Set-off - 1992 ISDA Provision

1992 ISDA Master Agreement
A Jolly Contrarian owner’s manual™

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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 •
Termination Events: 5(b)(i) Illegality • 5(b)(ii) Tax Event • 5(b)(iii) Tax Event Upon Merger • 5(b)(iv) Credit Event Upon Merger • 5(b)(v) Additional Termination Event •

Index — Click ᐅ to expand: 1992 ISDA

Section 6(f) in a Nutshell™

Use at your own risk, campers!

There is no Section 6(f) of the 1992 ISDA, but folks used to put in a provision into the schedule which goes something like this: “Set-off. Payments under this Agreement will be made without set-off or counterclaim. However, if an Early Termination Date is designated following an Event of Default, an Additional Termination Event or a Credit Event Upon Merger, the Non-defaulting Party or non-Affected Party (the “Innocent One”) may without notice set off (a) any obligation (whether or not matured or contingent and regardless of currency of place of payment) owed to it (or any of its Affiliates) by the Defaulting Party or Affected Party (the “Wicked One”) against (b) any obligation (similarly unconstrained) owed by the Wicked One (or any of its Affiliates) to the Innocent One and, converting currencies at market rates as necessary. The Innocent One may set-off using good faith estimates of unascertained obligation, but the parties must account to each other for any differences when the sum is finally ascertained.” view template

Full text of Section 6(f)

There is no Section 6(f) of the 1992 ISDA, but folks used to put in a provision into the schedule which goes something like this: “Set-off. Without affecting the provisions of the Agreement requiring the calculation of certain net payment amounts, all payments under this Agreement will be made without set-off or counterclaim; provided, however, that upon the designation of an Early Termination Date following an Event of Default, or a Termination Event under Section 5(b)(iv) or Section 5(b)(v), in addition to and not in limitation of any other right or remedy (including any right to set off, counterclaim, or otherwise withhold payment or any recourse to any Credit Support Document) under applicable law the Non-defaulting Party or non-Affected Party (in either case, “X”) may without prior notice to any person set off any sum or obligation (whether or not arising under this Agreement and whether matured or unmatured, whether or not contingent and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by the Defaulting Party or Affected Party (in either case, “Y”) to X or any Affiliate of X against any sum or obligation (whether or not arising under this Agreement, whether matured or unmatured, whether or not contingent and irrespective of the currency, place of payment or booking office of the sum or obligation) owed by X or any Affiliate of X to Y and, for this purpose, may convert one currency into another at a market rate determined by X. If any sum or obligation is unascertained, X may ingood faith estimate that sum or obligation and set-off in respect of that estimate, subject to X or Y, as the case may be, accounting to the other party when such sum or obligation is ascertained. Nothing in this Agreement shall create or be deemed to create any charge under English law.” view template

Related agreements and comparisons

Related Agreements Click here* for the text of Section 6(f) in the 2002 ISDA* Comparisons Click to compare* this section in the 1992 ISDA and 2002 ISDA*., but be warned they are quite different.

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Content and comparisons

The 1992 ISDA does not have a specific set off provision, although it manages to define Set-off anyway.

ISDA published a suggested set-off provision in the Users Guide but no-one liked it, and several bespoke versions developed and percolated around the market. These often provided for the inclusion of Affiliates in relation to the Non-defaulting Party or Non-affected Party.

ISDA’s crack drafting squad™ got the hint and implemented a fully-fledged set-off provision based on this language into the 2002 ISDA — but not without a little boo-boo. You can read all about it, and the boo-boo, and what people have done to fix it, at our article about that Section 6(f) Set-off provision.

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