NatWest Market NV & Anor v CMIS Nederland BV & Anor

A deed described as an indemnity may impose a primary payment obligation even where payment is triggered by another party’s default. Characterisation depends on the substance of the instrument construed as a whole, not its label alone. The co-extensiveness principle applies to guarantees, not indemnities, and is subject to the true construction of the contract. A contractual provision deferring payment does not necessarily defer the underlying debt. Where the agreement distinguishes the accrual of debt from the obligation to pay, an amount may be due because it has accrued, although payment is deferred. Clear wording is required before a surety’s liability is limited by protections available to the principal debtor. On the proper construction of these agreements, the indemnifier remained liable for accrued but unpaid amounts despite the issuer’s payment-deferral and limited-recourse provisions.

NatWest Markets NV and NatWest Markets plc claimed substantial sums from CMIS Nederland BV and CMIS Investments BV under seven deeds concerning swap liabilities arising from mortgage-backed securitisations. The relevant securitisation issuers were bankruptcy-remote special-purpose vehicles. Their swap agreements deferred payment of subordinated amounts when the issuers lacked sufficient funds, and most also contained limited-recourse provisions.

CMIS argued that the deeds were guarantees, that the co-extensiveness principle applied, and that the amounts were not due until the issuers could pay. It alternatively relied on the issuer protections. The central issues were the character of the deeds, the meaning of “due”, and whether CMIS could invoke those protections.

1. Characterisation. The deeds were contracts of indemnity, not guarantees. The court construed the instruments and securitisation documents as a whole. The title and repeated use of indemnity language were significant indicators in documents drafted by experienced lawyers, although not conclusive. Clauses 2.1(i) to (iii) created on-demand primary obligations, and clause 2.1(iv) reinforced CMIS’s status as primary obligor.
2. The phrase giving CMIS the same benefits, protections and defences at law as the issuer did not extend the contractual payment-deferral or limited-recourse provisions to CMIS. Read in context, those words concerned legal grounds on which the issuer had no liability, such as a void or discharged obligation. They could not contradict the express primary obligation.
3. Because the deeds were indemnities, the co-extensiveness principle did not apply. In any event, that principle is not absolute and depends on the true construction of the relevant contract.
4. Meaning of “due”. The payment-deferral provisions deferred payment, not the accrual of the underlying debt. The language focused on payment and did not expressly postpone debt accrual. Interest at the default rate also presupposed an accrued and outstanding debt. In clause 2.1(i) of the deeds, “due” meant accrued due and owing, whether or not payment had been deferred.
5. The same construction applied to Securitisation 3. Its reference to the next quarterly payment date permitted repeated deferral until the issuer had sufficient funds.
6. CMIS therefore could not rely on the payment-deferral or limited-recourse provisions. The claimed amounts were EMAC Indemnifiable Amounts due under the master agreements and payable by CMIS. The claims succeeded in the amounts stated in paragraph 108; CMIS’s counterclaim failed. The parties were directed to agree any necessary declarations and consequential order, with unresolved matters, including costs and any permission-to-appeal application, to be dealt with subsequently.