Analysis of the legal issue on the anticipatory cancellation clause based on the judgments of the Spanish Supreme Court dated on November 15th 2012, February 17th 2014 and December 3rd 2015

Abstract

Swaps usually have certain duration in time. The voluntary termination before its expiration date involves the cancellation of a position that can cause a cost or benefit to the party who suffers the cancellation. For that reason swaps often contain a provision that sets forth the anticipatory termination, establishing that cancellation is carried out at market value, which may imply a cost for the party who wants to cancel the contract. The current drastic drop in inflation and interest rates has led to much litigation on swaps due to the application of the said clause.

This article analyses the doctrine contained in the judgments of the Spanish Supreme Court of November 15th 2012, February 17th 2014, December 3rd 2015, as well as other judgments rendered on this topic. Although these judgments do not refer to the legality or validity of these provisions, some conclusions can be inferred from them. The first one is that the mentioned clauses should clearly identify the circumstances under which the bank may charge a cancellation fee to the customer, as well as the method to calculate the said fee (Spanish Supreme Court judgment dated November 15th 2012).

Furthermore, it is required to provide a generic approximate reference that may enable the client to have an idea on the cancellation cost and the corresponding risk that is assumed (Spanish Supreme Court judgment issued on September 15th 2015).

By the same token, it is also required to inform clearly and correctly on the method to calculate the cancellation cost (Spanish Supreme Court judgment rendered on November 20th 2015).

The second conclusion is that when the contract is drafted by the bank, (which is quite frequent), the referred clause can be interpreted favorably to the client, allowing the termination without any charge of a cancellation fee as a consequence of the interpretation principle contra proferentem established in article 1288 of the Spanish Civil Code, when it is not clearly specified the cases under which the said fee can be charged (Spanish Supreme Court judgment dated November 15th 2012).

The third conclusion is that there are inconsistent judgments on the issue whether the provision of anticipatory termination is an essential element that entitles the parties to bring an action for declaring a mistake in the formation of the contract. The judgment rendered on February 17th 2014 deems that it the is not an essential element and the judgment issued on December 3rd 2015 and other judgments reach the opposite conclusion.