1992 or 2002 Master Agreement and long form confirmations

1992 or 2002 Master Agreement and long form confirmations

This analysis will discuss LSREF III Wight Limited v Millvalley Limited, in which the parties argued whether a swap confirmation was governed by International Swaps and Derivatives Association’s (ISDA) 1992 or 2002 Master Agreements. The case contains a particularly interesting discussion about the difference between construction and rectification. It also highlights the potential pitfalls of using long-form confirmations.

In the case of LSREF III Wight Limited v Millvalley Limited [2016] EWHC 466 (Comm), LSREF III Wight (Wight) sought a declaration as to whether an interest rate swap confirmation incorporated the terms of a generic 1992 ISDA Master Agreement or an executed 2002 master agreement.

What are the facts of the case?

In November 2006, Millvalley entered into an interest rate swap with Anglo Irish Bank Corporation plc (AIB) (the original swap). This was a hedging arrangement required by AIB in connection with a facility provided by AIB to Millvalley. The original swap was confirmed in a long-form confirmation dated January 2007. This long-form confirmation included standard language saying that the parties would put in place a 1992 ISDA Master Agreement promptly and until that ISDA Master Agreement was put in place, the standard 1992 ISDA Master Agreement would apply. The only election made was that English law would be applicable.

In July 2010, the Millvalley facility was restructured, as were some of the facilities between AIB and other members of the Millvalley group.

In mid-2011, certain of the members of the Millvalley group asked AIB for an extension of their facilities. AIB agreed to this but imposed a number of conditions, including a requirement that Millvalley should enter into an ISDA Master Agreement to document its existing hedging arrangements. Millvalley expressly agreed to this. At this time, the only hedging arrangement was the original swap and no ISDA Master Agreement or schedule had been entered into (as the parties had agreed in 2006).

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About the author:

Meet Emma:

1.  Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.  Likes ballet, playing the harp and holidays

3.  Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.