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English Supreme Court confirms Dexia victory in Italian local authority swaps claim

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Partridge James
James Partridge



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Biggin Helen
Helen Biggin



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Nettleton Sophie
Sophie Nettleton

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18 January 2018

The Supreme Court has refused to grant Comune di Prato permission to appeal the decision of the Court of Appeal in the case of Dexia Crediop S.p.A. -v- Comune di Prato ([2017] EWCA Civ 428).  The decision brings an end to the long-running litigation between Dexia and Prato and confirms the validity of the swaps between them, which had been challenged by Prato.  Dexia was represented by Allen & Overy with advice on Italian law issues from Bonelli Erede Pappalardo. The decision confirms the land-mark ruling of the Court of Appeal, which has significance for many other similar disputes where defences based on mandatory rules of local law (rather than the governing law chosen by the parties) are frequently raised. 

The Court of Appeal held that mandatory rules of Italian law did not apply to the swap contracts between Dexia and Prato by operation of Article 3(3) of the Rome Convention because not all “elements relevant to the situation” were connected with Italy.  In particular, the Court of Appeal held that features of the swaps were international and relevant elements which made it impossible to say that all elements (other than the choice of governing law) relevant to the situation were located in a country other than England. These included the choice of the Multi-Currency Cross Border form ISDA documentation and the non-domestic banks with whom Dexia concluded back-to-back hedging swaps.  Prato argued that the Court of Appeal applied the wrong approach to Article 3(3) of and took into account “elements” which were not relevant to the situation.  The Supreme Court disagreed and confirmed that the Court of Appeal “carefully identified the relevant elements”.  The Supreme Court also refused Prato’s application to refer the question to the European Court of Justice, noting that the case involved the application “of a clear set of words to specific facts” and that there was no reason to restrict further the “elements relevant to the situation”.

Dexia was represented by Allen & Overy partner James Partridge, senior associate Helen Biggin and associate Sophie Nettleton, instructing Richard Handyside QC and Rupert Allen of Fountain Court Chambers.  Massimiliano Danusso and Francesca Marchetti of Bonelli Erede Pappalardo advised on Italian law issues.

James commented: “Despite mandatory rules defences being a feature of swaps litigation in both the High Court and the Court of Appeal in recent years, this is the first time an application for permission to appeal has been ruled on by the Supreme Court.  The Supreme Court has resisted a restriction of the elements to be considered when deciding if a transaction is in fact connected with one country only.  Instead, the Supreme Court has approved the Court of Appeal’s approach to Article 3(3) which takes into account ISDA form documentation and back-to-back transactions as relevant international elements.  The confirmation of the Court of Appeal’s approach will offer comfort to any party concerned about the potential for mandatory rules of local law to undermine their agreed choice of law.”

For further information, please contact Antoinette Willcocks,, on +44 (0)20 3088 4638