The anti-deprivation rule and ipso facto clause prohibitions—a necessary clarification

Abstract

The relationship between the anti-deprivation rule and ipso facto clause prohibitions appears to be in a relatively confused state. While both rules can, and have, applied to invalidate executory contracts, the anti-deprivation rule is meant to apply much wider than ipso facto clause prohibitions. This article proposes that such confusion stems from the context in which the leading United Kingdom Supreme Court (UKSC) Belmont Park Investments PTY Limited v BNY Corporate Trustee Services Limited and Lehman Brothers Special Financing Inc [2011] UKSC 38 was decided. It is proposed here that, in the wake of this confusion, the Supreme Court of Canada (SCC)’s decision in Chandos Construction Ltd v Deloitte Restructuring Inc., 2020 SCC 25, can serve to foster a better understanding of the relationship between the anti-deprivation rule and ipso facto clause prohibitions. This article will attempt to contextualize both sets of rules first in the English and American contexts, to help the reader understand how such confusion can develop, and then will attempt to utilize Canadian case law to show that the SCC rightly decided that the relationship between ipso facto clause prohibitions and the anti-deprivation rule is merely confined to a singular context. It is proposed here that while both rules have some overlapping function, this is not indicative that they are meant to fulfil the same purposes. The anti-deprivation rule is broader in application than ipso facto clause prohibitions. The former relates to the taking of assets upon insolvency, whereas the latter exists to give effect to executory contracts.