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Condition precedent

In broad terms, a condition precedent is a condition that must be satisfied before a legal right, claim, duty or interest can arise.

Conditions precedent exist within the GMRA.  Specifically, Paragraph 6(j) of the 2011 GMRA states that, if the parties have specified in Annex I that paragraph 6(j) applies, each obligation of a party is subject to the condition precedent that no Event of Default has occurred or is continuing with respect to the other party.  The only exception is obligations under Paragraph 10 (Events of Default).  These are not subject to the condition precedent.  In essence, this provision mirrors the ‘flawed asset’ provision of the ISDA Master Agreement (Section 2(a)(iii)).  In simple terms, a party is not required to comply with its obligations under the GMRA if its counterparty is in default.  However, if those obligations arise under Paragraph 10 of the GMRA (Events of Default) a party must still comply with those obligations, even if its counterparty is in default.

The 2011 GMRA differs from the 2000 GMRA as they relate to the conditions precedents.  Specifically, under the 2011 GMRA, ALL Events of Default are automatically covered by the “flawed asset” provision.  In contrast, under the 2000 GMRA, the parties can specify which events should be subject to the provision.

The parties can specify whether Paragraph 6(j) is to apply within Annex 1, Paragraph 1(k) of the GMRA.

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