Template:Isda 5(a)(ii) summ

A failure to perform any agreement, if not cured within 30 days, is an {{{{{1}}}|Event of Default}}, except for those failures which already have their own special {{{{{1}}}|Event of Default}} (i.e., {{{{{1}}}|Failure to Pay or Deliver}}, under Section {{{{{1}}}|5(a)(i)}}), those that relate to a pre-existing default (for example, default interest on unpaid amounts) and those that only bear on the “defaulting” party’s tax position, meaning that non-performance is punishment enough in itself (and does not affect the “non-defaulting” party) — that is, the non-compliant party will just get clipped for tax it could have avoided had it performed.

These are the boring breaches of agreement: those of a not immediately existential consequence to a derivative relationship (like {{{{{1}}}|Failure to Pay or Deliver}}, or a party’s outright {{{{{1}}}|Bankruptcy}}), which are not therefore hugely time critical, but which, if not promptly sorted out, justify shutting things down with extreme prejudice. Note that, while the 2002 truncates a bunch of other grace periods in the agreement (notably for a {{{{{1}}}|Failure to Pay or Deliver}}, and for discharging a {{{{{1}}}|Bankruptcy}} petition) it does not truncate the grace period for “boring” defaults, which stays at the glacially long 30 days.

All rendered in ISDA’s crack drafting squad™’s lovingly tortured prose, of course: note a double negative extragvaganza in {{{{{1}}}|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.

Repudiation

New in the 2002 ISDA: repudiation of contract. Not actually breaching it, per se, but high-handedly saying that you are going to. In writing. Could you argue that by codifying that a repudiation must be in writing to count, in a counter-intuitive way this new clause dilutes the common law rules, rather than reinforcing them? A common law repudiation can, if clear enough, be oral, by conduct, body language, morse code, semaphore and so on,

So rather than empowering a {{{{{1}}}|Non-defaulting Party}}, the addition of a narrow definition of what counts as repudiation makes their avenue of redress that teeny bit narrower. Doubtful it has ever made a difference, but — well, they said that about LIBOR didn’t they.

Hierarchy of Events

Note that a normal Section 5(a)(ii)(1) {{{{{1}}}|Breach of Agreement}} that also amounts to a Section 5(b)(i) {{{{{1}}}|Illegality}} or a Section 5(b)(ii) {{{{{1}}}|Force Majeure}} {{{{{1}}}|Termination Event}} will, thanks to section {{{{{1}}}|5(c)}}, be treated as the latter, but a repudiatory {{{{{1}}}|Breach of Agreement}} under section {{{{{1}}}|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 {{{{{1}}}|Illegality}} — it is hard to see how a repudiatory breach could be an {{{{{1}}}|Illegality}} in itself — will not save you from the full enormity of section {{{{{1}}}|5(a)(ii)}} {{{{{1}}}|Event of Default}} style close out.