makes and receives payments or deliveries with respect to a Transaction without the prior written consent of the other party.
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Related agreements and comparisons
Resources and Navigation
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Overview
A bit of development from the 1992 ISDA to cater for the more fiddlesome nature of the 2002 ISDA (in particular the effect of Illegality and Force Majeure events that affect some branches of a Multibranch Party but not others).
Summary
Section 10 of the ISDA Master Agreement allows parties to specify whether they are Multibranch Parties. Electing “Multibranch Party” status allows you to transact out of the named branches of the same legal entity.
Section 10(a)
A seldom-regarded but basically potty representation thrown in to allow parties to represent that if it trades through a minor branch, recourse against it will be no different from the recourse it would have had it traded though its head office.
Law students of all vintages will remember from Company Law class that this is necessarily the case: this is what the legal fiction of the “corporate legal personality” is designed to do: create a new, unitary “person” who is liable at law, can sue and be sued, live, love and survive independently of its stakeholders, for anything done in the name of that company — as long as intra vires and properly authorised by the company, regardless of where and through whose agency it is done.
Now it may be the case that certain primitive jurisdictions, for certain primitive entity types, this is not the case but, if so, the answer ought to be do not trade with entities like that or, if you really must, do not trade with entities like that out of branches that won’t bind the legal entity.
There is a chicken-and-egg problem here: if you do, then Q.E.D. the entity is not bound. Yes, you may be left with an action for damages (in tort — there is no contract, remember) for misrepresentation, but we think the better approach is for your onboarding and credit sanctioning teams to do their due diligence before you start trading, and avoid trading with entities like this.
Section 10(b)
The one place where all this lofty talk about “legal personhood” and “it not mattering a jot which part of a corporate organisation makes the promise to be bound by the contract” falls about is when it comes to taxation. Taxation authorities don’t care about holistic entities, only the bits of them that are in their jurisdiction and over whose income and outgoing they have power to tax.
So, while it might not matter to you or your counterparty which bit of your organisation “did the deed” or “reaped its rewards”, it will matter to their respective tax departments, and the taxing authorities to which appendages of the entity are beholden. Yes, the net tax burden on the whole entity is the same, but one still tries to “optimise” that burden as best one can, by arranging things to be as far beyond the reach of nefarious excise authorities as can be plausibly arranged. Don’t @ me folks: I don’t make the rules.
Section 10(c)
Again, a provision largely there to keep the respective tax departments happy. Each books the transaction depending on certain tax representations from the other; if the other then changes Offices or some such thing in a way that upsets that careful tax analysis, well —
Simple: just don’t fiddle with Offices and Branches post execution. Why would you? (Unless to correct an error you made on the Trade Date ... )
Premium content
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- The JC’s famous Nutshell™ summary of this clause
- More on taxation
- Must you complete onboarding in each jurisdiction though?
- Netting: could the validity of close-out netting depend on the branch through which the entity transacts?
See also
References