Users of the International Swaps and Derivatives Association ("ISDA") Master Agreement should be aware of the recent decision of the English High Court in Marine Trade -v- Pioneer Freight Futures on the effect of the "flawed-asset" conditional payment provision of Section 2(a)(iii) of the ISDA Master Agreement.

Section 2(a)(iii) of the ISDA Master Agreement (both in the 1992 and 2002 version) makes a party's obligation to pay or deliver subject to the condition precedent that "no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing."

The English Court has recently disagreed with traditional views on one important effect of Section 2 (a) (iii). In this alert we consider the implications of this view.

View the PDF below.