EMIR dispute resolution procedures under EFET ERMTA and ISDA Protocol - dual approach
Friday, 25 April 2014 10:37

 

Industry master agreements differentiate between the "standard" dispute resolution procedure on the one hand and the process designed specifically for resolving EMIR-mandated issues on the other. What are their inter-dependencies?

 

 

Parties wishing to implement EMIR dispute resolution requirements into their contractual documentation have at their disposal at least two master agreements:

 

- the ISDA 2013 Portfolio Reconciliation, Dispute Resolution and Disclosure Protocol published by the International Swaps and Derivatives Association, Inc. (the "ISDA Protocol"), and 

 

- EFET's form of EMIR Risk Mitigation Techniques Agreement (version 1.1/September 2013), as published on the EFET web page on 9 September 2013 (the "ERMTA").

 

As EFET underlines in its Guidance Notes, it is intended that the core obligations under both the ISDA Protocol and the ERMTA are to apply to transactions that are subject to the applicable EMIR obligations, including where those transactions are not documented under an ISDA Master Agreement (in the case of the ISDA Protocol) or an EFET General Agreement (in the case of the ERMTA).

 

The possibility to include the above standards into other than ISDA and EFET legal documentation may seem a convenient and swift way to cope with EMIR dispute resolution burdens (as well as other EMIR risk mitigation techniques). However, as is also reserved in the EFET's and ISDA's responsibility clauses, market participant is solely responsible for EMIR compliance as well as for safeguarding its own interests.

 

Besides, the ERMTA text provides an argument that the term "dispute" is understood in the EMIR nomenclature in the very specific sense.

 

As ERMTA Guidance Notes underline, ERMTA dispute identification and resolution procedure "is distinct from, and does not apply in relation to, a 'dispute' which may arise out of or in relation to the ERMTA in general and which is unrelated to the specific requirements emanating as a result of the implementation of EMIR."
 
As a result of this differentiation, under EFET standard documentation any 'dispute' other than a dispute in the EMIR sense is to be governed by the relevant standard procedure which has been elected by the parties in accordance with the provision of master agreement specifying the the general issues of governing law and dispute resolution.
 

Also remedies for breach of the ERMTA when it comes to EMIR requirements have been arranged in the specific manner, namely a failure by a party to comply with the obligations set forth in the ERMTA does not amount to a circumstance that permits termination of the EMIR relevant transaction; and neither will such a failure amount to an event of default, termination event, material reason, or any similar such term, which may permit the termination of the EMIR relevant transaction or any other transactions.

 

Generally, describing responsibility at issue it is useful to mention that under both the ERMTA as well as ISDA Protocol, failure to comply with contractual EMIR risk mitigation techniques requirements, dispute resolution  including, does not represent an event of default, termination event or material reason (without prejudice to rights and remedies provided by law).

 

The effect is, that under the above master agreements we have a bizarre, to some extent, situation of two distinct dispute resolution procedures designed for different purposes, with separate remedies and responsibility for non-compliance. The inter-dependencies of these procedures require more in-depth analysis.

 
 

 

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