Commercial Court grants summary judgment to banks in latest Italian swaps claims
Banca Nazionale del Lavoro, Commerzbank and Dexia Credit Local v Provincia di Catanzaro  EWHC 3309 (Comm)
On 20 December 2023, Cockerill J granted summary judgment in jointly case managed claims in the Financial List brought by BNL, Commerzbank and Dexia against Provincia di Catanzaro. The judgment was handed down in final form on 12 January 2024.
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 following the recent Court of Appeal judgment in Banca Intesa Sanpaolo SpA and Dexia Credit Local SA v Comune di Venezia  EWCA Civ 1482, which overturned an earlier decision of Foxton J refusing relief to the banks on the basis that the swaps transactions in that case were speculative rather than for the purposes of hedging.
The applications against Catanzaro concerned a package of interest rate hedging transactions entered into between each of the banks and Catanzaro on 1 June 2007, as part of a restructuring of Catanzaro’s loan portfolio. The transactions were performed for 14 years and net payments of c. €27 million were made to Catanzaro by the banks. In December 2021, however, Catanzaro ceased making payments without any notice or explanation. In January 2022 it issued an administrative decision purporting to annul the transactions, on the basis of Italian law arguments as to jurisdiction, capacity, authority and validity.
The banks sought declaratory relief to meet such arguments, in terms that largely tracked the wording of the ISDA transaction documents, together with orders for payment of the outstanding sums owed by Catanzaro.
Cockerill J considered and rejected the Italian law arguments identified by Catanzaro in support of its administrative decision purporting to annul the swap transactions.
In relation to jurisdiction, the Judge held that the English Courts had jurisdiction pursuant to the exclusive English jurisdiction clause in the transaction documents and, further, that the Italian Courts do not have jurisdiction over the subject matter of the banks’ claims as a matter of Italian law.
Cockerill J rejected the contention that Catanzaro did not have capacity to enter into the transactions as a matter of Italian law, relying on the findings in Venezia as well as Deutsche Bank AG London v Comune di Busto Arsizio  EWHC 2706 (Comm);  EWHC 219 (Comm) and Dexia Crediop SpA v Provincia di Pesaro e Urbino  EWHC 2410 (Comm), 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 Catanzaro had no real prospect of establishing that the transactions were speculative rather than for the purpose of hedging, or that the transactions involved any unconstitutional resort to indebtedness otherwise than as a means to fund investments.
The Court also rejected Catanzaro’s arguments that the transactions 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.
Finally, the Court held that Catanzaro had no real prospect of success as regards its arguments that the transactions were invalid as a matter of Italian law, 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, Cockerill J found that the Italian law arguments identified by Catanzaro had no real prospect of success, even if Italian law had applied.
The banks’ success in these summary judgment applications will be of particular interest to other banks in disputes with Italian public authorities and more widely, as it shows that, in appropriate cases, the Commercial Court is willing to engage with complex questions of foreign law on an interlocutory basis rather than at trial.
Sonia Tolaney KC and Andrew Lodder acted for the banks, instructed by Allen & Overy LLP, Cleary Gottlieb Steen & Hamilton LLP and Bonelli Erede Lombardi Pappalardo LLP.View Judgment