The State of the Netherlands v Deutsche Bank AG, Court of Appeal - Commercial Court, July 25, 2018, [2018] EWHC 1935 (Comm)

Resolution Date:July 25, 2018
Issuing Organization:Commercial Court
Actores:The State of the Netherlands v Deutsche Bank AG

Neutral Citation Number: [2018] EWHC 1935 (Comm)

Case No: FL-2017-00007





Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 25/07/2018

Before :


- - - - - - - - - - - - - - - - - - - - -

Between :

- - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

Benjamin Strong QC (instructed by Clyde & Co LLP) for the Claimant

Richard Handyside QC and Rupert Allen (instructed by Linklaters LLP) for the Defendant

Hearing date: 23 April 2018

- - - - - - - - - - - - - - - - - - - - -

Judgment ApprovedMr Justice Robin Knowles:


  1. Since 14 March 2001 the State of the Netherlands (``the State'') and Deutsche Bank AG (``the Bank'') have been parties to an agreement using documentation of the International Swap Dealers Association Inc (``ISDA''). The agreement comprises an ISDA Master Agreement (Multicurrency - Cross Border; 1992 version), Schedule and Credit Support Annex (Bilateral Form - Transfer; 1995 version, but with an amendment in 2010 deleting and replacing paragraph 11).

  2. Pursuant to the agreement the parties have entered into a number of derivative transactions. Where the State has a net credit exposure to the Bank under these transactions the Credit Support Annex requires the Bank to provide credit support to the State. (As it happens, the Credit Support Annex does not include a requirement for the State to provide credit support to the Bank should there be a net credit exposure of the Bank to the State.)

  3. The current position is one of net credit exposure of the State to the Bank and so the requirement for credit support is engaged. For present purposes the material form of credit support is cash collateral provided by the Bank to the State. The Credit Support Annex provides for interest to be paid by the State to the Bank on that cash collateral.

  4. However the agreed rate, EONIA minus 0.04%, has been less than zero for the larger part of the time since 13 June 2014. The question in this case is whether the parties' agreement, as made using the ISDA documentation concerned, requires the Bank to pay ``negative interest'', i.e. interest from the party who provides a principal sum for a period of time, rather than from the party who receives it and has the use of it for a period of time. The agreement predates the ISDA 2014 Collateral Agreement Negative Interest Protocol and was not amended in light of that Protocol.

  5. The parties chose English Law to govern their agreement and the English Court to decide any dispute between them. The dispute is classically suitable for the Financial List and that is where the parties have pursued it.

    The agreement between the parties

  6. Paragraph 10 of the Credit Support Annex provides:

    ````Eligible Credit Support'' means, with respect to a party, the items, if any, specified as such for that party in Paragraph 11(b)(ii) including, in relation to any securities, if applicable, the proceeds of any redemption in whole or in part of such securities by the relevant issuer.''

    In turn, paragraph 11 specifies the items that will qualify as ``Eligible Credit Support'' for the Bank. These comprise, in summary, cash, certain Government-issued negotiable debt obligations and ``such other Eligible Collateral as may be agreed between the parties''.

  7. Paragraph 5 of the Credit Support Annex is in these terms:

    ``Paragraph 5. Transfer of Title, No Security Interest, Distributions and Interest Amount

    (a) Transfer of Title. Each party agrees that all right, title and interest in and to any Eligible Credit Support, Equivalent Credit Support, Equivalent Distributions or Interest Amount which it transfers to the other party under the terms of this Annex shall vest in the recipient free and clear of any liens, claims, charges or encumbrances or any other interest of the transferring party or of any third person (other than a lien routinely imposed on all securities in a relevant clearance system).

    (b) No Security Interest. Nothing in this Annex is intended to create or does create in favour of either party any mortgage, charge, lien, pledge, encumbrance or other security interest in any cash or other property transferred by one party to the other party under the terms of this Annex.

    (c) Distributions and Interest Amount.

    (i) Distributions. [The State] will transfer to [the Bank] not later than the Settlement Day following each Distributions Date cash, securities or other property of the same type, nominal value, description and amount as the relevant Distributions (``Equivalent Distributions'') to the extent that a Delivery Amount would not be created or increased by the transfer, as calculated by the Valuation Agent (and the date of calculation will be deemed a Valuation Date for this purpose).

    (ii) Interest Amount. Unless otherwise specified in Paragraph 11(f)(iii), the Transferee will transfer to the Transferor at the times specified in Paragraph 11(f)(ii) the relevant Interest Amount to the extent that a Delivery Amount would not be...

To continue reading