In a climate of low interest rates, is negative interest automatically payable? (The State of the Netherlands v Deutsche Bank AG)

In a climate of low interest rates, is negative interest automatically payable? (The State of the Netherlands v Deutsche Bank AG)

In The State of Netherlands v Deutsche Bank AG [2018] EWHC 1935 (Comm), the judge confirmed that a standard International Swaps and Derivatives Association (ISDA) Credit Support Annex (CSA) does not include an obligation on a Transferor to account for negative interest, where the ISDA 2014 Collateral Agreement Negative Interest Protocol has not been explicitly incorporated.

What are the practical implications of this case?

This case confirms that the provisions of a standard agreement must be read as containing all information necessary to the parties. It follows that if the parties intend to deviate from the standard agreement they must specifically state this in the documentation or subsequently amend it; obligations will not be imposed by the court later. In this case, the point of interest was whether there was an obligation for Deutsche Bank (DB) to pay negative interest on deposits where usually the State of the Netherlands (the State) would be paying the interest in a positive interest environment. If parties want to benefit from negative interest rates, they must clearly amend their contract to reflect that they intend to do so, if not already set out within it. The ISDA master agreement is a standard form agreement and certainty of that contract is important and so the judge reiterated that words cannot be implied into the contract where they do not exist.

For practitioners this is a helpful case in confirming that where parties enter into standard form agreements, they can be confident that judges will not agree that terms are implied in the contract unless explicitly set out. In this instance, ISDA had published a protocol on negative interest rates, after the agreement had been entered into. It was for the parties to adhere to the Protocol and amend their CSA accordingly to reflect the provisions within that protocol if they wanted the provisions to apply to these transactions.

What was the background?

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About the author:

Meet Emma:

1.Banking and finance lawyer with experience in derivatives, debt capital markets, securitisation and structured finance in London and Paris

2.Likes ballet, playing the harp and holidays

3.Thinks the law is always changing!

Emma trained and qualified at Allen & Overy LLP and worked in their derivatives and structured finance teams in London and Paris.  She then joined the foreign exchange prime brokerage legal team at Deutsche Bank before spending 4 ½ years with Crédit Agricole CIB advising the fixed income and derivatives desk.