Template:M summ GMSLA 14

No Representations in the 2010 GMSLA

Enthusiastic minds might have noticed that, unlike the Global Master Repurchase Agreement and the ISDA Master Agreement, there are no “Representations” as such in the 2010 GMSLA.

But there are Warranties, and these — except in one arcane and theoretically important way — amount to the same thing.

Precis: A representation is a pre-contractual statement which induces your entry into a contract but is not part of the contract. One’s remedy for misrepresentation is thus not damages, but the avoidance of the contract altogether. You are put in the place you would have been in had you never entered the contract at all.

A warranty is a contractual term, the remedy for breach of which is damages under the contract.

The potential value of these two remedies may be different, which is why one sees “representations and warranties”: this gives an innocent party maximum optionality to stick the naughty party with whatever is the worse measure of loss. As to why the 2010 GMSLA did away with this option — who can say? Perhaps the nature of stock lending contracts are such that there is no real difference in remedy.

Remedies for breach of Borrower’s Warranties

An interesting fact — “interesting” being a relative concept, and in this case we are comparing interest levels with the fact that “and, as the case may be, or” appears 33 times in the Alternative Investment Fund Management Directive — is that a breach of the last of these Borrower’s Warranties, 14(e), namely that the Borrower’s primary purpose is not to exercise voting rights under Loaned Securities, is not an Event of Default, whereas the breach of the other Borrower’s Warranties will be.

Our best guess is that because this is a silly warranty in the first place, and it is nigh-on impossible to prove that it was false, unless the Borrower is stupid enough to admit it. A representation or warranty as to what one intends to do — what possible use is that?