Respect my authority: considering capacity to enter into swaps

In Banca Nazionale del Lavoro, Commerzbank and Dexia Credit Local v Provincia di Catanzaro [2023] EWHC 3309 (Comm), the High Court granted summary judgment in favour of the joint bank claimants against the Italian public authority, Provincia di Catanzaro (“Catanzaro”). This is the latest in a succession of cases in which Italian local authorities have relied on Italian law arguments as to capacity, authority and/or validity as a basis for arguments that English-law governed derivative transactions on standard ISDA terms and subject to exclusive English jurisdiction, to which they had agreed, are invalid.

The claims related around hedging transactions, namely a cash flow swap and an interest rate swap with a collar (the “Transactions”), that were entered into between the claimants and Catanzaro in June 2007. The Transactions were performed for 14 years until Catzanaro ceased making payments in December 2021 and in January 2022 issued an administrative decision purporting to annul the Transactions.

Given that Catanzaro did not engage with the proceedings, Cockrill J delved into each of the possible arguments, including matters of Italian law, it would have run had it been engaged. In each case, Cockrill J considered the arguments and found that Catanzaro had no argument with a realistic prospect of success. Namely:

• Jurisdiction – in Italian proceedings brought in relation to the Transactions, Catanzaro argued that the Regional Administrative Court of Calabria had jurisdiction. This was found to have no prospect of success as the relevant contracts are governed by exclusive English jurisdiction clauses and contain express waivers of any objection to English jurisdiction.
• Capacity – although not argued in the administrative decision of Catanzaro in January 2022, Cockrill J examined possible arguments as had been the case in other similar cases. These were dismissed as the points depended on groundless assertions that (a) the purpose and function of the Transactions were speculative or (b) the restructuring of the Catzanaro debt, as per the Transactions, involved Catanzaro taking on new indebtedness or was done or was done so otherwise than for investment purposes.
• Authority – any possible arguments were seen as (i) wrong as a matter of Italian law and (ii) irrelevant in circumstances under English law as it could not seriously be suggested that the relevant individuals at Catzanaro did not have ostensible authority to enter into the Transactions and, in any case, the Transactions were repeatedly ratified by Catzanaro over a period of 14 years.
• Validity – any arguments as to validity under Italian law would also lead to nowhere due to the Transactions being governed by English law and there being no basis for any suggestion that mandatory rules of Italian law apply.

The case is a pro bank decision in the recent trend of Italian authorities arguing that ISDA English law governed agreements are invalid and the willingness of the English courts, where it sees appropriate, willing to deal with complex Italian law questions and grant judgment where it sees appropriate.

The case follows another similar case, Banca Intesa Sanpaolo and Dexia v Comune di Venezia [2023] EWCA Civ 1482, where the Court of Appeal overturned the Commercial Court’s decision in favour of the Italian public authority and held for the banks that the swaps in that case were not speculative and that the relevant public authority had capacity to enter into those swaps.

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