Summary 

The recent case of NatWest Market NV, NatWest Markets Plc v CMIS Nederland BV, CMIS Investments BV [2025] EWHC 37 considered two questions in relation to instruments described as "indemnities": (1) when a sum payable under such an instrument was payable, where payment of such obligation had been deferred and (2) whether the instrument was in fact a guarantee or an indemnity. The court's analysis of how to determine the second question provides a useful rehearsal of the law and principles in this area. 

Fact pattern 

The question arose in the context of a mortgage receivables securitisation; part of a series of seven securitisations used to fund the mortgage business of CMIS Nederland BV and CMIS IBV (collectively CMIS) and in particular mortgages originated by CMIS Nederland BV. The mortgage receivables for each securitisation were sold and assigned to certain SPVs by the entities who had originally provided the residential mortgage loans to which the receivables related. This structure was typical and enabled the SPVs to hold the mortgage receivables separately from CMIS and off CMIS's balance sheet. For each securitisation, the relevant SPV and NatWest Market NV and NatWest Markets Plc (NWM) entered into swaps pursuant to the 1992 ISDA Master Agreement (Multi-Currency-Cross Border) and Schedule, with the bespoke terms of each swap confirmed in a confirmation. The structure of the securitisations was very standard, other than with regard certain deeds that were entered into between NWM and CMIS pursuant to which the credit risk of a payment shortfall by an SPV was transferred from NWM to CMIS (the Deeds). NWM sought payment from CMIS of circa EUR155 million under the Deeds. 

The terms of the Deeds involved the agreement by CMIS to:

• pay on demand to NWM "indemnifiable amounts" due but unpaid by the SPVs under the swaps
• be primary obligors for such amounts provided that they would have "the same benefits, protections and defences at law" that were available to the issuer, and that payment pursuant to the Deeds would discharge the issuer's obligation to pay corresponding amounts under the ISDA Master Agreement.

CMIS counterclaimed for declaratory relief and denied liability under the Deeds, arguing that (1) the Deeds were guarantees rather than true indemnities and the principle of co-extensiveness applied to them and defeated the claims and (2) the SPVs had the benefit of payment deferral provisions under the terms of the ISDA Master Agreements until the first payment date on which the SPV had sufficient funds available to pay, and on that basis the sums under the Deeds were not 'due'. 

Decision

Dealing with the two points asserted by CMIS, it was held that:

• The payment obligations of CMIS arose on the date the sums were originally due, and not the deferred payment date. There was no express language which suggested the accrual of the debt was deferred, merely its payment.
• The language of the Deeds clearly indicated they were intended to impose a primary payment obligation on CMIS, and therefore the principle of co-extensiveness did not apply to them. The court acknowledged the differing natures of guarantee and indemnity obligations, noting a guarantee is a secondary obligation pursuant to which there is no liability until the default and liability of the borrower is established, and by contrast an indemnity is a standalone primary obligation which does not depend on the existence of any other obligation of any other obligor. 

Guarantee/indemnity analysis 

The parties agreed that the decision in Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd [2011] 2 All ER (Comm) 307 provided a useful summary of the principles, namely:

• A contract of suretyship may contain a range of obligations, falling into two broad categories - guarantee and indemnity obligations - and whether a particular contract is of one kind or the other, or indeed a combination of the two, turns on the construction of the words used. 
• It is important not to confuse the label used by the parties with the substance of the obligation. Labels may or may not be indicative of what the parties intended. The substance of an obligation is to be identified in accordance with normal principles of construction, and by looking at the instrument as a whole without any preconceptions as to its nature.
• The essential characteristic of an indemnity obligation is that it is not a secondary obligation but imposes a primary payment obligation on the giver of the indemnity.
• A contract of guarantee, in the true sense, is a contract whereby the guarantor promises the creditor to be responsible for the due performance by the principal debtor of its existing or future obligations to the creditor if the principal debtor fails to perform (any of) them. The liability of the guarantor is ancillary or secondary to that of the principal debtor, who remains liable to the creditor. 
• The principle of co-extensiveness means the guarantor is generally only liable to the same extent that the principal is liable to the creditor.
• A contract containing a preservation of liability provision (for circumstances where a guarantor would otherwise be discharged) usually indicates it is a guarantee, on the basis such provision would be unnecessary in an indemnity.
• A provision stating that the surety is to be liable in circumstances where the principal has ceased to be liable may indicate either a guarantee (because the provision would be unnecessary in an indemnity) or an indemnity (because it clarifies that the liability of the surety is intended to be independent of that of the principal).

Court's conclusions 

The court considered all of the arguments and ultimately determined that the obligations of CMIS within the Deeds were indemnities, stating the following points were relevant to that decision: 

• The parties were experienced in securitisation structures, and had been advised by law firms well experienced in drafting the documentation used in such a structure, and well aware of the differences between guarantees and indemnities and the effect of primary obligation wording.
• The verb guarantee and the noun guarantor did not appear anywhere in the documents whereas the words indemnity and indemnifiable amounts did.
• The payment obligations within the deeds were properly categorised as primary payment obligations and had the parties intended them to be guarantee obligations, they would have been drafted in a completely different way. It was acknowledged that sometimes primary obligor wording is used in guarantees, where the intention is that the document creates a guarantee, but in this case the use of the term "primary obligor" was clearly intended to create a primary obligation. 
• There was wording used within the Deeds that would be more common in a guarantee but this was explained as belt and braces drafting. 

Commentary 

• Contracts of guarantee and indemnity perform similar commercial functions, namely to provide alternative recourse and compensation to a creditor where a third party fails to perform its obligation/s. There are, however important distinctions between the two in terms of the type of obligation created, the extent of liability assumed, the criteria required to establish liability and the effect of changes to the underlying obligation that the indemnity or guarantee supports.
• Principles of construction will be applied to determine whether a contract is in fact a guarantee or an indemnity. The way the document is described may provide some indication as the type of obligation that is intended to be created, but the substance of the contract will be the overriding factor to determine its characterisation. It is important that the parties involved in a finance transaction understand what type of obligation they are seeking to create, and that they draft accordingly. 
• The LMA's wording within its syndicated loan facilities is market standard and provides a hybrid guarantee and indemnity, the legal effect of which is well understood. When putting in place more bespoke guarantees or indemnities, the principles outlined in this case are useful to bear in mind as is the approach of the court in terms of indicating how a court may analyse such a document. 
• Aside from the guarantee/indemnity point, the clarification by the court in this case that a party can claim against an indemnifier as from the original payment date, despite subsequent contractual deferral arrangements, is a welcome decision for finance parties. 

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Banking and Finance team in London.