Dexia Crédit Local SA v Patrimonio del Trentino SpA [2024] EWHC 2717 (Comm)
On 25 October 2024, Bryan J handed down judgment dismissing a jurisdiction challenge by Patrimonio del Trentino (PdT) in relation to Financial List proceedings brought by Dexia. The judgment will be of interest to practitioners in relation to the construction of jurisdiction clauses, the scope of the CPR 6.33(2B) gateway for service out without the Court’s permission and forum non conveniens arguments relying on the unforeseeable effects of Brexit. The judgment also provides guidance on the use of expert evidence in jurisdiction challenges and other interim applications.
The dispute is the latest in a long-running series of disputes between banks and Italian public authorities regarding interest rate swaps and other derivative instruments, which the public authorities have sought to avoid by relying on principles of Italian law said to go to their capacity to enter into such transactions. This case was, however, the first such case to deal with a joint-stock company owned by an Italian public authority and a derivative transaction entered into after 2008 (when a ban on derivatives is alleged to have come into force).
PdT’s jurisdiction application concerned a €32 million interest rate hedging transaction entered into between Dexia and PdT on 7 March 2011, as part of the financing for MUSE (the Science Museum of Trento). The transaction was entered into pursuant to an ISDA master agreement concluded five months earlier in October 2010. The swap was designed to ensure that annual grants from the Province of Trento to PdT would cover the costs of PdT’s underlying variable rate borrowing, by exchanging annual fixed rate payments received from the Province for variable rate payments from Dexia. The transaction was performed for 10 years prior to a complaint by PdT in February 2021, followed by Italian proceedings issued in September 2023. In November 2023, Dexia commenced English proceedings seeking declaratory relief to meet PdT’s arguments in the Italian proceedings, in terms that largely track the wording of the ISDA transaction documents.
Dexia served the English proceedings out of the jurisdiction without permission pursuant to CPR 6.33(2B) (“The Claimant may serve the claim form on the defendant out of the United Kingdom where … a contract contains a term to the effect that the court shall have jurisdiction to determine that claim”), relying on the jurisdiction clause in the ISDA Master Agreement. PdT challenged jurisdiction on the basis that the transaction was void under Italian law (because the derivative was allegedly speculative or contrary to the alleged ban on derivatives introduced in 2008) and the proceedings could not be served out under 6.33(2B) if the derivative transaction was void. Alternatively, it argued that the jurisdiction clause was non-exclusive and the English proceedings should be stayed on forum non conveniens grounds, notwithstanding a forum non conveniens waiver.
Bryan J considered and rejected all of PdT’s arguments.
In relation to the validity of the jurisdiction clause, the Judge held that PdT’s Italian law arguments could not affect the validity of the Master Agreement, which was entered into five months previously and was not part of one indivisible transaction with the subsequent derivative. PdT’s Italian law arguments could do no more than potentially invalidate the transaction, not the Master Agreement.
The Judge also rejected PdT’s argument that CPR 6.33(2B) permitted service out only for claims made pursuant to the contract containing the jurisdiction clause: the gateway extended to any claims caught by a jurisdiction clause in a contract between the parties. Dexia needed only to establish “a good arguable case that a contract exists that contains a jurisdiction clause that gives this Court jurisdiction to determine Dexia’s claim” (¶68).
The Judge went on to reject PdT’s Italian law arguments as well, finding that Dexia had a good arguable case that the rules on speculative derivatives did not apply to PdT, that the derivative was not speculative and that the alleged ban on derivatives did not apply to PdT.
The English Courts therefore had jurisdiction pursuant to the English jurisdiction clause in the Master Agreement.
As regards construction of the jurisdiction clause under English law, the ISDA jurisdiction clause in this case was a bespoke variation on the standard form pursuant to which the parties submitted to the “exclusive jurisdiction of the English courts” subject to a proviso that “notwithstanding the above and to the extent permitted by applicable law … the bringing of Proceedings before the English courts will not preclude the bringing of Proceedings before the Italian courts”. Bryan J construed this language against the background of the original Brussels Regulation in place when the Master Agreement was agreed, concluding that it was exclusive in favour of England, with the proviso referring to supportive proceedings and interim measures insofar as permitted by applicable law.
Bryan J also declined PdT’s stay application, which was advanced solely on the basis of its argument that the jurisdiction clause was non-exclusive. Noting that an application to stay on forum non conveniens grounds will ordinarily fail unless the factors relied upon were unforeseeable at the time of the agreement, the Court rejected PdT’s submissions that the unforeseeable effects of Brexit (in particular the possibility of parallel proceedings and greater difficulties enforcing English judgments in Italy) meant that England was not the forum non conveniens. These points did “not make Italy a more appropriate forum than England or vice-versa” (¶153).
Finally, PdT sought to rely on expert evidence of Italian law in support of its jurisdiction challenge without seeking prior permission to do so, electing instead to have its application determined at the hearing of the jurisdiction challenge itself. Dexia also sought to have its contingent cross-application to rely on expert evidence if PdT was given permission to do so determined at the jurisdiction hearing, although it submitted both applications should be dismissed as Italian law was irrelevant. The Court was critical of this approach and noted that applications for expert evidence at an interlocutory hearing should be determined in advance of the hearing of the relevant application, in accordance with the Commercial Court Guide.
PdT’s jurisdiction challenge was therefore dismissed, as were the expert permission applications. PdT was ordered to pay Dexia’s costs.
Andrew Lodder acted for Dexia, instructed by Cleary Gottlieb Steen & Hamilton LLP.
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