For the first time in a reported case, the UK High Court has considered the flawed-asset conditional payments provision of Section 2(a)(iii)(1) of the 1992 International Swaps and Derivatives Association (Isda) Master Agreement – in Marine Trade v Pioneer Futures. The court's conclusions are likely to come as a surprise to some practitioners, and on the basis of its reasoning a court could reach a different interpretation of Section 2(a)(iii) in the 1992 and 2002 Isda Master Agreements.
Section 2(a)(iii)(1) of both the 1992 and the 2002 versions of the Isda Master states that the payment and delivery obligations of each party (prior to a close-out under Section 6) are subject to the condition precedent that "no event of default or potential event of default with respect to the other party has occurred and is continuing."
The facts
Marine Trade SA and Pioneer Futures Co Ltd BVI entered into a number...