In the dispute over "negative interest rates" from old promissory note loans, the state of North Rhine-Westphalia has suffered a defeat before the Federal Court of Justice (BGH). On Tuesday, the eleventh civil senate rejected the plaintiff's appeal, which had demanded more than 160,000 euros in interest and legal fees from the cooperative DZ Hyp.

Marcus Jung

Editor in business.

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The term "interest" is not defined in the law, but is required by the private law system, according to the ruling of the banking senate in Karlsruhe. Accordingly, interest in the legal sense means the remuneration to be paid for the possibility of using temporarily provided capital, which is calculated on a time-dependent basis, but at the same time independent of profit and turnover.

Principle is not broken

"According to this definition, an interest rate – because it is a remuneration – cannot become negative," emphasized Jürgen Ellenberger, presiding judge of the eleventh civil senate. In the case of a loan agreement, the borrower remains the payer of the interest. This principle will not be reversed by negative interest rates, said Ellenberger.

In 2007, the state of North Rhine-Westphalia concluded five promissory note agreements with the legal predecessor of the mortgage bank, each worth 20 million euros. The maximum interest rate was 5 percent, and the calculation was also to be based on the fluctuating reference interest rate Euribor. The promissory note loan did not provide for a lower limit – at the time of closing, the negative development of the reference interest rate into a negative value was inconceivable. However, the generally unexpected happened from March 2016. The responsible Ministry of Finance in Düsseldorf went to court and was awarded the contribution in the first instance. The Düsseldorf Higher Regional Court overturned the ruling in December 2021, but allowed the appeal to the Federal Court of Justice.

The dismissal of the appeal had become apparent at the oral hearing in the morning. The Court of Appeal had rightly denied the right to negative interest, Ellenberger informed the parties in a preliminary assessment of the court. This was reached after interpreting the interest clause, which, from the objective point of view of the parties, also corresponds to the understanding of honest and reasonable contractual partners in their capacity as professional market participants. Otherwise, a "swap transaction" would have had to be concluded, Ellenberger turned to the plaintiff's lawyers.

Karlsruhe clarifies controversial issue

"The legal question of the treatment of negative interest rates in Germany has been clarified by the decision of the Federal Court of Justice in the underlying design of an interest rate formula," Jochen Weck, lawyer for the defeated state of North Rhine-Westphalia, said in writing. In his view, legal certainty has been created for comparable cases.

In addition to the legal dispute that has now been decided, the BGH has five similar appeals, including another case involving NRW, according to the dpa news agency. The Ministry of Finance of Baden-Württemberg is also currently conducting two lawsuits against various credit institutions in order to assert claims arising from negative interest rates in the state. This is evident from the state budget for 2022 (Az. XI ZR 544/21).