Netherlands: No Negative Interest For Netherlands

Last Updated: 20 August 2018
Article by Thomas Leyland, Felicity Ewing and Natalia Fludra

There may be such a thing as bad publicity, but there is no negative interest – at least, as would be payable under an unamended ISDA 1995 Credit Support Annex ("1995 CSA").

So held the English Commercial Court in a case1 brought by the Netherlands (the "State") against Deutsche Bank AG (the "Bank"). In a judgment of 25 July 2018, Robin Knowles J determined that the standard form English law 1995 CSA does not contemplate a legal obligation to account for negative interest.

Negative rates environment

Over the past years the European Central Bank and the central banks of Sweden, Switzerland, Denmark and Japan cut interest rates to levels below zero, and various instances of negative EURIBOR, EONIA and LIBOR rates have occurred.

Many transactional documents, particularly those entered into with an awareness of potential negative rates, now contain zero-floor language or specific provisions to account for negative interest amounts. However, the uncertainty surrounding interpretation of documents that did not expressly contemplate a negative rate environment has made this a long-disputed topic between market participants. This newest case assists in clarifying how standard ISDA documentation will be construed and will resolve certain of these debates.

Case background

The State and the Bank had entered into a number of derivative transactions under an English law ISDA Master Agreement. The 1995 CSA contained a unilateral obligation on the Bank (the Transferor) to post cash collateral to the State (the Transferee) whenever the State was net in the money under these transactions.

The State was obliged to pay interest to the Bank on such collateral at a rate of EONIA minus 0.04 per cent. As to this, Paragraph 5(c)(ii) of the 1995 CSA provided:

"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 created or increased by the transfer..."

In circumstances where the State had net credit exposure requiring the Bank to post collateral, and the agreed rate was less than zero for most of the relevant period, the State asserted that instead of paying zero interest (as a floor rate) to the Bank, it should instead receive "negative interest" from the Bank.

The State argued that, rather than requiring cash transfers, negative interest should be taken into account in the calculation of (accrued but unpaid) amounts payable between the parties as part of the Credit Support Balance, the definition of which concludes: "Any Equivalent Distributions or Interest Amount (or portion of either) not transferred pursuant to Paragraph 5(c)(i) or (ii) will form part of the Credit Support Balance."

ISDA guidance

The Court considered:

(a) the ISDA 2013 Statement of Best Practice for the OTC Derivatives Collateral Process (the 2013 Statement), which gives guidance that: (i) in a negative rate market the standard CSA should use a negative rate in Interest Rate and Interest Amount calculations; (ii) Negative Interest Amounts may be computed; and (iii) the Parties should either settle these amounts in the reverse direction to normal, or compound the negative interest balance into the Credit Support Balance;

(b) the ISDA 2014 Collateral Agreement Negative Interest Protocol (the "2014 Protocol"), which was introduced so that negative benchmark interest rates should flow through ISDA collateral agreements under certain circumstances and which contemplated that parties would amend Paragraph 5(c) of the CSA in this regard; and

(c) the ISDA User's Guide, containing a passage that focuses on the Transferee's obligation under the CSA to pay interest on amounts it holds as cash collateral under Paragraph 5(c).


The Court held that while the definition of "Interest Amount" was capable as a matter of language of allowing for a negative figure, in this case the agreement did not include an obligation on the Transferor if the Interest Amount was negative; any such obligation would have to be spelled out (and had not been).

The Paragraph 5(c)(ii) obligation to pay interest under the 1995 CSA was phrased so as to envisage only payment from the person holding the collateral (and not from the person posting the collateral, as would necessarily be the case with negative interest, given the unilateral credit support obligation). Further, the Judge noted that the paragraph began with the words "Unless otherwise specified in Paragraph 11(f)(iii)", and the Parties had not taken the opportunity to specify otherwise.

The Judge concluded that while positive interest was dealt with by the Paragraph 5(c)(ii) machinery, the State's argument required different machinery to deal with negative interest. He found no credible commercial rationale for such a choice; had the parties wanted to deal with negative interest, the obvious course was to bring it within Paragraph 5(c)(ii).

The ISDA User's Guide, which had been available to the Parties at the time of agreement, supported the Bank's interpretation. The 2013 Statement and 2014 Protocol had not been available to the Parties, though the Judge commented that these deserved respect and parties may be encouraged to follow them when contracting. However, the 2014 Protocol contemplated that Paragraph 5(c)(ii) would be amended to expressly cater for negative interest.

In the absence of such amendments, the Court considered that the standard form 1995 CSA did not include an obligation on a Transferor to account for negative interest.

While allowing only positive interest plainly leads to a lack of equivalence between the Parties, the same can be said of the unilateral credit support obligation. Commercial rationale proposed by the Judge included that the Parties may have wanted simplicity in their arrangements, or the fact that the State would not necessarily incur loss by holding cash in a negative rates market, as it was free (by agreement) to use the cash to generate income elsewhere.

Market outcomes

Perhaps unsurprisingly, the Court has declined to imply terms into an agreement where it is not necessary to do so, and where parties could have drafted to cater for the situation. This decision, on a long-debated issue, clarifies that if the 1995 CSA is to deal with negative interest, it must be amended to expressly do so. For those market participants with legacy transactions who have been in negotiations on the subject for years, this judgment may crystallise a position, with imminent P&L impact as disputed interest positions on cash collateral are resolved. For future transactions, it should encourage parties to either follow the 2014 Protocol or otherwise comprehensively document their intentions with respect to negative rates.


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

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions