The Legal Aspects of Non-Financial Market Central Counterparties

Abstract

International Air Transportation Association (IATA) v. Ansett (2008) was decided correctly by the High Court of Australia. However, the reasoning of the judges was unsound due to their apparent unfamiliarity with the operation of Central Counterparty (CCP) systems. The judges failed to recognise that ‘open offer’ was the mechanism of counterparty substitution used in the IATA clearing rules to create mutuality and guarantee multilateral insolvency set-off. This article analyses the Ansett decision and describes the legal principles that should have been used to decide the case. Only financial market CCPs receive special statutory protections from burdensome corporate insolvency laws. Therefore, it is argued that the new transnational lex mercatoria confers analogous protections on the arrangements of non-financial market CCPs such as IATA. The High Court would have reached the same outcome they did by applying this legal framework to the facts in Ansett.

Keywords: Central Counterparty (CCP), Open Offer, Mutuality Doctrine, New Transnational Lex Mercatoria, Insolvency Law