Party Autonomy in International Property Law - Peace Palace Library

11. Financial Collateral Arrangements and Party Autonomy
The analysis given above means, in my view, that the parties are not restricted
in their freedom to give their collateral arrangement the contents
that they prefer. Party autonomy in cash collateral arrangements extends
very widely indeed due to the fact that the entire arrangement is based
on contract law, which generally offers far wider freedoms than property
law and, moreover, appears to contain no formal limitations, in terms of
substantive law, on these types of arrangements.
If there are no actual mandatory provisions that limit party autonomy in
the legal system with which the situation has ‘a close connection’ 34 the
question of whether it is possible to deviate from such (non-existing)
provisions automatically becomes moot. It may be useful to note that this
would also be true if there was no such thing as the Collateral Directive, at
least as a matter of Dutch law and probably also as a matter of English law.
In other words, the Collateral Directive was not needed to enable cash
collateral arrangements where the cash is ‘transferred’ to the collateral
taker because Dutch substantive law did not contain any rules limiting
party autonomy even before the Collateral Directive was implemented.
Even the provision prohibiting the transfer of assets for security reasons
(article 3:84(3) of the Dutch Civil Code) has never been relevant, because
cash ‘transfers’ by way of book entries are not actually transfers in
a legal sense.
11.3.3. Pledging a cash balance
If the cash collateral takes the form of a security right, the most common
approach, from a Dutch legal perspective, would be to pledge a cash balance.
Much of the same issues that were just discussed would also arise
in this scenario. The main question would again be whether Alpha Bank
and Rock Solid Bank would be able to choose English law (or New York
law) as the law applicable to their (contractual and proprietary) pledge
arrangement. ISDA has also developed a standard form document for
pledging cash, the Credit Support Deed, which is part of the ISDA Master
Agreement and is itself governed by English law.
The main difference from the posting cash collateral scenario is that when
the parties choose to create a security interest over a cash balance, it may
not be entirely possible to avoid the application of the mandatory provi-
34
Article 4(3) Rome I.
Reinout M. Wibier
239
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