Termination Event - 1992 ISDA Provision
1992 ISDA Master Agreement
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Termination Event in all its glory
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Numbering Discrepancy: Note the numbering discrepancy in Section 5(b) between the 1992 ISDA and 2002 ISDA. This is caused by a new 5(b)(ii) (Force Majeure Event) in the 2002 ISDA before Tax Event, which is thus shunted from Section 5(b)(ii) (in the 1992 ISDA) to Section 5(b)(iii) (in the 2002 ISDA).
A Termination Event is an event justifying one party unilaterally terminating a Transaction — or sometimes all Transactions — but that is generally of a nature that does not cast aspersions of impropriety on the other, or “Affected”, party. This makes a difference when it comes to how one calculates the Close-out Amount for the Transaction in question.
Adding any new Termination Event must ALWAYS be achieved by labelling it a new “Additional Termination Event” under Section 5(b)(v), and not a separate event under a new Section 5(b)(vi) etc. If, instead of being expressed as an “Additional Termination Event”, which is how the ISDA Mechanism is intended to operate, it is set out as a new “5(b)(vi)” it is not designated therefore as any of an “Illegality”, “Tax Event”, “Tax Event Upon Merger”, “Credit Event Upon Merger” or “Additional Termination Event”, so therefore, read literally, is not caught by the definition of “Termination Event” and none of the Termination provisions bite on it.
I mention this because we have seen it happen. You can take a “fair, large and liberal view" that what the parties intended was to create an ATE, but why suffer that anxiety?
- The JC’s famous Nutshell™ summary of this clause