“(a) Right to Terminate Following Event of Default. If at any time an Event of Default with respect to a party (the “Defaulting Party”) has occurred and is then continuing, the other party (the “Non-defaulting Party”) may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. … … (c) Effect of Designation. (i) If notice designating an Early Termination Date is given under Section 6(a) …, the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination Event is then continuing. (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 9(h)(i) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date will be determined pursuant to Sections 6(e) and 9(h)(ii). (d) Calculations; Payment Date. (i) Statement. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including any quotations, market data or information from internal sources used in making such calculations), (2) specifying (except where there are two Affected Parties) any Early Termination Amount [defined below] payable and (3) giving written details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation or market data obtained in determining a Close-out Amount, the records of the party obtaining such quotation or market data will be conclusive evidence of the existence and accuracy of such quotation or market data. (ii) Payment Date. An Early Termination Amount due in respect of any Early Termination Date will, together with any amount of interest payable pursuant to Section 9(h)(ii)(2), be payable (1) on the day on which notice of the amount payable is effective in the case of an Early Payment Date which is designated or occurs as a result of an Event of Default … (e) Payments on Early Termination. If an Early Termination Date occurs, the amount, if any, payable in respect of that Early Termination Date (the “Early Termination Amount”) will be determined pursuant to this Section 6(e) and will be subject to Section 6(f). (i) Events of Default. If the Early Termination Date results from an Event of Default, the Early Termination Amount will be an amount equal to (1) the sum of (A) the Termination Currency Equivalent of the Close-out Amount or Close-out Amounts (whether positive or negative) determined by the Non-defaulting Party for each Terminated Transaction or group of Terminated Transactions, as the case may be, and (B) the Termination Currency Equivalent of the Unpaid Amounts owing to the Non-defaulting Party less (2) the Termination Currency Equivalent of the Unpaid Amounts owing to the Defaulting Party. If the Early Termination Amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of the Early Termination Amount to the Defaulting Party. … (v) Pre-Estimate. The parties agree that an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks, and, except as otherwise provided in this Agreement, neither party will be entitled to recover any additional damages as a consequence of the termination of the Terminated Transactions. 9. Miscellaneous (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter. Each of the parties acknowledges that in entering into this Agreement it has not relied on any oral or written representation, warranty or other assurance (except as provided for or referred to in this Agreement) and waives all rights and remedies which might otherwise be available to it in respect thereof, except that nothing in this Agreement will limit or exclude any liability of a party for fraud. … (h) Interest and Compensation. … (ii) Early Termination. Upon the occurrence or effective designation of an Early Termination Date in respect of a Transaction:- (1) Unpaid Amounts. … (2) Interest on Early Termination Amounts. If an Early Termination Amount is due in respect of such Early Termination Date, that amount will, to the extent permitted by applicable law, be paid together with interest (before as well as after judgment) on that amount in the Termination Currency, for the period from (and including) such Early Termination Date to (but excluding) the date the amount is paid, at the Applicable Close-out Rate. (iii) Interest Calculation. Any interest pursuant to this Section 9(h) will be calculated on the basis of daily compounding and the actual number of days elapsed.”
