It remains to be seen whether cash or securities payments, as required by ISDA`s arrangements, can be affected by the pandemic in a way that goes beyond the reasonable expectations of the parties. Unless payment and clearing systems are completely closed, payment under an ISDA contract may well remain physically possible. This article focuses exclusively on the force majeure provisions of the 2002 ISDA Framework Agreement. For more deals affected by the COVID-19 outbreak, see our recent article “Coronavirus Crisis (COVID-19), Key Concerns of Hedge Funds and Asset Managers Regarding Trading”, available here. In addition, for managers who are still operating under the 1992 ISDA Framework Agreement, contact your lawyer to determine whether force majeure clauses have been inserted through amendments to the ISDA Protocol on Illegality/Force Majeure or bilateral amendments. The Power Annex does not require the termination of the relevant transaction in the event of force majeure. Instead, the execution of the part is suspended until the execution is no longer prevented by force majeure.  Clause (b)(iii) describes this as follows: All letters of membership must be emailed to ISDAIFMprotocol@isda.org. In the email, you must submit your true and executed copies of the compliance letter. You must use the isda illegality letter form available on the ISDA website. Click here for a detention letter form. The letter(s) of membership must appear on your institution`s letterhead.
Nothing in the form of a letter of membership available on the ISDA website can be changed except to fill in the details of your institutional name, date and signature block. Please do not send your original membership letter(s) to ISDA by mail. Impracticability can occur when offices in a region are closed due to a government recommendation that does not have the force of law.  In this situation, it is possible, but very impractical, for one of the two parties to fulfill its obligations by ignoring public health and safety concerns and going to the office. As governments continue to move towards more restrictive measures to contain the spread of the virus, the possibility of invoking impracticability as a ground for defending force majeure could become possible. What if I am an investment or asset manager and all my discretionary contracts do not allow me to change my clients` contracts? If you are an investment or asset manager and you are acting on behalf of more than one fund, you have the following options: Upon expiry of the applicable waiting period (and assuming that no execution has taken place), either party may terminate all or part of the transactions affected by the force majeure event in accordance with Article 6(b)(iv)(2) of the 2002 Framework Agreement. Termination must be made at least two days and no later than 20 days prior to the proposed termination date. If a party has proposed to terminate unless all affected transactions, the other party may terminate the remainder of the affected transactions without notice on the same day. However, a party shall not have the right to initiate the termination of transactions if the force majeure event is related to the performance of that party or any credit support provider of that party to make a payment or delivery under a credit support document, or compliance with any other material provision of a credit support document, but that party may terminate the remaining affected transactions, if the other party has terminated only some of them. It should be noted that Article 6(b)(i) of the 2002 ISDA Framework Agreement provides as follows: “If an event of force majeure occurs, each party shall immediately, as soon as it becomes aware of it, make all reasonable efforts to inform the other party, indicating the nature of that force majeure event, and shall also provide the other party with other information about that force majeure event; as the other party may reasonably require.
Although there is an obligation to inform the other party, it is not surprising that the waiting period runs from the moment of occurrence of this case of force majeure and not from the date of notification. In these times, it is crucial that hedge funds and asset managers (“managers”) understand the impact of the force majeure provisions in their 2002 ISDA Framework Agreement (the “Agreement”) and prepare for the circumstances in which it may be invoked. The correct application of the provisions may allow AIFMs to temporarily excuse the performance of their obligations, giving them crucial time to take corrective action to avoid the occurrence of termination events. If an applicant argues that force majeure applies to a fixed current (LD) transaction because it is unable to supply electricity due to a problem in the supply chain, the non-claimant could arguably claim that the claimant is still able to deliver the energy to the point of supply by purchasing it on the open market. because the company (LD) does not require that the authorization was obtained from a specific project. However, if the entire power grid were shut down due to the storm in Texas, it would be hard to argue that this is not a case of force majeure. The key questions to be answered in determining whether there is a case of force majeure are: (1) an event constituting a “force majeure or act of condition” within the meaning of the 2002 Framework Agreement occurred after the date on which the relevant transaction was completed; (2) performance resulting from such an event or condition was excluded, impossible or unenforceable or would be excluded, impossible or unenforceable (if such an obligation was necessary at the time of discovery); (3) such an event or condition was beyond the control of that party; and (4) has the party concerned made “all reasonable efforts” to overcome the effects of such an event or condition? The first step in the analysis is to determine if a case of force majeure has occurred. Clause (i)(iv) of the Power Annex defines force majeure as follows: The ISDA Protocol on Illegality/Force Majeure (the “Protocol”) provides market participants with an effective means of amending their 1992 ISDA Framework Agreements with the more sophisticated provisions of the 2002 ISDA Framework Agreement on Illegality and Force Majeure, helping them to better resolve problems that could arise if a euro area Member State were to leave the euro area and Establishment of capital controls. which may make it illegal for parts of this country to make payments denominated in euros.