1. Core Distinction - Fault vs No Fault

ISDA Wikipedia summary which courts cite: Events of Default can be described as events for which a party is at fault, such as failure to perform, breach, insolvency. Termination Events are other events which, although no-one is at fault, were outside party's control.

2. Why Confusion Happens

Both lead to early termination under Section 6. Lawyers think Illegality = default. It is not.

Example: Sanctions on Russia 2022. Russian bank cannot receive USD.

• If you call it Failure to Pay EOD, Non-defaulting Party can suspend payments forever and never terminate - keeping in-the-money position.
• If you call it Illegality / Force Majeure TE, you must try to use other Office, wait up to Waiting Period, then terminate at mid-market.

English courts in 2022-2023 trio clarified this:

Lamesa Investments Ltd v Cynergy Bank Ltd, Banco San Juan International v Petroleos De Venezuela SA, MUR Shipping BV v RTI Ltd - Linklaters summary: A party impacted by sanction that cannot pay will typically want to trigger illegality and/or force majeure to avoid committing an event of default. Court held you must attempt to pay via other means before claiming FM.[2020][2022]

3. Key Case Law

A. Lomas v JFB Firth Rixson Inc & Ors EWCA Civ 419 - The Leading Case[2012]

Four appeals jointly heard on Events of Default under 1992 ISDA.

Facts: Lehman Brothers Special Financing Inc defaulted. Counterparties out-of-the-money stopped paying, relying on Sec 2(a)(iii).

Held:

• Payment obligations of Non-defaulting Party are suspended during EOD, rather than extinguished outright.
• Underlying debt obligation undisturbed; if EOD cured before termination, previously suspended amounts become payable.
• Suspension can be indefinite - does not expire on final payment date.
• This is opposite of US law under New York.

Why it matters for TE vs EOD: Court stressed Sec 2(a)(iii) condition precedent applies ONLY to EOD and Potential EOD, not to TE. If TE occurs, you cannot suspend.

Resulted in ISDA 2014 amendment inserting time limit on Sec 2(a)(iii).

B. Grant & Ors v FR Acquisitions - Re Lehman Brothers International Europe[2010]

High Court finds no continuing event of default once administration of counterparty terminates. If administration ends, EOD ceases, suspended payments become due. Important for determining when TE starts.

C. Spanish Supreme Court Ruling 4203/2025 - STS on Financing Events of Default - Directly Relevant to Spain

Caixa d'Estalvis de Sabadell now BBVA mortgage loan. Borrowers missed principal and interest.

Ruling: Lender validly exercised right to declare early termination following non-payment in accordance with facility agreement. CC validates contractually defined events of default, regardless of materiality of breach. Events of default set out in financing agreement are elevated to category of condiciones resolutorias.

Spanish doctrine contrasts with ISDA: In Spanish loan agreements, any contractually defined EOD allows acceleration even if breach minor, unlike English law which requires material breach unless clause says otherwise. This is why Spanish mortgage contracts with 3 missed payments clause were upheld despite EU consumer law.

D. Force Majeure vs Illegality as TE

Nuovo Safim SpA v Sakura Bank Ltd 2 All ER: Party who fails to give prompt notice of FM event may be estopped from relying on it.[1999]

2002 ISDA Sec 6(b)(i): Each party must use reasonable efforts to notify other of FM Event promptly.

E. Spanish Provincial Courts on Euribor Cartel TE confusion

Palencia Provincial Court 84/2022, 9 Feb: Distinguishes follow-on vs stand-alone actions for Euribor manipulation. Holds damages action must be stand-alone, not follow-on, because Commission decisions refer to derivatives market other than mortgage credit market. Shows confusion between market disruption TE and competition infringement EOD.

4. Practical Decision Tree

Ask:

1. Is party at fault? Yes -> EOD: Failure to Pay, Bankruptcy, Cross Default. No -> TE.

2. Can performance become illegal/impossible due to law/sanction? Yes -> Illegality or Force Majeure TE under Sec 5(b)(i) and (ii). Not EOD.

3. Did tax law change? Yes -> Tax Event TE.

4. Did merger worsen credit? Yes -> Credit Event Upon Merger TE.

If you misclassify TE as EOD:

• You lose right to suspend? Actually you gain suspension right you should not have - court will reverse.
• You apply wrong close-out method - will be challenged as not commercially reasonable.
• You may breach sanctions by claiming EOD instead of using reasonable efforts to pay via other Office as required for Illegality TE.

If you misclassify EOD as TE:

• You give Affected Party termination right they should not have.
• You cannot suspend payments - must continue paying defaulting party.

Rule of Thumb from Jolly Contrarian: EODs tend to be focused on outright creditworthiness of Defaulting