Waiver of Immunity - GMSLA Provision
2010 Global Master Securities Lending Agreement
Clause 26 in a Nutshell™
Full text of Clause 26
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- Structurally, sovereigns will tend to be lenders in an agency set up
- The Borrower title transfers away a bigger slug of collateral away than it borrows from the sovereign Lender.
- At any point, should the Sovereign decide to play who’s Queen, the Borrower is in the hole for 5.
Interestingly, a pledge GMSLA might fix this problem by never transferring collateral to the sovereign in the first place.
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?
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.”