Counterparty risk has garnered significant attention among hedge fund industry participants in the aftermath of the collapse of Lehman Brothers in 2008.  Evaluating counterparty risk requires hedge fund managers to evaluate their counterparty agreements to understand, among other things, the scope of their obligations in the event that one of their trade counterparties defaults or becomes insolvent.  A decision recently handed down by the Court of Appeals of England and Wales interpreted a contractual provision contained in the International Swaps and Derivatives Association, Inc. Master Agreement (Master Agreement) that governs such obligations in relation to swaps and other derivatives effected between trade counterparties.  A central component of the case involved the interpretation of Section 2(a)(iii) of the Master Agreement, which provides that a party to a derivative contract is not obligated to make payments to the counterparty while an “event of default” is occurring with respect to the counterparty.