Planning around Uncertainties: the ISDA Master Agreement and sanctions planning

Recent world events have demonstrated that sanctions are increasingly deployed by governments around the world to implement their foreign policy. International commercial parties would be well advised to ensure that their commercial agreements are properly drafted to manage the risk of sanctions disrupting their payment flows or causing wider disruption to their business. This is particularly relevant for market participants in the derivatives market, where payments are frequently conducted on a cross-border basis. 

A party impacted by a sanction or sanction-related risks that cannot pay or deliver under an ISDA Master Agreement will typically want to trigger illegality and/or force majeure clauses to avoid committing an event of default. A trio of recent cases in the English courts -- Lamesa Investments Limited v Cynergy Bank Limited (“Lamesa”), Banco San Juan International Inc v Petroleos De Venezuela SA (“Banco San Juan”) and MUR Shipping BV v RTI Ltd (“MUR Shipping”) -- illustrates the nuances in being able to successfully claim that an event of default has occurred. In this bulletin, we examine this topic further, in the context of the ISDA Master Agreement.