Waiver of Immunities - 1992 ISDA Provision
1992 ISDA Master Agreement
Section 13(d) in a Nutshell™
Use at your own risk, campers!
Full text of Section 13(d)
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The 2002 ISDA and 1992 ISDA versions are identical.
Don’t confuse sovereign immunity with ultra vires — cue thunder crack at the mention of Orange County or Hammersmith and Fulham council and a dramatic look from our house gopher — for they are quite different things.
- Ultra vires: If a contract is beyond your powers or capacity to enter into a contract in the first place then it is void ab initio; any payments you have made under that contract are also void and you may reclaim them, and you can appeal to the court system to do that. That is to say, ultra vires is an “intra-legal” measure, recognised, defended and enforced by the courts.
- Sovereign immunity: Sovereign immunity is a different, “extra-legal” thing: it is to say “I am, quite literally, above the law: I am the law, and I do not have to subject myself to the judicial branch of my law — or anyone else’s law — unless I choose to.” This extends to being free from judicial intervention if I decide not to perform my contractual obligations, but it also means I cannot myself resort to the court process to make my counterparty perform its obligations. If I choose to go to court, then I subject myself fully to the courts as regards actions my counterparty wishes to bring against me.
The great question of whether one should specifically exclude sovereign immunity from a commercial contract governed by English law.
Twist: Industry-standard commercial contracts do anyway. This creates more problems than it solves.
Waiving sovereign immunity is a faintly stupid thing to do if your commercial contract happens to be governed by English law, since the Sovereign Immunity Act 1978 excludes any immunity of a state to a commercial contract. Now, to be sure, here arises a great opportunity for the chicken lickens in your litigation department to pipe up. “What if,” they will say, “the sovereign ignores the exclusive jurisdiction clause, and takes action against you in its own court? What then, say ye?”
You got me. But hang on a minute: can you really launch an action in your own court and, by the same lights, claim immunity from suit? Is this not having your Brexit cake and eating it too? And even if it isn’t we are talking here about a sovereign who has, with the complicity of its own court system, already ignored one term of your contract (exclusive jurisdiction). Why would it respect the rest any way?
Sovereign immunity and the Cassanova problem
The fact that (unless agreed otherwise) Sovereign Immunity generally doesn’t apply to commercial contracts doesn’t stop industry standard commercial contracts purporting nonetheless waive that immunity which, in a ghastly ironic turn, makes sovereign immunity more likely to apply. For you may be sure agents, when representing sovereigns, will protest they do not have their client’s authority to waive its sovereign privileges. They will find themselves compelled, by the terms of their agency, to insist the waiver is deleted.
Now in the architecture of the ISDA Master Agreement this involves writing in the Schedule, something like “Section 13(d) shall not apply to Party A or Party B”. Is this mere silence on the matter, or is it an explicit agreement to contract out of it?
Had the ISDA Master Agreement only had the sense to shut up about sovereign immunity in the first place, there would have been no problem: what the eye don’t see the chef gets away with.
This will still be the stance you find yourself having to adopt. “I am not agreeing that sovereign immunity applies,” you will find yourself maintaining to the insistent gaze of your credit officer. “I am simply not saying that it doesn’t apply.”
This falls short of what the Sovereign Immunity Act 1978 requires for sovereign immunity to kick in. Hold that confident smile until it hurts.
- ↑ But — quid pro quo, Clarice — any profits you have made you must also disgorge.
- ↑ E.g.,the ISDA Master Agreement and the 2010 GMSLA.
- ↑ SIT DOWN AT THE BACK with all your talk about counterclaims and enforcement of judgments.