Financial and non-financial businesses across the world depend on derivatives to manage risks to which they are exposed. It may not be possible to predict future market movements with certainty but derivatives provide the tool to lock in borrowing costs, exchange rates and prices thus eliminating many of the uncertainties affecting business. That’s a very valuable tool.
The International Swaps and Derivatives Association, Inc. (“ISDA”) has a long history of creating solutions for derivatives market participants, facilitating more efficient and safer derivatives markets. One of its original solutions, maintained to this day, is the production of industry standard documentation. The availability of such documentation, created with input from ISDA’s members across derivatives industry sectors, facilitates the prompt negotiation of derivatives on terms benefiting from strong legal and commercial certainty. That legal certainty is supported by various legal opinions obtained by ISDA for the benefit of its members. McCann FitzGerald acts as Irish counsel to ISDA, providing the various Irish legal opinions made available to its members.
To date, ISDA has offered users of its primary documentation two principal options regarding the laws that govern their contractual relationships; those of England and the State of New York. That choice, in turn, affects the courts that determine any disputes arising under that documentation. ISDA has now confirmed that it proposes to extend that offering to encompass Irish law and French law.
Drafts of Irish and French law versions of the ISDA 2002 Master Agreement have been made available to members for comment and are expected to be finalised and published in coming months. Updated Irish and French netting opinions encompassing those Irish and French law versions will be issued to coincide with their publication and, as other jurisdictions’ netting opinions are updated, they will also be extended to encompass those new versions. Whereas ISDA’s initial focus has been on the 2002 Master Agreement, a suite of Irish law governed credit support documents has also been drafted and made available to members for comment. McCann FitzGerald has worked closely with ISDA on the Irish law documents and will issue the Irish netting opinion referred to above.
The availability of Irish law versions of ISDA documentation will be a very welcome development for users of that documentation and for Ireland. It will facilitate users that have a preference for contracts governed by the laws of Ireland or of an EU Member State more generally, whether that derives from Brexit-related (eg Article 55 of BRRD, Article 46(6) of MiFIR or the availability of the EU’s highly flexible regime for the recognition and enforcement of judgments) or other reasons. We also anticipate that ISDA’s initiative will stimulate an increased acceptance by the international finance and business community of Irish law as a governing law of choice for cross-border transactions.
ISDA’s Irish law option offers significant benefits to users of ISDA documentation. The:
- very limited differences between the English and Irish law governed versions of the 2002 Master Agreement (and relevant credit support documents);
- similarity of the contract law and legal systems of England and Ireland;
- regard had by the Irish courts, in the absence of a binding Irish precedent, to decisions of the English courts on analogous matters, will reassure users familiar with the English law governed documentation that market expectations as to how the ISDA documentation works should be respected.