In Deutsche Bank AG London v Provincia di Brescia [2024] EWHC 2967 (Ch), the claimant banks sought declaratory relief from the English High Court in respect of two interest rate swap transactions and two settlement agreements they had entered into with Brescia, which Brescia was seeking to challenge in Italy. The Court granted the declaratory relief, rejecting Brescia’s arguments as to capacity and authority to enter into the transactions and settlement agreements and in doing so affirmed the validity of both the transaction documents and the settlement agreements.

This case marks the latest episode in a series of disputes between banks and Italian public authorities in relation to interest rate swaps, in which Italian authorities have sought to rely on issues of capacity or authority to avoid agreements underpinning derivative transactions entered into prior to the Global Financial Crisis. This case applied a recent Court of Appeal decision (Banca Intesa Sanpaolo and Dexia v Comune di Venezia [2023] EWCA Civ 1482) (see our previous article on this case here).

Background and Issue before the Court

Seeking to refinance its debt, Brescia entered into master agreements with the banks in 2006 and, pursuant to those agreements, entered into the transactions. The master agreements included English governing law and exclusive jurisdiction clauses. In 2015, Brescia indicated that it intended to seek suspension or cancellation of the transactions. Proceedings followed in England and Italy and in 2017 the parties entered into settlement agreements. The settlement agreements settled any claim by Brescia in relation to the validity and effectiveness of the transactions.

In 2020, the banks became aware of reports that Brescia was seeking to set aside the settlement agreements and challenge the transactions on the basis of validity and capacity before the Italian Courts. The banks brought proceedings in England, seeking declaratory relief in relation to the validity of the transaction documents and the settlement agreements.

The decision

The court granted declaratory relief in favour of the claimant banks as to the validity and effectiveness of the transaction documents and the settlement agreements. It also made declarations that the banks were entitled to damages for loss, including legal fees in England and Italy, in respect of breaches of the settlement agreements and the transaction agreements. It found:

• The correct applicable law depended on whether Brescia sought to set aside the transactions on the basis of its capacity, or whether it raised a challenge to the validity and efficacy of the transactions based on authority. If it was an issue of capacity, Italian law applied, since capacity had to be determined by the law under which Brescia had existence. Hildyard J found that Brescia did have capacity to enter into the transactions and the settlement agreements under Italian law.
• If it was a question of validity, English law applied as that was the chosen law. Brescia argued that the authorisations it had given to enter into the transactions were too generic to comply with Italian law. However, the Judge found that argument did not go to Brescia's capacity to enter into the transactions, but to its authority to do so. Therefore, it was of no assistance to Brescia because matters of ostensible authority were governed by English law.
• Although the settlement agreements stated that they were governed by Italian law, they also stated that it was understood that the master agreement governing the swaps remained subject to English law and exclusive jurisdiction. That showed that the parties had accepted that the choice of Italian law in the settlement agreement would not trump the English law and jurisdiction clauses in the master agreements. Those clauses were broad enough to capture any dispute about the transactions and to give the English court jurisdiction to give declaratory relief to prevent any challenge to the transactions' validity in a foreign court.

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