Breach of Agreement - ISDA Provision
2002 ISDA Master Agreement
A Jolly Contrarian owner’s manual™
5(a)(ii) in all its glory
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Note the addition of Repudiation of Agreement to the 2002 ISDA. Common law purists like the JC will grumble that you don’t really need to set out repudiation as a breach justifying termination of a contract, because that’s what it is by definition but stating the bleeding obvious has never stopped ISDA’s crack drafting squad™ before.
A failure to perform any agreement, if not cured within 30 days, is an Event of Default, except for:
- (i) those failures which already have their own special Event of Default (i.e., Failure to Pay or Deliver under Section 5(a)(i)) or
- (ii) those that relate to tax, and which mean the party not complying will just get clipped for tax it rather would not.
These are the boring breaches of agreement: those of a not immediately existential consequence to a derivative relationship (like Failure to Pay or Deliver, or a party’s outright Bankruptcy) but which, if not promptly sorted out, justify shutting things down with extreme prejudice.
All rendered in ISDA’s crack drafting squad™’s lovingly tortured prose, of course: note a double negative extragvaganza in 5(a)(ii)(1): not complying with an obligation that is not (inter alia) a payment obligation if not remedied within a month. High five, team ISDA.
Note that a normal Section 5(a)(ii)(1) Breach of Agreement that also comprises a Section 5(b)(i) Illegality or a Section 5(b)(ii) Force Majeure Termination Event will, courtesy of section 5(c), be treated as the latter, but a repudiatory Breach of Agreement under section 5(a)(ii)(2) willl not enjoy the same leniency. If you have repudiated your contract, the fact that there happens to be a concurrent Illegality — it is hard to see how a repudiatory breach could be an Illegality in itself — will not save you from the full enormity of section 5(a)(ii) Event of Default style close out.
- The JC’s famous Nutshell™ summary of this clause
- Why is “Failure to Pay or Deliver” carved-out from “Beach of Agreement”?
- Is “failure to deliver documents” an Event of Default?
- Furnish Specified Information and sub-limb 4(a)(ii) (documents for delivery) but not 4(a)(i) or 4(a)(iii) (which relate to tax documents).
- Section 3(d) representations.