New Swiss Leading Case concerning Negative Interest Rates

New Swiss Leading Case concerning Negative Interest Rates

In May 2019, the Swiss Federal Tribunal (SFT) uploaded to its website a highly interesting new leading case, dated 7 May 2019 (case reference: 4A_596/2018), in which it, essentially, had to decide whether or not a lender would have to make payments to the borrower instead of receiving interest at a variable rate because of the negative interest rate environment.

In the relevant case, the parties had, in 2006, concluded a loan agreement under Swiss law (art. 312 of the Swiss Code of Obligations), under which the lender was to make available to the borrower the sum of CHF 100m, the loan bearing interest at the six-month LIBOR-CHF rate plus a fixed rate (margin) of 0.0375% per annum, i.e., an indexed variable rate plus a fixed margin (the Interest Rate Clause).

The loan agreement in question did not provide for any ceiling or floor with regard to the application of the mentioned Interest Rate Clause. The agreement did neither contain any provision on the consequences of a possible drop of the mentioned six-month LIBOR-CHF rate into negative territory, nor on a possible guarantee of the 0.0375% margin agreed in favour of the lender.

Lacking specific contractual clauses determining how the Interest Rate Clause shall operate in a negative interest rate environment, the SFT had to interpret the relevant clause in light of the circumstances of the particular matter. In this regard, the SFT in essence concluded, in concurrence with the first and second instance courts, that it could not be assumed in good faith that the parties to the relevant loan agreement had, at the time of its conclusion in 2006, intended that in the event of a significant drop of the six-month LIBOR-CHF rate into negative territory (i.e., a drop exceeding the margin), it would be for the lender to pay negative interest to the borrower (see, in particular, consideration 3.5.4 of the precedent).

In the words of the SFT (Id.): “Dans ces circonstances, l’interprétation objective du contrat ne permet pas de retenir, selon le sens qui pouvait lui être donné de bonne foi au moment de sa conclusion, qu’en cas d’évolution du taux LIBOR-CHF à six mois en territoire négatif, ce serait le cas échéant à la défenderesse de payer à la demanderesse des intérêts négatifs.

In this new precedent, the SFT also referred to the issue whether or not, in relation to the relevant Interest Rate Clause, the lender shall in any event receive the margin, irrespective of the importance of the negative variable interest rate, or whether, to the contrary, the margin would drop to 0 in the event of a more important negative variable interest rate. The SFT had, however, not to make a determination regarding this issue, given that the lender, as the defendant in the proceedings at issue, had not filed a counterclaim for payment of the margin.

It can be assumed that this new precedent will be intensively commented on in the doctrine. At this point, I would like to highlight just three aspects. First, that the interpretation of a contract under Swiss law naturally always depends on all concrete circumstances of the individual case. It would, therefore, be inadmissible to draw automatic conclusions from this new precedent with regard to other credit agreements. Second, that the conclusions drawn by the SFT seem plausible to me, subject to the forgoing qualification. Under normal circumstances, parties to a credit agreement concluded in 2006 would not have intended in good faith that the borrower would not have to pay interest to the lender, but that, to the contrary, the lender would have to pay a fee to the borrower. Third, all lenders today are, of course, advised to explicitly regulate in their loan agreements the effect of negative interest rates.

Philipp H. Haberbeck, Zurich; this article was first published on LinkedIn on 29 May 2019 (

The information contained in this post is for general informational purposes only and is not intended to constitute legal advice. Readers of this post should not take any actions or decisions without seeking specific legal advice.




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