概况
Notices under the ISDA Master Agreements
Under the 1992 or 2002 ISDA Master Agreements, Section 5 (notification of defaults) and Section 6 (notification of Early Termination) notices must be delivered by certain prescribed methods (using address details specified in the Agreement) such as postal mail, courier or fax. Each method of delivery has a specific deeming provision for the effective date of the delivery of that notice.
On 30 May 2023, ISDA published standard form bilateral provisions to facilitate the amendment of ISDA Master Agreements to permit the use of e-mail as the delivery method for default and termination notices.
The courts have interpreted notices provisions under ISDA Master Agreements strictly1.
ISDA notes2 that the delivery of notices can be delayed or disrupted, especially in times of market stress, such as during a conflict or a pandemic. Further, parties can simply make mistakes, whether by delivering to the wrong address or by the incorrect method or by including the incorrect addressee details3.
ISDA calculates that even a small delay in the delivery of a termination notice – for example, from Friday afternoon until Monday morning – could result in a loss of $1 million for a medium-sized derivatives portfolio4.
The evolution of the Notices Hub project
With these concerns in mind, in April 2024, ISDA's CEO sent a letter to market participants asking for statements of support for the ISDA Notices Hub project, together with a written specification of the project and the results of a high-level multi-jurisdiction legal survey. On 1 July 2024, ISDA announced that it had received strong support for the project from buy and sell-side institutions globally and would therefore proceed with the next stage of the development. ISDA is targeting launch of the Notices Hub in 2025.
What is the Notices Hub?
The Notices Hub will only relate to notices served under Section 5 (notification of defaults) and Section 6 (notification of Early Termination). It will provide an agreed means for delivering notices electronically, which will be deemed to be delivered when they are made available to the recipient on the Notices Hub (i.e. the first point in time at which the recipient would have been able to access the notice if it had attempted to do so). Notices can either be created on ISDA Create or uploaded as a word or pdf document. There will be an option for e-signing a notice (including by Docusign), where required by local law or counterparty policy. Parties may adopt the Notices Hub either by adhering to a new ISDA protocol or using a bilateral amendment template.
The Notices Hub will also be a means for parties to update their notice details more generally (for all notices other than under Sections 5 and 6, e.g. notice of a change of account for receiving payments), which will supersede previously specified notice details (i.e. the Notices Hub will become the "golden source" of physical notice details, with periodic verification to ensure current contact information).
Cross-border Issues?
ISDA published the results of a high-level legal survey it had commissioned of the laws of 71 jurisdictions, seeking to examine in more detail potential impediments to the effectiveness of delivery of notices via the Notices Hub.
The results of the survey were broadly reassuring, revealing no "red flag" legal issues which would bring an immediate halt to the project. The survey did however identify some legal issues for further consideration, including:
- in Turkey, termination notices between merchants must be delivered by stipulated means, which would exclude the Notices Hub;
- varying standards for the effectiveness of delivery, in particular whether a notice would be effective if it is simply "made available" and the recipient does not actually view the notice - almost all jurisdictions accept this means of delivery, but some cited qualifications such as the need for a certain type of digital signature and good faith obligations;
- differing requirements for notices to be signed, with most jurisdictions not requiring signatures by the sender, some requiring signatures, and some suggesting signatures for probity purposes; and
- specific provisions for certain jurisdictions, such as Egypt, which requires the contract to include a provision for termination without formal summons or court order.
ISDA states it is seeking to address these issues in the design and functioning of the Notices Hub to the extent it is practicable.
Helpfully, ISDA plans to update its e-contract opinions to cover use of the Notices Hub on a phased basis, with updates for 20 member-identified priority jurisdictions in place by the point of go-live, with 20 more on an expedited basis after go-live and the rest to follow over time.
A Step to Safer and More Efficient Markets
Difficulties and errors in the delivery of legal notices give rise to litigation risk. It is therefore commendable that ISDA is proactively seeking to mitigate these risks by developing a standardised and efficient means for market participants to deliver and receive these critical notices. Mayer Brown welcomes this initiative which should promote legal certainty.
1 See, for example, Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Comm), in which the High Court strictly construed contractual notice provisions regarding method and form of notice.
2 https://assets.isda.org/media/25a7e622/69a3ce4f-pdf/
3 "The notice it sent by email was ineffective; it was sent by a method that was not permitted, to an address that was not specified…" (Greenclose Ltd v National Westminster Bank plc [2014] EWHC 1156 (Comm) at [155]).