““Close-out Amount” means, with respect to each Terminated Transaction or each group of Terminated Transactions and a Determining Party [defined later as “the party determining a Close-out Amount”], the amount of the losses or costs of the Determining Party that are or would be incurred under then prevailing circumstances (expressed as a positive number) or gains of the Determining Party that are or would be realised under then prevailing circumstances (expressed as a negative number) in replacing or in providing for the Determining Party the economic equivalent of (a) the material terms of that Terminated Transaction or group of Terminated Transactions, including the payments and deliveries by the parties under Section 2(a)(i) in respect of that Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date (assuming satisfaction of the conditions precedent in Section 2(a)(iii)) and (b) the option rights of the parties in respect of that Terminated Transaction or group of Terminated Transactions. Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and use commercially reasonable procedures in order to produce a commercially reasonable result. The Determining Party may determine a Close-out Amount for any group of Terminated Transactions or any individual Terminated Transaction but, in the aggregate, for not less than all Terminated Transactions. Each Close-out Amount will be determined as of the Early Termination Date or, if that would not be commercially reasonable, as of the date or dates following the Early Termination Date as would be commercially reasonable. Unpaid Amounts in respect of a Terminated Transaction or group of Terminated Transactions and legal fees and out-of-pocket expenses referred to in section 11 are to be excluded in all determinations of Close-out Amounts. In determining a Close-out Amount, the Determining Party may consider any relevant information, including, without limitation, one or more of the following types of information: - i. quotations (either firm or indicative) for replacement transactions supplied by one or more third parties that may take into account the creditworthiness of the Determining Party at the time the quotation is provided and the terms of any relevant documentation, including credit support documentation, between the Determining Party and the third party providing the quotation; ii. information consisting of relevant market data in the relevant market supplied by one or more third parties including, without limitation, relevant rates, prices, yields, yield curves, volatilities, spreads, correlations or other relevant market date in the relevant market; or iii. information of the types described in clause i or ii above from internal sources (including any of the Determining Party’s Affiliates) if that information is of the same type used by the Determining Party in the regular course of its business for the valuation of similar transactions. The Determining Party will consider, taking into account the standards and procedures described in this definition, quotations pursuant to clause i above or relevant market data pursuant to clause ii above unless the Determining Party reasonably believes in good faith that such quotations are not readily available or would produce a result that would not satisfy those standards. When considering information described in clause i, ii or iii above, the Determining Party may include costs of funding, to the extent costs of funding are not and would not be a component of the other information being utilised. Third parties supplying quotations pursuant to clause i above or market date pursuant to clause ii above may include, without limitation, dealers in the relevant markets, end-users of the relevant product, information vendors, brokers and other sources of market information. Without duplication of amounts calculated based on information described in clause i, ii and iii above, or other relevant information, and when it is commercially reasonable to do so, the Determining Party may in addition consider in calculating a Close-out Amount any loss or cost incurred with its terminating, liquidating or re-establishing any hedge related to a Terminated Transaction or group of Terminated Transactions (or any gain resulting from any of them). Commercially reasonable procedures used in determining a Close-out Amount may include the following:- (1) application to relevant market data from third parties pursuant to clause ii above or information from internal sources pursuant to clause iii above of pricing or other valuation models that are, at the time of the determination of the Close-out Amount, used by the Determining Party in the regular course of its business in pricing or valuing transactions between the Determining Party and unrelated third parties that are similar to the Terminated Transaction or group of Terminated Transactions; and (2) application of different valuation methods to Terminated Transactions or groups of Terminated Transactions depending on the type, complexity, size or number of the Terminated Transactions or group of Terminated Transactions.”
“… The fair market value of any obligation referred to in clause (b) [of the definition] will be determined as of the originally scheduled date for delivery, in good faith and using commercially reasonably procedures, by the party obliged to make the determination under Section 6(e) …”
“It was common ground that commercial contracts had to be interpreted as a whole in the light of the commercial purpose of the document and the transactions which it documented. This approach is particularly pertinent to the case of a commercial contract such as the ISDA Master Agreement. Thus for example in Re Sigma Finance Corp[2009] UKSC 2 ;[2010] 1 All ER 571 (para [37]), Lord Collins reiterated the principle that an instrument: 39. And in para [35] he observed that courts have been cautioned against an ‘over-literal interpretation of one provision without regard to the whole [which] may distort or frustrate the commercial purpose’. In the same case, at para [12], Lord Mance highlighted the importance of understanding a contract’s ‘overall scheme and [of] a reading of its individual sentences and phrases which places them in the context of the overall scheme.’”
