This part of the Guide provides commentary on the following issues:
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Part 4(a) - Addresses for Notices
This is the place for inserting addresses for service of notices.
Section 12 of the ISDA Master Agreement does not provide for deemed service if letters are sent by ordinary mail. If a party intends sending notices by letter, they should ensure that they are hand delivered, sent by courier or sent by certified or registered mail. Alternatively, they could agree with their counterparty that notices can be sent by ordinary mail. If this is agreed Section 12(a)(iv) could be replaced with:
"(iv) if sent by a posted letter, on the third (seventh, if posted to or from a place outside Australia) day after posting"
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Part 4(b) - Process Agent
If the parties want to bring legal proceedings in Australia, if ever necessary, then it is important to ensure that both parties can be served in Australia. If a party:
- is a company incorporated in Australia; or
- is an Australian registered body,
then it is not necessary to appoint a process agent in Australia. In other cases (such as where the law of an Australian jurisdiction is not used) it is suggested that it would be prudent to specify a process agent. Parties need to ensure that a mechanism is in place under which they are promptly informed by their process agent of its receipt of documents.
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Part 4(c) - Offices
Under the 1987 version of the ISDA Master Agreement, if the agreement was executed by a branch of a Multibranch Party (such as the domestic branch of a foreign bank), the branch was deemed to have represented that its obligations were binding on the Multibranch Party as a whole. This representation was omitted from the 1992 version of the ISDA Master Agreement unless the parties elect otherwise at this item. This is also the case under the 2002 ISDA Master Agreement. See the ISDA User's Guide at item K p. 32 for further commentary on this.
If one or both parties will enter into Transactions other than through their head offices, then they need to agree on whether or not the party or parties are to make the representation in Section 10(a). This must be considered on a case by case basis.
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Part 4(d) - Multibranch Party
This is the place for designating the offices of Multibranch Parties. Tax and close out netting issues should be carefully considered if a party is to be allowed to list branches.
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Part 4(e) - Calculation Agent
Section 4.14 of the 2006 Definitions (p.10) explains the role of the Calculation Agent. This item allows the parties to designate the Calculation Agent. This removes the necessity of designating the Calculation Agent in each Confirmation. Designating the Calculation Agent in the Schedule does not mean that parties cannot change the Calculation Agent for a particular Transaction by so specifying in its Confirmation.
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Part 4(f) - Credit Support Documents
This is the place for inserting details of credit support documents. This is relevant for determining whether an Event of Default has occurred under Section 5(a)(iii), (iv), (v), (vi), (vii) or (viii).
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Part 4(g) - Credit Support Provider
This is the place for inserting the names of any credit support providers for each party. This includes guarantors. If none, insert "none".
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Part 4(h) - Governing Law
Parties need to consider what law will be the governing law. If an ISDA Master Agreement is to be governed by the laws of one of the Australian Jurisdictions, then delete "English law/the laws of the State of New York" and replace them with "the laws in force in [specify a state or territory of the Commonwealth of Australia] and each party submits to the non-exclusive jurisdiction of the courts of [specify a state or territory of the Commonwealth of Australia] and courts of appeal from them and a reference in Section 13(b)(ii) to "such court" is a reference to those courts".
The latter part of that suggested wording contains a submission to jurisdiction which will replace the wording in Section 13(b)(i).
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Part 4(i) - Netting of payments - Multiple Transaction Payment Netting
Section 2(c) is drafted so that payments netting takes place only in respect of payments due in the same currency and in respect of the same Transaction unless the parties specify that "Multiple Transaction Payment Netting" is applicable. Item 4(i) allows parties to expand payments netting so that the limitation about the payments being in respect of the same Transaction does not apply in respect of a nominated group of Transactions.
For example, if parties want "Multiple Transaction Payment Netting" to apply across all interest rate swaps, they would specify "All Transactions being interest rate swaps".
As another example, if parties agree that payments netting is to apply across all Transactions (even those of different types) they would specify "All Transactions".
This item also can be used to limit payments netting to Transactions between particular pairings of branches. For example, if a party wanted payments netting to apply across all interest rate swaps booked between their Singapore branch and the other party's Sydney branch, they would specify "All Transactions being interest rate swaps booked between [Party A's] Singapore branch and [Party B's] Sydney branch".
Any number of groups of Transactions can be specified at this item. For example it might state:
"Group 1 All Transactions being interest rate swaps;
Group 2 All Transactions being foreign exchange transactions;
Group 3 All Transactions being forward rate agreements".
Parties also need to elect when payments netting across Transactions is to apply. Appropriately amend the words in brackets.
Further information on netting is located in 2.1.3.20 "Australian specific commentary" and 4.3 "Netting", however payments netting and netting on close out are not the same thing. If a party is constrained from payments netting due to operational system limitations, this does not mean that close out netting will not apply to the agreement.
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Part 4(j) - Affiliate
The term "Affiliate" is used in:
- Section 6(b)(ii) (transfer to avoid Termination Event);
- Section 6(e)(ii)(3)(A) (quotes from Affiliate when determining a Close-out Amount);
- Section 14 - Definition of Close-out Amount - paragraph (iii).
Affiliate is broadly defined, which generally, is considered appropriate for these purposes. However, this item allows the parties to specify a different definition.
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Part 4(k) - Absence of litigation
Section 3(c) contains a representation by each party about itself, its credit support providers and any of its applicable "Specified Entities" in connection with proceedings against them. Part 4(k) is the place where the "Specified Entities" for each party for the purpose of Section 3(c) are set out. This needs to be considered on a case by case basis.
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Part 4(l) - No agency
The parties must elect at this item whether or not the representation contained in Section 3(g) is to apply. This representation is that the party enters into the ISDA Master Agreement and each transaction "as principal and not as agent of any person or entity". If the Investment Manager Supplement is being used, the parties could consider including the following statement:
"However, a party is not in breach of the representation in Section 3(g) because they are the trustee or responsible entity of a scheme named under the Investment Manager Supplement or because the investment manager is the agent of the client. Italicised terms have the meaning given to them in the Investment Manager Supplement".
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Part 4(m) - Additional representation
Part 4(m) allows the parties to elect whether or not to include a representation in relation to the relationship between the parties. The optional representation is ISDA's recommended "Relationship Between Parties" wording that has been published for some years prior to the release of the 2002 ISDA Master Agreement.
It is common for parties to agree to give this representation. However, this is not the universal practice and it is a matter for negotiation between the parties.
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Part 4(n) - Recording of conversations
It is recommended that participants elect to include this clause authorising the taping of telephone conversations. While in many cases such an authority would not be expressly required because either:
- the recording is performed with the knowledge of the person communicating, or
- the recording is done on equipment approved by the Australian Communications Association (ACA),
there is some unsettled law in this area and, accordingly, it is thought prudent to obtain express authority. One area of uncertainty is whether recording equipment must be separately connected to the telecommunications service in order to obtain the exception referred to in the second dot point above.
Last Update Date 28 Jun 2011