Key takeaways
Exclusive jurisdiction clause
Will be upheld and damages awarded for breach.
ISDA Master Agreement
Multi-Currency Cross-Border version may protect against mandatory foreign laws.
Italian swaps litigation
English courts dismissing claims of invalidity.
Dexia S.A. -v- Comune di Torino [2026] EWHC 1401 (Comm)
These proceedings follow on from a number of other cases over the last decade or so concerning derivatives on standard ISDA terms, governed by English law and subject to exclusive English jurisdiction, in which Italian local authorities sought to challenge the financial institutions’ contractual rights by relying on Italian law arguments as to capacity, authority, validity and/or breaches of mandatory laws.
In this case, the English Court dismissed the argument by an Italian municipal authority, Comune di Torino, that interest rate swap transactions it had entered into were null and void. The decision reflects the outcome of many other similar disputes forming part of what has been referred to collectively as the Italian swaps litigation, in which the English Court has dismissed a number of attempts to unravel such swaps after they proved to be financially disadvantageous for the investors largely as a result of the 2008 financial crisis.
The background facts
Dexia S.A. (Dexia) is a French banking corporation that succeeded to the rights and obligations of its former subsidiary in Italy, Dexia Crediop SpA, previously Crediop SpA (Crediop). Comune di Torino (Torino) is the municipal authority of Turin, Italy.
The dispute related to certain interest rate swap transactions (Transactions) concluded between Crediop and Torino in 2001, 2003 and 2006, with the 2006 transactions (2006 Transactions) ultimately replacing the earlier ones.
The Transactions related to Torino's borrowing, and more particularly the cost of its borrowing, under municipal bonds issued by it in 1998 (BOCs). Torino's aggregate principal indebtedness under the BOCs as issued was more than €400 million. The BOCs had been issued to raise funds for proper purposes under Italian law, including infrastructure investments related to hosting the 2006 Winter Olympics.
The Transactions were concluded pursuant to, and as individual transactions under and governed by, a 1992 ISDA Master Agreement (Multicurrency - Cross Border) signed by Torino and Crediop on 18 April 2001 (Master Agreement), which incorporated a bespoke Schedule also signed by Torino and Crediop on 18 April 2001 (Schedule). Individual transaction confirmations were then issued under the Master Agreement for each of the Transactions (Confirmations). By Section 1(c) of the Master Agreement, all those documents together formed a single contract. The Court referred to the documents collectively as the 'Transaction Documents', and to the single contract they created, following the definition in Section 1(c) of the Master Agreement, as 'the Agreement'.
By the time the 2006 Transactions were concluded, the principal debt outstanding under the BOCs was c.€321 million. On legal advice, Torino chose to hedge its debt portfolio exposure to the risk of rising interest rates. The Transactions were sought and executed as part of implementing that debt cost strategy. However, due to the global financial crisis of 2008/2009 and the prolonged period of very low prevailing interest rates that followed, Torino's cost of debt on the indebtedness linked to the Transactions was very substantially greater than it would have been if it had not decided to hedge against rising rates.
Torino performed its obligations under the BOCs and the Transactions throughout but, in June 2024, it brought a claim against Dexia in the Tribunale di Torino (Italian proceedings), alleging that the 2006 Transactions were null and void. It sought damages and/or declaratory relief.
Dexia commenced English Court proceedings in October 2024, pursuant to which it obtained a declaration that the claims in the Italian proceedings were brought in breach of the exclusive English jurisdiction clause in s.13(b) of the Master Agreement.
For tactical reasons, Torino only participated to a very limited extent in the English proceedings and did not appear, nor was it represented, at the trial. Nonetheless, the Court proceeded in Torino’s absence because Torino was well aware of the English proceedings and had been served with all the relevant documents. It was well able to afford legal representation but had made a deliberate decision not to attend or to participate. Instead, it applied to the Italian Supreme Court for a ruling on jurisdiction. In the meantime, the Italian proceedings were stayed.
The Commercial Court decision
The Court considered the arguments that had been put forward by Torino in the Italian proceedings. In summary, it found as follows:
Capacity and validity
Torino’s capacity to enter into the Transactions was governed by Italian law. On the facts, those who entered into the Transactions on Torino’s behalf had the requisite authority to do so.
On capacity:
The Transactions were not speculative and were, therefore, valid. They were entered into expressly to reduce risk and there was a perfect financial and technical correlation between the swaps and the underlying transaction.
The Transactions did not constitute impermissible indebtedness under Italian statute.
The Transactions complied with the applicable Italian laws and regulations.
Torino was a professional investor under the relevant Italian statute and, therefore, certain investor protection rules did not apply.
If Torino had capacity to enter into the Transactions, the material validity of those Transactions was governed by English law, as the putative governing law of the Transactions, pursuant to Article 3(1) of the Rome Convention. The Court found that, under English law, the Transactions were valid and binding.
As to mandatory rules of Italian law, these were displaced in this case by the international element of the Transactions, including that the ISDA Master Agreement chosen was the ’Multicurrency - Cross Border’ version rather than the ’Local Currency – single Jurisdiction Forum’ agreement. The Transactions were also the subject of two back-to-back hedges with Barclays Bank, one of which was subsequently novated to Goldman Sachs. Both these banks were foreign banks.
Advisory duties
Having considered expert evidence on Italian law, the Court found there was no advisory agreement between Dexia and Torino. Furthermore, the ISDA Master Agreement contained an entire agreement clause that precluded such a contention.
As a result, there was no breach of the alleged advisory duties under English law because they did not exist. Consequently, Torino’s claim for compensatory damages for breach of an advisory duty to equal in amount Torino’s loss in the amount of the interest differentials paid under the 2006 Transactions failed.
The Court concluded that Dexia should be granted a declaration that it was entitled to a contractual indemnity for Torino’s breach of the exclusive jurisdiction clause in the ISDA Master Agreement. However, as Dexia had not yet brought a damages claim in the English proceedings, it was not entitled to a declaration that it was entitled to an indemnity in respect of all loss or damage it sustained arising out of Torino’s breaches of the Transaction Documents.
Comment
Parties engaged in derivatives trading and using the ISDA Master Agreement will be interested to note that the use of the ’Multicurrency-Cross Border’ version in this case provided protection against the application of mandatory Italian laws and also that the English Court has upheld the exclusive English jurisdiction clause in the Master Agreement.
As to the Italian swaps litigation generally, it remains to be seen what is the outcome of parallel Italian proceedings in cases such as this one.
