Deutsche Bank and Dexia v Provincia di Brescia [2024] EWHC 2967 (Ch)
On 20 November 2024, Mr Justice Hildyard delivered judgment following the trial of jointly case managed claims in the Financial List brought by Deutsche Bank and Dexia against Provincia di Brescia.
The judgment represents a significant development in the long-running series of disputes between banks and Italian public authorities regarding interest rate swaps and other derivative instruments entered into prior to the global financial crisis, which the public authorities have sought to avoid by relying on principles of Italian law said to go to capacity, authority or material validity. Importantly, it is the first decision considering attempts by Italian public authorities to set aside settlement agreements that were entered into compromising earlier disputes about these transactions, relying on the landmark Italian Supreme Court decision in Municipality of Cattolica.
The trial concerned a package of interest rate hedging transactions entered into between the banks and Brescia on 28 June and 20 December 2006 in relation to two floating rate bond issuances of c. €105 million and c. €55 million. The transactions were performed for nearly 10 years without any suggestion of an issue as to their validity or enforceability, before Brescia indicated in November 2015 that it intended to seek suspension or cancellation of the Transactions. This led to proceedings in England and Italy that were ultimately compromised by Settlement Agreements entered into in September 2017. The settlement agreements were governed by Italian law but had no separate jurisdiction cause.
In May 2020, the Joint Sections of the Italian Supreme Court handed down the Cattolica decision, which provided renewed impetus for Italian public authorities to challenge derivative transactions. In March 2021, Brescia commenced proceedings against the banks in the Court of Rome seeking to challenge the Settlement Agreements and the Transactions. The banks commenced proceedings in England seeking declaratory relief to meet Brescia’s arguments in Italy and to uphold the Settlement Agreements and the Transactions.
Brescia’s jurisdiction challenges in England were dismissed by Knowles J and Butcher J in earlier judgments covered in an earlier One Essex Court news update.
Following a two-day trial in June 2024 (in which Brescia refused to participate), Hildyard J considered and rejected the Italian law arguments put forward by Brescia in Italy.
As regards jurisdiction to grant the declaratory relief sought by the banks, the Judge considered the jurisdiction clause in the ISDA Master Agreements to be in very wide terms, amply broad enough to extend to capture any dispute about the validity of the Transactions as well as the effect of the Italian law-governed Settlement Agreements.
On the merits of Brescia’s claims in Italy, Hildyard J found that Brescia did have capacity to enter into the transactions and the Settlement Agreements as a matter of Italian law, relying on the Court of Appeal’s findings in Banca Intesa Sanpaolo SpA and Dexia Credit Local SA v Comune di Venezia [2023] EWCA Civ 1482 and other English decisions in respect of which the banks had submitted hearsay notices. Applying the test identified by the Court of Appeal in Venezia, the Judge held that the transactions were not speculative, but rather for hedging purposes, and did not involve any unconstitutional resort to indebtedness.
The Court also rejected Brescia’s arguments that the transactions and the Settlement Agreements had not been properly authorised as a matter of Italian law, which applied to the question of actual authority. Further, the Judge held that there was, in any event, ostensible authority and ratification as a matter of English law, which applied to both of those questions.
As to whether the transactions and the Settlement Agreements were valid, the Court rejected Brescia’s Italian law arguments on the basis that the transactions were governed by English law and there was no basis for suggesting that provisions of Italian law should apply pursuant to Article 3(3) of the Rome Convention (given the transactions had international elements). In any case, Hildyard J went on to consider and rejected the Italian law arguments advanced by Brescia in the Italian proceedings, before granting the banks declaratory relief upholding both sets of contracts, including declarations as to compliance with the key Italian laws.
Andrew Lodder acted for the banks (with Richard Handyside KC), instructed by Allen & Overy LLP (for Deutsche Bank) and Bonelli Erede Lombardi Pappalardo LLP (for Dexia).
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