Summary judgment granted in latest Italian swaps case


On 27 September 2022, the English High Court granted summary judgment and declaratory relief in favour of the bank Dexia Crediop SpA ("Dexia") on a number of issues arising in its claim against the Italian province of Pesaro e Urbino ("Pesaro"). In bringing its claim, Dexia has sought declarations regarding the validity and enforceability of interest rate swaps executed between the parties in 2003 and 2005.

This is the latest in a steady stream of similar cases in recent years arising out of interest rate swaps executed by Italian public bodies shortly before the financial crisis of 2007-2008. These derivative transactions typically utilised Cross Border ISDA Master documentation which provided for English governing law and jurisdiction.  Amongst the crop of ensuing English court decisions, Dexia v Pesaro is notable for being the first case in which extensive declaratory relief has been granted by way of summary judgment.

Issues for the court's consideration
  1. Governing law: What was the governing law of the transactions?

  2. Compliance with Italian law: Did the execution, delivery and performance of the transaction documents violate or conflict with any laws or regulations applicable to Pesaro, including Italian laws?

  3. Validity of the transactions: Were the transactions valid, legal and binding?
Approach to summary judgment applications

Dexia elected to apply for summary judgment, which required the court to consider the merits of its case, rather than for default judgment for the reason of Pesaro not having filed a defence. In circumstances where Pesaro had commenced separate proceedings in the Italian courts in June 2021 in which it sought to unwind or set aside the transactions, Dexia no doubt had an eye to the benefit of being able to place a favourable English court decision, which addressed the merits of the parties' respective positions, before the Italian court.

In its ruling, the court noted that it had had regard to a number of principles applicable to summary judgment applications that are well established in English case law, including:

  • The court should consider whether Pesaro had a realistic, as opposed to a fanciful, prospect of successfully defending the relevant issues. A realistic prospect of success is one which "carries some degree of conviction"; Pesaro's defence must be more than merely arguable in order to defeat the application.

  • The court should not conduct a mini trial.

  • The court should consider not only the evidence placed before it, but also any evidence that could reasonably be expected to be available at trial. In this regard, although Pesaro took no substantive active part in the English proceedings, the court considered the case that it put forward in the parallel Italian proceedings.

  • If there were reasonable grounds to believe that further investigation into the facts would add to or alter the evidence available so as to affect the outcome of the case, an order granting summary judgment would not be appropriate.

  • Where Dexia's application gave rise to a short point of law or construction and the court considered that it had before it all of the evidence necessary to decide that question, it should proceed to make that determination.
Outcome of the application
  1. Governing law: The court held that the transactions were "plainly" governed by English law in accordance with Article 3(1) of the Rome Convention, in circumstances where English law was the parties' express choice of governing law as set out in the ISDA Master Agreement and accompanying Schedule. The court dismissed arguments made by Pesaro in the related Italian proceedings that a small number of references made to certain provisions of Italian law displaced the express choice of English law. Further, the court did not consider that mandatory rules of Italian law could apply under Article 3(3) of the Rome Convention, given the international nature of the Cross Border ISDA documentation underpinning the transactions.

  2. Compliance with Italian law: Save for one exception (in respect of which the court was not prepared to grant summary judgment due to a conflict of evidence which should be addressed at trial), the court concluded that there was no real prospect of Pesaro successfully arguing that the execution, delivery and performance of the transaction documents violated or conflicted with relevant Italian laws and regulations.

    The court's determination of these points was assisted by expert evidence relied upon by Dexia, which the court permitted on the basis that, inter alia, it was proportionate and the court would benefit from the assistance of this evidence. The court also had the benefit of, and relied upon, the recent Commercial Court judgment in Deutsche Bank AG Ltd v Comune di Busto Arsizio [2021] EWHC 2706, which had heard and ruled upon similar arguments at trial.

    In reaching its decision, the court had regard to Pesaro's reliance (in the Italian proceedings) upon the important Italian Supreme Court decision in Cattolica. That ruling held, inter alia, that derivative transactions that either: (i) provided for an upfront payment, and/or (ii) extinguished or modified existing loans, constituted indebtedness that violated certain Italian laws and regulations and that required certain approvals in order to be considered valid. However, the court determined that the transactions executed between Dexia and Pesaro did not involve these elements, therefore the relevant Italian statutory provisions were not engaged.

  3. Validity: The court held that Pesaro did not lack the capacity, as a matter of Italian law, to enter into and perform the swaps. The appropriate approvals for the transactions had been granted and, in respect of other grounds relied upon by Pesaro, the court did not consider that those deprived Pesaro of the capacity to enter into the transactions even if Pesaro's arguments were supportable. Accordingly, the transactions represented valid, legal and binding obligations under English law.

    The court observed that it had reached its conclusions on the evidence before it and in the absence of contradictory evidence. Furthermore, the court did not consider that Pesaro might put forward such contradictory evidence in the future. Given that there was no other compelling reason for the issues to be disposed of at trial, summary judgment was given in Dexia's favour and the associated declarations granted.
Concluding remarks

This latest judgment in a line of English court decisions relating to interest rate swaps executed by Italian public bodies further bolsters the position of the banks in their quest to have these transactions upheld. Dexia is now able to place this favourable decision before the Italian court, and other Italian provinces now have further reason to pause to consider before making a challenge to the validity and enforceability of their own derivative instruments.


Dexia Crediop SpA v Provincia di Pesaro e Urbino [2022] EWHC 2410 (Comm)

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