The U.K. Financial Markets Law Committee has set up a working group to examine the issues raised in a recent Australian court ruling over how to interpret the International Swaps and Derivatives Association master agreement. The court ruling, which was Enron Australia versus TXU Electricity, calls into question the theory behind netting transactions, because it leaves the door open for a non-defaulting counterparty to walk away from its liabilities.
Lord Browne-Wilkinson, chairman of the Bank of England's Financial Markets Law Committee, said, "The FMLC did not feel there was necessarily in this instance any obvious issue of legal uncertainty, but that it would nonetheless be of service to examine together and explain a number of associated issues, for the benefit of the market and the FSA." Jeffrey Golden, partner at Allen & Overy in London, will chair the working group. He declined comment.
One industry practitioner said it is a relief the FMLC has decided to examine the issue because it always gets the most eminent lawyers and forms an authoritative opinion.
