Party Autonomy in International Property Law - Peace Palace Library

11. Financial Collateral Arrangements and Party Autonomy
As explained above, Rock Solid Bank’s bankruptcy trustee should be
bound by the limitations that have been contractually agreed by the parties
and the same would be true for the assignee of the account balance
and, for that matter, for third parties in general. Effectively the result
would be similar to a pledge of the account balance to Alpha Bank as the
account bank (a charge-back) without triggering the conceptual problems
that may arise in the case of a charge-back under English law. 64
As a matter of Dutch law, it should also be possible to use this method
of granting security over a cash deposit if the secured creditor is not the
account bank but a third party. Going back to our example, this would be
the situation if the parties have arranged for Rock Solid Bank to pledge
or charge a cash balance held by it with some other bank (e.g. Euroclear
Bank) that is not otherwise involved in the credit default swap and its collateralization.
Rock Solid Bank, the third party account bank (Euroclear
Bank) and Alpha Bank would then agree that the balance will be released
to the account-holder only if and to the extent that Rock Solid Bank has
paid its obligations under the credit default swap to Alpha Bank in full (or
if this contract has terminated in such a way that no future payment obligations
can be incurred). Moreover, the account bank would undertake to
release the balance to Alpha Bank if it has not been presented with proof
that such payment has taken place at a certain date. Rock Solid Bank’s
bankruptcy trustee or the assignee of the claim against the bank would
be bound by these arrangements for the reasons discussed above. This
method of using a bank deposit for security could be called a ‘contractual
approach’ because it relies entirely on contractual arrangement between
the account-holder, the account bank and the secured party.
This contractual approach to security is, it seems, just as robust as proprietary
security because third parties would be bound by these arrangements.
The most relevant third parties would of course be Rock Solid Bank’s
creditors, assignees and (potential) bankruptcy trustee. We have already
seen that these parties would simply step into the shoes of Rock Solid
Bank and thus would only be entitled to the contingent claim against the
account bank, as this has been shaped by the contractual arrangement
entered into by Rock Solid Bank.
The contractual approach to security shows strong similarities to the English
law concept of a ‘flawed asset’. This is a contractual structure whereby
64
Goode 1998, pp. 69-71. See also Goode-Gullifer 2008, § 3-12.
Reinout M. Wibier
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