The International Swaps and Derivatives Association (ISDA) said today that it welcomed the decision of the United States Court of Appeals for the Second Circuit to overturn a 2006 district court ruling on a case between Aon Financial Products and Société Générale concerning a credit default swap contract on the Republic of the Philippines.
According to the Second Circuit opinion, the earlier lower court ruling had incorrectly assumed an economic connection between two credit default swaps that Aon had entered into separately with two counterparties, Société Générale and Bear Stearns. The Second Circuit court upheld the distinct economics of the two contracts in overturning the district court decision.
“The Second Circuit opinion sets forth a clear-sighted appraisal of this case, upholding the principles of the ISDA documentation,” said Robert Pickel, Executive Director and Chief Executive Officer, ISDA. “Legal certainty in the use of ISDA documentation enables efficient growth and reduces risk in the credit default swaps business. The lower court ruling undermined this legal certainty by misconstruing the contractual obligations.”
In May 2006, ISDA supplied a Brief of Amicus Curiae in support of Société Générale. The brief was prepared by Cadwalader Wickersham & Taft and is available on ISDA’s website.