Template:Sovereign immunity and closeout

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Sovereign immunity and close-out netting

Does the fact that a counterparty may have, or may claim, sovereign immunity from legal proceedings before a foreign court (or its own courts, for that matter) invalidate a close-out netting clause?

We think not: the close-out mechanism does not require the intervention of any court to work: it is a self-help remedy. You terminate, net off and walk away.[1] To the contrary, it would only come before a court were the Defaulting Party to apply to the court to challenge its exercise. And you can’t have it both ways: a sovereign immunity right only avails you if you stay away from court. The moment Queenie puts the matter before a court she submits to the court and, Q.E.D., waives her immunity. Sorry, Your Majesty: I don’t make the rules.

  1. ↑ Only if you are still owed money might you seek a court’s assistance, but that is post netting debt recovery, when you were still owed money after netting had worked its wristy magic.
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