ISDA has commented on Justice Briggs judgment handed down in the case of Lomas and others v JFB Firth Rixson and others. The case involved four out-of-the-money counterparties declining to terminate their ISDA Master Agreements with Lehman Brothers International Europe (LBIE), relying on section 2(a)(iii) of ISDA's Master Agreement to not make payments to LBIE. The Administrators consequently sought directions as to the interpretation of Section 2(a)(iii) and its compatibility with the anti-deprivation principle of English insolvency law.

The Court rejected the Administrators' argument that the condition of Section 2(a)(iii) should be interpreted as being subject to a limitation that it may only be relied upon for a 'reasonable time'. Additionally, the Court did not accept that a non-defaulting party had any obligation to designate an early termination date. Crucially, the Court found that Section 2(a)(iii) is 'suspensive' in effect - overturning the non-binding comments in the Marine Trade case that Section 2(a)(iii) is a once-and-for-all test.

The Court also held that there was no breach of the anti-deprivation principle under English insolvency law in the context of the swaps between the parties. The findings which state that payments under certain types of transactions suspended under Section 2(a)(iii) may be extinguished on the last date for payment is surprising, ISDA says, and at odds with the market's expectations.

Before the case had been brought, ISDA says that it had started the process of preparing a form of amendment to Section 2(a)(iii) in response to concerns raised by supervisors, including the UK Treasury. This process is set to continue, the Association says, regardless of the outcome of the case. It will consult with its members to agree a form of amendment to Section 2(a)(iii), which will be made available to market participants to amend their ISDA Master Agreements.