Campbell Johnston Clark

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1 Campbell Johnston Clark 30 June 2018 Memorandum To: Peter Werner, International Swaps and Derivatives Association, Inc. From: Alastair MacAulay Telephone: Re: Informal Country Update - Enforceability of OTC Derivatives Transactions - Marshall Islands 1 1. INTRODUCTION 1.1. You have asked us to provide a broad overview (for information purposes only) of the laws of the Republic of the Marshall Islands ("Marshall Islands") on certain matters relating to OTC derivatives transactions This memorandum provides only a broad overview of the issues referred to in paragraph 3 below. Accordingly, no part of this memorandum is intended to be, purports to be or should be relied upon as being, legal advice or a comprehensive list of the issues or considerations that may be relevant in relation to the matters discussed in this memorandum This memorandum is confined to Marshall Islands laws of general application as at the date of this memorandum. 1 Alastair MacAulay, a consultant on matters of Marshall Islands law to Campbell Johnston Clark, was admitted as a Marshall Islands lawyer in 2002 and is qualified to practise Marshall Islands law as an officer before the courts of the Marshall Islands. Alastair MacAulay has worked extensively with matters relating to the Marshall Islands corporate and maritime programmes since the adoption of the Maritime Act Since 1984, Alastair MacAulay has also worked on many Liberian corporate and maritime law matters. It was upon these which Marshall Islands Corporate and Maritime laws were modelled. The views expressed in this memorandum are based solely on Alastair MacAulay's experience as a Marshall Islands lawyer. 59 Mansell Street, London, E1 8AN, Tel: +44 (0) , Fax: +44 (0) Campbell Johnston Clark Limited is registered in England and Wales with Company registration number and is authorised and regulated by the Solicitors Regulation Authority. Its registered office is at 59 Mansell Street, London, E1 8AN. SRA Number London Newcastle Singapore

2 2. BACKGROUND TO MARSHALL ISLANDS LAW 2.1. The Marshall Islands is an independent republic of approximately 68,000 people located in the South Pacific Ocean. There are two banks licensed to carry on business within the Country (Bank of the Marshall Islands and Bank of Guam). The country runs major corporate and maritime programmes administered by International Registries Inc., a corporation based in Reston, Virginia, United States of America ("U.S.A."). Previously a U.S.A protectorate, the country now enjoys a Compact of Free Association with the U.S.A. providing financial support and defence responsibility. The country solely uses the U.S. dollar as its currency Marshall Islands corporate law is derived from the corporate law of the States of Delaware and New York. Indeed, section 13 of the Marshall Islands Business Corporations Act specifically provides that the Marshall Islands Business Corporations Act is to be applied and construed so as to make the corporation law of the Marshall Islands uniform with the laws of the State of Delaware and other states of the United States of America with substantially similar legislative provisions as the laws of the Marshall Islands, and adopts the non-statutory law of the State of Delaware and other states of the U.S.A. with substantially similar legislative provisions as the law of the Marshall Islands. However, it should be noted that there is virtually no case law in the Marshall Islands in the areas of corporate or securities law, or structured finance Marshall Islands corporate law distinguishes between resident entities (corporations, limited liability companies, partnerships and limited partnerships), which are authorised to own assets and conduct business within the Marshall Islands, and non- resident entities which will normally have no assets within the Marshall Islands and will not conduct business there Resident entities are generally small local businesses within the Marshall Islands, and we are not aware of any resident domestic entity being engaged in cross-border business. Non-resident entities generally do not have any presence (other than their documents of formation) or assets, nor do they maintain any records, within the Marshall Islands. Unless otherwise restricted under its constitutional documents, a non-resident Marshall Islands entity will have capacity to undertake any lawful business for its corporate purposes, irrespective of corporate benefit In this memorandum, we focus exclusively on the following two most common forms of nonresident Marshall Islands entities: (a) (b) a non-resident corporation (a "Corporation") incorporated under the Business Corporation Act (Part 1 of Title 52 of the laws of the Republic of the Marshall Islands, the "BCA"); and a non-resident limited liability company (an "LLC") formed under the Limited Liability Company Act of 1996 (Part IV of Title 52 of the laws of the Republic of the Marshall Islands, the "LLCA") The Registrar of Corporations for Corporations and LLCs is The Trust Company of the Marshall Islands, Inc., and all Articles of Incorporation and Certificates of Formation issued by it are endorsed with the words "NON-RESIDENT".

