ISDA Master Agreement, Section 2(a)(iii): Interpretation By The English Court Of Appeal

The English Court of Appeal has recently handed down a decision in Lomas and others v JFB Firth Rixson, Inc. and others, [2012] EWCA Civ 419 that, among other things, has provided an interpretation of Section 2(a)(iii) of the 1992 form of ISDA Master Agreement that mirrors the predominant market view of the correct interpretation of this Section. Section 2(a) in the ISDA 2002 Master Agreement is substantially the same as in the 1992 form of ISDA Master Agreement, so this interpretation is equally applicable to both Agreements.

Section 2(a) in the 1992 form of ISDA Master Agreement provides, in part, as follows:

"GENERAL CONDITIONS.

Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. Payments under this Agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement . . . Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each...