The English court of first instance has provided important guidance on the close-out provisions under the 2002 ISDA Master Agreement. Particular findings of note which will be of interest to all users of the 2002 form where English law is selected are:
- The determining party must use objectively reasonable processes and must also reach an objectively reasonable result when making close-out calculations under the 2002 ISDA Master. This contrasts with the 1992 ISDA Master, where the English courts have found the more subjective standard of “rationality” applies.
- Although the 2002 ISDA Master permits the use of indicative quotations, it is not commercially reasonable for a determining party to rely on them when it proposes to enter into a replacement transaction shortly afterward.
- Once a party has submitted a calculation following termination, it is not open to that party to withdraw and replace it. However, the court may take into account revised calculations when determining what range of results a calculation in line with the ISDA Master would have arrived at.
- The judge was unwilling to accept mark-to-market valuations or modeled evaluations as evidence for the price at which a replacement transaction would have been available in the market where they differed from actual quotations obtained from leading dealers in the market at the relevant time.
Sidley Austin LLP provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act upon this information without seeking advice from professional advisers.
Attorney Advertising—Sidley Austin LLP, One South Dearborn, Chicago, IL 60603. +1 312 853 7000. Sidley and Sidley Austin refer to Sidley Austin LLP and affiliated partnerships, as explained at www.sidley.com/disclaimer.
© Sidley Austin LLP