Party Autonomy in International Property Law - Peace Palace Library

D. Assignment; Financial Instruments; Insolvency Law
In conclusion then, parties to a credit default swap that want to enter into
a collateral arrangement would be unlikely to run into too much trouble in
terms of restrictions to their party autonomy. They can choose English or
New York law to govern their arrangement and standard documentation is
readily available. The contracts can be signed and the collateral can subsequently
be provided in accordance with the terms of these contracts.
There is, however, a separate problem in this scenario. Is the actual provision
of collateral not a matter of property law rather than contract law,
contrary to what has been assumed up until now in this chapter? Should
there not be a proprietary transfer of collateral which is mandatorily governed
by Dutch law? And does this not form a serious restriction of the
parties’ autonomy?
In order to actually post the collateral, the collateral provider (Rock Solid
Bank) will have to transfer an amount of cash to Alpha Bank to cover
the risk of non-payment under the credit default swap. This will take
the form of a bank transfer. There is no property law involved because
bank transfers are a matter of contract law. Rock Solid Bank will simply
instruct its bank to transfer an amount of funds to Alpha Bank However,
the word ‘transfer’ is in fact misleading here. An ordinary bank transfer
takes the form of a reduction of the balance held by the ‘transferor’ with
its own bank followed by an increase in the balance of the ‘transferee’.
For example, if I transfer 100 EUR to my friend Paul, the balance with
my bank will be reduced by EUR 100 and Paul’s balance with his bank
will be increased by the same amount. There is no actual transfer or other
property law aspect involved in the entire transaction. 31 The parties (Alpha
Bank and Rock Solid Bank in our example) will maintain accounts
with one another in which they record the amount of collateral that has
been provided in accordance with the credit support annex. 32 The actual
transfers are made in accordance with the instructions of the transferee
or transferor as applicable by transfer into one or more bank accounts
specified by the recipient. 33
31
See, for English law, Charles Proctor and Roy Goode, Goode on payment obligations
in commercial and financial transactions, 2 nd edition, Sweet & Maxwell,
London 2009, § 4-20, and Hudson 2009, § 2-10; and for Dutch law, R.J.
Abendroth and R.M. Wibier, ‘Giraal betalingsverkeer en het faillissement van
de rekeninghouder’, WPNR 6752, 2008, pp. 324-332.
32
Hudson 2009, § 45-43.
33
ISDA Credit Support Annex, § 3(a).
238
Reinout M. Wibier
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