“In the context of the ISDA Master Agreements, and having regard to their intended and actual use as standard agreements by parties with such different characteristics in a multiplicity of transactions in a plethora of circumstances, the following principles are also relevant: (1) It is ‘axiomatic’ that the ISDA Master Agreements should ‘so far as possible be interpreted in a way that achieves the objectives of clarity, certainty and predictability, so that the very large number of parties using it know where they stand’: Lomas v JFB Firth Rixson at [53] per Briggs J. (2) Although the relevant background, so far as common to transactions of such a varied nature and reasonably expected to be common knowledge amongst those using the ISDA Master Agreements, is to be taken into account, a standard form is not context-specific and evidence of the particular factual background or matrix has a much more limited, if any, part to play: see AIB Group (UK) Ltd v Martin[2001] UKHL 63 , [2002] 1 All ER (Comm) 209,[2002] 1 WLR 94 . (3) More than ever, the focus is ultimately on the words used, which should be taken to have been selected after considerable thought and with the benefit of the input and continuing review of users of the standard forms and of knowledge of the market: see Re Lehman Brothers International (Europe) v Lehman Brothers Finance SA[2013] EWCA Civ 188 ,[2014] 2 BCLC 451 (at [53] and [88]). (4) The drafting of the ISDA Master Agreements is aimed at ensuring, among other things, that they are sufficiently flexible to operate among a range of users in an infinitely variable combination of different circumstances: Anthracite Rated Investments (Jersey) Ltd v Lehman Brothers Finance SA (in liq)[2011] EWHC 1822 (Ch) ,[2011] 2 Lloyd’s Rep 538 (at [115]) per Briggs J: particular care is necessary not to adopt a restrictive or narrow construction which might make the form inflexible and inappropriate for parties who might commonly be expected to use it. (5) …”
“Attached hereto as Annex A are the necessary supporting calculations used in deriving the amount stated above. Further, the above amount does not include any Expenses as defined in Section 11 of the ISDA 2002 Master Agreement, and our claim for Expenses shall be in addition to such amount.”
“Once a determination has been validly made of the … Close-out Amount, it will be final and binding on both parties. The determining party cannot subsequently change its mind (for example, on the basis that a mistake has been made). On the other hand, if the original determination was invalid (for example, because it was based on a misinterpretation of the Agreement), or (probably) it was founded on or infected by a manifest numerical or mathematical error [], the determining party should be able to make a fresh determination that complies with the requirements of the Agreement.”
“Any Close-out Amount will be determined by the Determining Party (or its agent), which will act in good faith and use commercially reasonable procedures in order to produce a commercially reasonable result.”
“[The provision] clearly imposes two objective standards. The first is that the procedures used should be commercially reasonable and the second is that the result produced should also be commercially reasonable. Plainly, that leaves a bracket or range both of procedures and results within which the Determining Party may choose, even if the court, carrying out the exercise itself, might have come to a different conclusion. It nonetheless imposes an objective standard which, if for example the Determining Party refused to determine a Close-out Amount at all, could be applied by the court itself, for example on the application of the other party, as in Sudbrook Trading Estate v Eggleton[1983] 1 AC 444 , where the breakdown of an agreed valuation procedure due to the refusal by one party to co-operate in the appointment of a valuer nonetheless left the court free to carry out the process itself on the application of the other party.”
“It is plain from these authorities that a decision maker’s discretion will be limited, as a matter of necessary implication, by concepts of honesty, good faith, and genuineness, and the need for the absence of arbitrariness, capriciousness, perversity and irrationality. The concern is that the discretion should not be abused. Reasonableness and unreasonableness are also concepts deployed in this context, but only in a sense analogous to Wednesbury unreasonableness, not in the sense in which that expression is used when speaking of the duty to take reasonable care, or when otherwise deploying entirely objective criteria: as for instance when there might be an implication of a term requiring the fixing of a reasonable price, or a reasonable time. In the latter class of case, the concept of reasonableness is intended to be entirely mutual and thus guided by objective criteria. Gloster J was therefore, in my opinion, right to put to Mr Millett in the passage cited at para 57 above the question whether a distinction should be made between the duty to take reasonable care and the duty not to be unreasonable in the Wednesbury sense; and Mr Millett was in my judgment wrong to submit that it made no difference which test you deployed. Laws LJ in the course of argument put the matter accurately, if I may respectfully agree, when he said that pursuant to the Wednesbury rationality test, the decision remains that of the decision maker, whereas on entirely objective criteria of reasonableness the decision maker becomes the court itself. A similar distinction was highlighted by Potter LJ in para 51 of his judgment in Cantor Fitzgerald. For the sake of convenience and clarity, I will therefore use the expression “rationality” instead of Wednesbury-type reasonableness, and confine “reasonableness” to the situation where the arbiter on entirely objective criteria is the court itself.”
“Rationality is not the same as reasonableness. Reasonableness is an external, objective standard applied to the outcome of a person’s thoughts or intentions. The question is whether a notional hypothetically reasonable person in his position would have engaged …. A test of rationality, by comparison, applies a minimum objective standard to the relevant person’s mental processes. …”
“Balanced by the interest of increased flexibility was the need to ensure that the new provision incorporated certain objectivity and transparency requirements that were felt to be lacking, particularly in the definition of Loss in the 1992 Agreement.”