Derivatives alert: Negative interest rates under CSAs: Appeal allowed

On 26 September, The State of the Netherland's application for Appeal was allowed in relation to the English High Court's ruling on 25 July, in favour of Deutsche Bank, that there is no obligation to pay negative interest under an English law CSA.

As explained in our previous alerter, the English High Court has considered whether the provider of cash collateral, under an English law ISDA 1995 Credit Support Annex (Bilateral Form – Transfer), is obliged, absent an express provision to such effect, to pay interest to the holder of the cash collateral in circumstances where the rate stipulated in the CSA is negative. For a variety of reasons based on established principles of contractual interpretation, the Court concluded that the cash collateral provider is under no such obligation.

The case is not merely of historical relevance. There are many CSAs which are not subject to the ISDA 2014 Collateral Agreement Negative Interest Rate Protocol and disputes and differences have been running on these for some time. The Appeal defers the final resolution of these open issues for a bit longer but the position will land at some point soon. After that there could be some significant reconciliations to make and possible further claims arising for interest due or restitution of interest paid.

The Appeal will be heard on 2 April 2019. It will be interesting to see what happens.

If you would like to know more about the case or the appeal (or the consequences of the outcome of the appeal), please get in touch.

---

¹The State of the Netherlands v Deutsche Bank AG [2018] EWHC 1935 (Comm) (25 July 2018)