Section 6 of the ISDA Master Contract contains provisions allowing one party to prematurely terminate transactions when a delay or termination event occurs for the other party, and describes the procedure for calculating and paying net termination values for those transactions, up to a one-time payment between the parties. Section 5 of the ISDA Master Contract contains “delay events” and “cessation events.” These are events that can lead to the termination of transactions before their expected expiry. The framework contract also helps to reduce litigation by providing significant resources that define its contractual terms and explain the intent of the contract, thus preventing litigation from beginning and providing a neutral resource for interpreting standard contractual terms. Finally, the framework agreement provides significant assistance in managing risks and credit for the parties. The master`s agreement was updated in 2002 (known as ISDA Masteragrement 2002). The updated phase of the 1992 agreement has its roots in the succession of crises that affected global financial markets in the late 1990s. These events, including the liquidation of Hong Kong broker Peregrine Investments Holdings Holdings and the 1998 Russian financial crisis, tested ISDA documentation to an extent unknown to date. Although the ISDA documentation withstood this test, ISDA decided to put in place a strategic review of its documentation to see what lessons could be learned from these events. This revision resulted in a complete update to the 1992 agreement, which culminated in the 2002 agreement. In 2010, the facility and other entities for members of the same group were restructured to ensure cross-consolidation of security. The loan repayment date was changed to November 30, 2011, but the original swap termination date remained scheduled for November 10, 2016.
The facility was repaid in July 2011. However, the original exchange agreement was maintained as hedging for the remaining assets, which were extended until the end of 2012. Millvalley and Irish Bank Resolution Corporation Ltd (“IBRC”) (who succeeded the AIB) demonstrated this in a December 13, 2011 agreement (the “2011 agreement”), which used the 2002 ISDA master`s form along with a timetable (which required repayment of a facility to be an additional termination event, which could trigger early termination). Section 2, point d) of the ISDA executive contract contains provisions that determine the consequences of imposing a tax on a payment made by a party in connection with a transaction. It includes a gross redemption obligation for certain “compensated taxes.” This is in addition to other provisions of the ISDA management contract, such as tax representations contained in ss 3 (e) and 3 (f), companies of ss 4 (a) and 4 (d) and termination events of ss 5b) (ii) and 5 (b) (iii). These provisions are extremely complex and negotiators generally ensure that the result is not the opposite of what was intended. One of the other entities was duly reimbursed on June 27, 2014. IbRC claimed that a termination event had been initiated as part of the 2011 agreement and sent millvalley an early termination seeking $4.3 million. IBRC then transferred its right of early termination to LSREF III Wight Ltd (“LSREF”). Millvalley refused to pay, arguing that the refund had not been recognized as an early termination event as part of the 2012 confirmation, on which the Restructured Swap is based.