3 2.7. This memorandum does not extend to any other form of entity established under the laws of the Marshall Islands, or any entity (including any domestic corporation or domestic limited liability company) resident in, or carrying on business in, the Marshall Islands. 3. QUESTIONS 3.1. Do OTC derivatives transactions face an enforceability problem (e.g. due to anti- wagering provisions etc. under local law)? We are not aware of any rule of Marshall Islands law that would restrict, or prohibit, a Corporation or an LLC from entering into an OTC derivatives transaction, or would render such transaction unenforceable. However, the Articles of Incorporation of a Corporation or the limited liability company agreement of a LLC may restrict or prohibit a Corporation or LLC from entering into such transactions Are there provisions (of a statutory, customary, common law etc. nature) in local law that provide for the enforceability of close-out netting? Is close-out netting defined in addition to set-off under local law? Does local law allow netting in accordance with the terms of the underlying contract (e.g. the ISDA Master Agreement)? In the absence of close out provisions, are you aware of any current efforts to pass primary legislation in this regard? There are no express rules of Marshall Islands law that provide for the enforceability of a closeout netting arrangement and we are not aware of any current efforts to pass primary legislation in this regard. A close-out netting arrangement (such as the arrangement set out in Section 6 of the 1992 or 2002 version of the ISDA Master Agreement) would generally be enforceable as a matter of contract under Marshall Islands law against a counterparty that is a Corporation or an LLC, so that, following the occurrence of an event of default in respect of the Corporation or the LLC or a specified non-default event, the other party would be entitled to receive or be obliged to pay only the net sum of the positive and negative mark-to-market values of all OTC derivatives transactions that have been terminated in accordance with the terms of the close-out netting arrangement. Impact of insolvency of a Corporation or an LLC The insolvency laws of the Marshall Islands are undeveloped. There is no statutory regime for dealing with the insolvency of a Corporation or an LLC. However, the Marshall Islands has adopted the UNCITRAL Model Law on Cross-Border Insolvency through the UNCITRAL Model Law on Insolvency Implementation Act 2018 which applies where: (a) (b) assistance is sought in the Marshall Islands by a foreign court or a foreign representative in connection with a foreign proceeding; or assistance is sought in a foreign state in connection with a proceeding under the laws of the Marshall Islands relating to insolvency; or

