Author: Dr. Eleonora Ebau, Research Fellow at the Department of Law, UniTo.
Not infrequently, Italian councils and other local authorities have entered into financial derivative contracts with foreign banks, something which has given rise to heated debate both substantively and procedurally.
On the substantive aspects of these contracts, the Commercial Court of London recently ruled in the dispute between Banca Intesa and Dexia and the Comune di Venezia 1
The Court declared the Venetian derivative as null and void due to its speculative nature, aligning itself with the analysis carried out by the Joint Chambers of the Court of Cassation regarding the Comune di Cattolica in its ruling No. 8870 of 2020. 2 In said ruling, the Joint Chambers had, among other things, established that Italian entities were prohibited from entering into speculative derivative contracts.
Therefore, following the London Court’s ruling, speculative derivatives are prohibited, even for contracts governed by English law 3, due to a lack of contractual legitimacy on the part of the public body (lack of capacity), which renders the contracts null and void 4.
With regard to procedural aspects, however, it should be noted that standard international contracts – prepared by the International Swaps and Derivatives Association Inc. (ISDA) and commonly signed by local authorities and foreign banks – provide for the jurisdiction of overseas courts for all disputes directly or indirectly related to the derivative. 5
The question arises, therefore, as to whether legal proceedings brought by the Public Administration against a foreign legal entity, are subject to Italian jurisdiction or the contractually agreed one, also taking into account the exit of the United Kingdom from the European Union following Brexit.
Italian local authority derivatives: two situations
First of all, it is necessary to distinguish between two different situations, namely whether or not the parties decide to grant exclusive jurisdiction to the English courts.
If the English court is not granted exclusive jurisdiction, the issue is easily resolved.
In this case, the Public Administration may attempt to bring legal action in the national territory, taking into account the internal rules of jurisdiction on claims pursuant to Art. 25 of the Italian Code of Civil Procedure. 6.
Conversely, if the parties have contractually provided that sole jurisdiction will lie with an English court, the question arises as to whether the Italian court can still assert jurisdiction over the case.
Brexit
Undoubtedly, prior to the UK’s exit from the European Union, this question would have been answered in the negative.
Indeed, pursuant to Art. 25 of the Brussels I bis Regulation, the exclusive jurisdiction provided for in the contract would prevail, regardless of the location of the parties involved 7.
However, with the advent of Brexit, this legislative instrument no longer applies to any proceedings initiated after 1 January 2021.
Precisely in order to fill this legal loophole, the United Kingdom acceded to the Hague Convention of 30 June 2005 on Exclusive Choice of
Court Agreements as of 1 January 2021.
This Convention provides that the courts of contracting states shall give effect to exclusive jurisdiction clauses in favour of other signatory states and that these courts shall recognise and enforce judgments made under such clauses.
The contracting states include the European Union on behalf of all Member States and therefore also Italy.
Furthermore, Art. 2(5) of the Convention provides that:
“Proceedings are not excluded from the scope of this Convention by the mere fact that a State, including a government, a governmental agency or any person acting for a State, is a party thereto”.
Therefore, in the post-Brexit scenario, the Italian courts will have to apply the Hague Convention and deny their own jurisdiction in favour of the English courts with regard to legal action brought by local authorities concerning financial derivatives contracts that contain clauses stipulating the exclusive jurisdiction of the English courts.
Conclusions
In conclusion, Italian Public Administrations will undoubtedly be able to turn to the Italian courts in cases where there are non-exclusive choice of court clauses. However, in all other cases, the contractually agreed English court will prevail over the Italian court.
1 Banca Intesa San Paolo and Dexia Crediop v Comune di Venezia [2022] EWHC 2586 (Comm), Judgment of 14 October 2022.
2 Gatto P., I derivati degli enti locali italiani sono nulli anche per il diritto inglese, available at sito web 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 of the Italian Code of Civil Procedure: “For cases in which a government administration is a party, under the special laws on the representation and defence of the State in legal proceedings and in the cases provided for therein, jurisdiction shall lie with the court of the place where the Attorney General’s Office is located, in whose district the court that would have jurisdiction under the ordinary rules is situated. When the administration is sued, said district shall be determined by reference to the courts of the place where the obligation arose or is to be performed or where the movable or immovable object of 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”.