7 | La Dolce Veto: English Court accepts jurisdiction in hat trick of swaps cases commenced in Italian Courts

Trentino, Emilia Romagna and Turin: not only essential stops on any tour of Northern Italy, but also the most recent additions to the growing list of Italian regional authorities whose attempts to challenge interest rate swap transactions in local courts have been defeated by the English court accepting jurisdiction over the relevant claims.

All three authorities (separately) entered into interest rate swap transactions with Dexia pursuant to an ISDA Master Agreement. Notwithstanding that each agreement conferred jurisdiction on the English courts, all three authorities commenced proceedings in Italy. Dexia then issued separate English proceedings against each authority, in each case seeking declaratory relief.

Trentino challenged the English Court’s jurisdiction. Neither Emilio Romagna nor Turin appeared in the English proceedings, and Dexia accordingly brought to the English Court's attention arguments they may have raised, with reference to the positions taken by these authorities in the Italian proceedings.

Both Trentino[1] and Emilio Romagna[2] contended that the swaps amounted to “speculative” transactions that, as a matter of Italian law, local authorities lacked the capacity to enter into. In both cases, these arguments were rejected by the High Court on the basis that the swaps were more accurately described as hedging transactions of a kind which are not considered speculative under Italian law.

It was well established that an ISDA Master Agreement remains valid even if certain transactions governed by it are void, such that Trentino’s arguments that the invalidation of the transaction invalidated the ISDA Master Agreement (and the jurisdiction clause therein) was swiftly dismissed. Emilio Romagna’s arguments that the swap transactions were invalid because they were improperly authorised under Italian law were similarly unsuccessful. Whilst Italian law was relevant to the narrow issue of Emilia Romagna’s capacity to enter into the transactions, it did not apply to the transactions themselves, which were expressly governed by English law.

In response to Turin’s arguments[3], the High Court held that Italian law was also irrelevant to both the construction and material validity of the jurisdiction clause, again distinguishing these matters from capacity, where Italian law was relevant.

The English Court accordingly rejected Trentino’s jurisdiction challenge and issued the declarations sought by Dexia in relation to Emilia Romagna and Turin, including that Emilia Romagna had the necessary capacity to enter into the swaps transaction and the English Court had the exclusive jurisdiction in relation to Dexia’s dispute with Turin.

The Court of Appeal signalled the direction of travel in December 2023 when it overturned a finding at first instance that swaps entered into by Venice were void as a consequence of Italian law. The more recent decisions involving Trentino, Emilio Romagna and Turin have continued to reflect this new orthodoxy. By consistently finding that the regional authorities had the capacity to enter into such agreements, and that England was the correct forum to litigate the underlying claims, these bank-friendly decisions illustrate that short of demonstrating that a contracting party lacked capacity to enter into the relevant agreement or transactions, foreign law arguments will have little traction in determining questions of validity or jurisdiction in English law governed ISDA Master Agreements which confer jurisdiction on the English courts.