Edited by: Dr. Eleonora Ebau, Research Fellow, Department of Law, UniTo.
Not infrequently, Italian municipalities and other local authorities have entered into financial derivative contracts with foreign banks, giving rise to a heated debate from both a substantive and procedural standpoint. On the substantive profiles of these contracts, the Commercial Court of London recently ruled in the litigation between Banca Intesa and Dexia and the Municipality of Venice.[1] The English Court declared the Venetian derivative null and void as speculative, aligning itself with the analysis carried out by the Joint Sections (Sezioni Unite) of the Supreme Court of Cassation in the case of the Municipality of Cattolica in the well-known judgment no. 8870 of 2020.[2] In that judgment, the Joint Sections had, among other things, sanctioned the prohibition for Italian entities to enter into speculative derivatives. Therefore, following the ruling of the London court, the prohibition on entering into speculative derivatives also applies to contracts governed by English law,[3] due to a lack of contractual capacity of the public entity (lack of capacity), which renders the contracts themselves null and void.[4] Regarding the procedural profiles, however, it should be noted that standard international contracts – drafted by the International Swaps and Derivatives Association Inc. (ISDA) and commonly signed by local authorities and foreign banks – provide for the jurisdiction of the English courts for all disputes directly or indirectly connected to the derivative.[5] The question that arises, therefore, is whether in active lawsuits brought by the Public Administration against a foreign legal entity, the Italian forum or the contractually agreed forum prevails, taking into account also the United Kingdom's exit from the European Union with Brexit.
Derivatives of Italian Local Authorities: Two Situations
Prelimonarily, it is necessary to distinguish between two different situations, namely whether the parties decide to confer exclusive jurisdiction or not to the English courts. In the event that exclusive jurisdiction is not conferred upon the English judge, the issue is easily resolvable. In such a case, the Public Administration will be able to bring its action also within the national territory, taking into account the internal rules of competence on the state forum (foro erariale) provided for under Art. 25 of the Italian Code of Civil Procedure (c.p.c.).[6] Conversely, if the parties have provided for an English forum selection clause as exclusive, the question arises as to whether the Italian judge can nevertheless assert their jurisdiction over the case.
Brexit
Undoubtedly, prior to the United Kingdom's exit from the European Union, a negative answer would have been given to this question. Indeed, pursuant to Art. 25 of the Brussels I-bis Regulation, the contractually provided exclusive forum would have prevailed, regardless of the domicile of the parties involved.[7] However, with the advent of Brexit, this legislative instrument no longer applies to all proceedings initiated after January 1, 2021. Precisely to fill this regulatory gap, the United Kingdom acceded to the Hague Convention of 30 June 2005 on Choice of Court Agreements as of January 1, 2021. This Convention provides that the courts of contracting states shall give effect to exclusive jurisdiction clauses in favor of other signatory states and that such courts shall recognize and enforce judgments rendered pursuant to such clauses. The contracting states include the European Union on behalf of all Member States, and therefore also Italy. Furthermore, it is recalled that Art. 2(5) of the Convention itself provides that:
“The mere fact that a State, including a government, a governmental agency or any person acting for a State, is a party to proceedings shall not exclude the proceedings from the scope of this Convention.”
Therefore, in the post-Brexit scenario, the Italian judge will have to apply the Hague Convention and decline their jurisdiction in favor of the English courts in the case of disputes brought by local authorities connected to financial derivative contracts that feature exclusive jurisdiction clauses in favor of the English judge.
Conclusions
In conclusion, Italian Public Administrations will undoubtedly be able to turn to the Italian judge in the case of non-exclusive choice of court clauses; otherwise, the contractually agreed English forum will prevail over the Italian one.
[1] Banca Intesa San Paolo and Dexia Crediop v Comune di Venezia [2022] EWHC 2586 (Comm), Judgment of October 14, 2022. [2] Gatto P., I derivati degli enti locali italiani sono nulli anche per il diritto inglese, available on the website Altalex. [3] Ibid. [4] Ibid. [5] Clause 13(b) ISDA model contract: “Jurisdiction. With respect to any suit, action or proceedings relating to any dispute arising out of or in connection with this Agreement (“Proceedings”), each party irrevocably:― (i) submits:― (1) if this Agreement is expressed to be governed by English law, to (A) the non-exclusive jurisdiction of the English courts if the Proceedings do not involve a Convention Court and (B) the exclusive jurisdiction of the English courts if the Proceedings do involve a Convention Court; […]” [6] Art. 25 c.p.c.: “For lawsuits in which a State Administration is a party, the judge of the place where the office of the State Legal Advisory Service (Avvocatura dello Stato) is based, in whose district the judge who would be competent according to ordinary rules is located, has jurisdiction in accordance with special laws on the representation and defense of the State in court and in the cases provided therein. When the administration is the defendant, such district is determined with regard to the judge of the place where the obligation arose or must be performed, or where the movable or immovable property subject to the claim is located.” [7] Art. 25 Brussels I-bis Regulation: “If the parties, regardless of their domicile, have agreed that a court or the courts of a Member State are to have jurisdiction to settle any disputes which have arisen or which may arise in connection with a particular legal relationship, that court or those courts shall have jurisdiction, unless the agreement is null and void as to its substantive validity under the law of that Member State. Such jurisdiction shall be exclusive unless the parties have agreed otherwise.”