High Court Application Regarding Directions in Respect of Section 2 (a) (iii) of the ISDA Master Agreement - 23/06 2010

This update concerns the Joint Administrators' 25 May 2010 application to the High Court for directions as to the meaning and effect of Section 2 (a) (iii) of the ISDA Master Agreement (the "Application").

A copy of the Application can be accessed here and the supporting Witness Statement of David Swanson can be accessed here.

Section 2 (a) (iii) of the ISDA Master Agreement provides that, amongst other things, where an Event of Default occurs with respect to one party to the ISDA Master Agreement (the "Defaulting Party"), the other party (the "Non-Defaulting Party") is not required to make further payments or deliveries to the Defaulting Party.

The Joint Administrators are concerned that certain counterparties to derivatives transactions with LBIE may opt not to close out the transactions under their  ISDA Master Agreement for a long period, or indefinitely, by relying on Section 2 (a) (iii), thereby avoiding making payments that would otherwise have been due to LBIE. The Application asks (amongst other things) whether reliance on Section 2 (a) (iii) to withhold payments to a party that is in administration is permitted as a matter of English Law.

The hearing of the Application is scheduled for the week commencing 6 December 2010.