4 (c) (d) a foreign proceeding and a proceeding under the laws of the Marshall Islands relating to insolvency in respect of the same debtor are taking place concurrently; or creditors or other interested persons in a foreign state have an interest in requesting the commencement of, or participating in, a proceeding under the laws of the Marshall Islands relating to insolvency. Following the insolvency of a counterparty that is a Corporation or an LLC, we believe that a Marshall Islands court would uphold the freedom of the parties to determine the terms of their contract and would seek to give effect to the legitimate expectations of the parties. As a closeout netting arrangement is not contrary to law or public policy in the Marshall Islands, we believe that the most likely approach of a Marshall Islands court would be to uphold the closeout netting arrangement even where the cause or reason of the closing-out is the insolvency of the counterparty If there are netting provisions under local law, do they apply to all types of counterparties, e.g. financial institutions, corporates (commodity trading firms, utilities, manufacturers etc.), SPVs, public law entities (municipalities, central banks, development banks etc.)? Not applicable Is the scope of eligible transactions restricted in any way, e.g. to certain products (rates, currencies, equities, credit etc.). What about commodity products (gas, coal, oil, metals, agricultural etc.) and new products (emissions allowances, freight rates, weather variables etc.)? Is there a different treatment for financially settled transactions as opposed to physically settled ones (i.e. where the underlying product is delivered)? There are no restrictions under Marshall Islands law on the scope of eligible transactions, other than transactions which may be in contravention of criminal laws (e.g. involving dealing in drugs, or in breach of anti-money laundering laws or anti-terrorist funding laws) or embargoes Are there any issues with foreign law governed contracts (mainly English and New York law) when used for cross-border transactions into your jurisdiction? For example, some countries may restrict the use of foreign law and language documents when it comes to contracting with local public law or state entities. There are no restrictions under Marshall Islands law that would prohibit the parties to an OTC derivatives transaction (including a Corporation or an LLC) from choosing a foreign law (including English law or the law of the State of New York) to govern that transaction Are financial collateral arrangements governed by foreign law recognized under local law? In particular, would title transfer and security interest arrangements (under English and NY law) be enforceable (e.g. ISDA credit support documentation)? Title transfer The laws relating to the recognition and characterisation of a title transfer arrangement (such as the ISDA English law Credit Support Annex) are undeveloped.

5 We believe that, as a matter of general legal principle, Marshall Island laws will give effect to the expressed intentions of the parties. Accordingly, if a title transfer arrangement is recognised as taking effect as an outright transfer of title under the governing law of the arrangement, unless there were very good reasons for re- characterising the transaction, a Marshall Islands court would not do so. The Marshall Islands court would re-characterise a title transfer arrangement (as a security interest arrangement or some other arrangement) only if satisfied that the security provider retained an equity of redemption in the collateral that has purportedly been transferred to the security taker. Other than in relation to transfer of title in a ship registered under Marshall Islands flag pursuant to the Maritime Act 1990 as amended, there are generally no documentary formalities that must be observed in order for a title transfer to be recognised as valid and perfected in the Marshall Islands. Security interest If a security taker has obtained a valid and perfected security interest in the property of the security provider under the laws governing a security interest arrangement (such as the New York law Credit Support Annex and English law Credit Support Deed), the security taker will be recognised as having a valid security interest so far as the laws of the Marshall Islands is concerned. Other than in relation to a mortgage over a ship registered under Marshall Islands flag pursuant to the Maritime Act 1990 as amended, there are no documentary or any particular requirements or additional formalities to be carried out in order to ensure the validity or perfection of a security interest arrangement in the Marshall Islands Is there any observation on the local regime for foreign (e.g. English, New York) judgments and foreign arbitral awards? Will the courts of the Marshall Islands recognise and enforce a judgment by a foreign court (for example, the courts of England and Wales or the courts of New York) against a Marshallese Corporation or LLC arising out of a dispute with respect to an OTC derivatives contract? The Marshall Islands is a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and has adopted the UNCITRAL Model Law on International Commercial Arbitration in relation to any international commercial arbitration, subject to any agreement in force between the Marshall Islands and any other State or States. Where the parties to a dispute arising out of an OTC derivatives contract validly submit this dispute to the jurisdiction of the courts of any country which recognises or enforces the judgments of any other nation, a non-appealable court judgment entered in any such jurisdiction would be enforceable in the courts of the Marshall Islands against a Marshallese Corporation or LLC without a retrial of the merits of the matter, provided that: (a) the judgment was for a sum of money and was final in the jurisdiction in which the judgment was granted;

Liberia. Zaharoula (Hara) Gisholt and Brad L Berman. Liberian International Ship and Corporate Registry and Norton Rose Fulbright

Liberia. Zaharoula (Hara) Gisholt and Brad L Berman. Liberian International Ship and Corporate Registry and Norton Rose Fulbright Liberia Zaharoula (Hara) Gisholt and Brad L Berman Due diligence 1 How does one demonstrate title to or legal ownership of a vessel registered under the laws of your jurisdiction? Upon registration of