Representations - ISDA Provision

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ISDA Anatomy
incorporating our exclusive ISDA in a NutshellTM

In a NutshellTM Section 3:

3. Representations

Each party makes the representations below (with Section 3(g) representations only if specified in the Schedule) and repeats them on the date it enters into each Transaction and, for Section 3(f) representations, at all times until they terminate this Agreement). Any “Additional Representations” will be made and repeated as specified.
3(a) Basic Representations

3(a)(i) Status. It is duly organised and validly existing under the laws of its jurisdiction and is, where relevant, in good standing;
3(a)(ii) Powers. It has the power to execute, deliver and perform this Agreement and any Credit Support Document to which it is a party and has done everything needed to do so;
3(a)(iii) No Violation or Conflict. Its execution, delivery and performance does not breach law, its constitutional documents, or any court or government order or contractual restriction affecting it or its assets;
3(a)(iv) Consents. It has all regulatory approvals needed to enter and perform this Agreement and any Credit Support Document to which it is a party and they remain unconditional and in full force; and
3(a)(v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party are its legal, valid and binding obligations, enforceable in accordance with their terms (subject to general laws affecting creditors’ rights and equitable principles).

3(b) Absence of Certain Events. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event is in existence for that party or would happen if it entered or performed this Agreement or any Credit Support Document.
3(c) Absence of Litigation. There is no pending or threatened litigation against it, any Credit Support Providers or any Specified Entities before any court or government agency that could affect the legality, enforceability or its ability to perform this Agreement or any Credit Support Document.
3(d) Accuracy of Specified Information. The Specified Information designated as being subject to this Section 3(d) representation is, as at its stated date, materially accurate and complete.
3(e) Payer Tax Representation. Each of its Payer Tax Representations specified in the Schedule is true.
3(f) Payee Tax Representation. Each of its Payee Tax Representations specified in the Schedule is true.
3(g) No Agency. It is a principal and not an agent under this Agreement.
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2002 ISDA full text of Section 3:

3. Representations
Each party makes the representations contained in Sections 3(a), 3(b), 3(c), 3(d), 3(e) and 3(f) and, if specified in the Schedule as applying, 3(g) to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement). If any “Additional Representation” is specified in the Schedule or any Confirmation as applying, the party or parties specified for such Additional Representation will make and, if applicable, be deemed to repeat such Additional Representation at the time or times specified for such Additional Representation. view template

Click here for the text of Section 3 in the 1992 ISDA

Resources: 2002 ISDA (wikitext) | 1992 ISDA (wikitext) | 2002 vs 1992 Showdown | 2006 ISDA Definitions | 2008 ISDA | J.C.’s Nutshell ISDA |
Table of Contents | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 |

Additional Representations

The representations set out in Section 3 are, of course, the boring ones. The Additional Representations that are pulled in here and have the same effect on the Events of Default as do these boring ones — over which the parties will tortuously argue during the negotiation process, are lot more interesting — literary, really — reflecting as they do the dark paranoia lurking deep in the heart of your favourite credit officer.

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[1]? Do we think it works? Do we? Given how[2] 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.

On representations and warranties generally

Representations

A representation is a statement of present fact made by one person which induces another to enter a contract. By its nature, a representation is therefore not a term of the contract itself — it cannot be; it was made before the contract came about; it is an egg to the contract’s chicken — although that won’t stop attorneys gleefully adding representations into the contract afterward, co-branding them as warranties, for good measure. For, if your counsel is diligent enough, you may have your cake and eat it, too. Non-contractual representations may provide relief: a false representation may entitle the party induced into the contract in reliance on it to claim under the Misrepresentation Act 1967 and rescind the contract altogether, or claim damages for negligent misstatement in tort.

Warranties

A warranty is a statement of a current fact made as a term of a contract. If a warrantor breaches its warranty the injured party might claim damages for the breach of contract and sue for damages, but cannot rescind it altogether. For that you would need a breach of representation.

3 Representations

3(a) Basic Representations
3(b) Absence of certain events
3(c) Absence of litigation
3(d) Accuracy of Specified Information
3(e) Payer Tax Representations
3(f) Payee Tax Representations
3(g) No Agency (2002 ISDA only)


See also

References

  1. Or whatever. WHATEVER DUDE.
  2. WARNING: CONTRARIAN VIEW COMING UP.