Deutsche Bank AG London & Anor v Provincia Di Brescia
[2024] EWHC 2967 (Ch)
Banca Intesa Sanpaolo SpA & Anor v Comune Di Venezia
13 December 2023
[2023] EWCA Civ 1482
Court of Appeal
Venezia made some complicated financial deals that later got challenged. A lower court said the deals were invalid. The appeals court disagreed, saying the deals were basically just a smart way to manage risk and therefore perfectly legal.
Key Facts
- •Two interest rate swap (IRS) transactions (the Transactions) were entered into in December 2007 between Banca Intesa Sanpaolo SPA and Dexia Credit Local SA (the Banks) and the Comune di Venezia (Venice).
- •The Transactions were subject to English law and jurisdiction.
- •The Transactions involved a restructuring of a pre-existing IRS between Venice and Bear Stearns, with the Banks taking over a portion of Bear Stearns's obligations.
- •The Transactions involved a negative mark-to-market (MTM) at inception, reflecting the cost to unwind the Bear Stearns swap.
- •Venice later claimed the Transactions were void due to lack of capacity under Italian law, arguing they were speculative and constituted indebtedness in breach of Article 119(6) of the Italian Constitution.
- •The Italian Supreme Court's decision in Banca Nazionale del Lavora SpA v Comune di Cattolica (2020) was a key factor in the lower court's decision.
Legal Principles
The characterisation of whether an issue of foreign law raises an issue of "capacity" or some other kind of challenge to the validity of a contract is a matter of English law.
Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579
The content of Italian law is to be ascertained by reference to the law in force when the Transactions were entered into.
Adams v National Bank of Greece [1961] AC 255
English courts must evaluate expert evidence of Italian law and predict the likely decision of the highest Italian court.
Dexia Crediop SpA v Comune di Prato [2017] EWCA Civ 428
A change of position defence may be available in English law even in cases of void contracts, particularly when both parties acted on a common understanding of binding obligations.
School Facility Management Ltd v Governing Body of Christ the King College [2020] EWHC 118 (Comm)
Under section 32(1)(c) of the Limitation Act 1980, time runs from when a claimant discovered, or could with reasonable diligence have discovered, a worthwhile restitutionary claim.
Test Claimants in the FII Group Litigation v Revenue and Customs Commissioners [2020] UKSC 47
In a restitution claim arising from a void contract, the applicable law is determined by the closest and most real connection.
Dicey, Morris & Collins on the Conflict of Laws (16th edition)
Outcomes
The Banks' appeal is allowed on Grounds 1 and 2.
The judge misanalyzed the Transactions by failing to recognize that the Bear Stearns swap was a valid hedging transaction. The rolling over of the negative MTM did not transform the subsequent swaps into speculative transactions. The judge incorrectly applied the CONSOB determination and relied on lower court decisions rather than predicting the decision of the Italian Supreme Court.
The other grounds of appeal and Venice's appeal are deemed academic.
These grounds are contingent upon the failure of Grounds 1 and 2 of the Banks' appeal.