A recent decision of the Italian Court of Cassation on the jurisdiction applicable to derivatives litigation | Fieldfisher
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A recent decision of the Italian Court of Cassation on the jurisdiction applicable to derivatives litigation




A recent judgment delivered by the Court of Cassation has addressed an interesting point on the jurisdiction applicable to a dispute between a bank and an Italian local authority involving derivative contracts subject to English jurisdiction which were executed in the frame of a broader relationship between the bank and the authority documented in an advisory agreement subject to the jurisdiction of the Italian Courts.
The Background
An Italian local authority, the Provincia di Pesaro e Urbino (hereinafter “PPU”), in 2000 sought the advice of an Italian bank (the “Bank”) for liability management purposes related to indebtedness arising from bonds. In 2003 and 2005 PPU, based on the advice provided by the Bank, entered with the latter into two interest rate swaps (the “IRS”). In 2021 PPU summoned the Bank before the Court of Pesaro filing four claims against the Bank: (i) the primary claim was a request of damages for breach of the advisory agreement by the Bank ; (ii) in the alternative PPU claimed damages based on torts for breach of conduct of the Bank in the phase prior to the execution of the advisory agreement (s.c. pre-contractual liability); (iii) as third claim PPU requested the Court to declare the IRS entered into on 2005 void and order the Bank to repay to PPU all the payments made by the latter to the former under such IRS; (iv) as fourth claim PPU requested the Court to assess the termination of the 2005 IRS for breach of contract by the Bank. All the four claims filed by PPU were grounded, inter alia, on the fact that the Bank did not properly advice PPU and failed to disclose to it some key features of the IRS, in particular the implied costs and negative mark to market at the outset of the transaction.

The defence of the Bank was grounded on lack of jurisdiction of the Court of Pesaro since the IRS was executed through an ISDA Master Agreement which expressly provided (Section 13) the jurisdiction of the English Courts. The Bank immediately after being served the writ of summon by PPU convened the latter before the High Court of London to ascertain the absence of any breach of contract by the Bank under the disputed IRS. The Court of Pesaro dismissed the motion on jurisdiction, declared to have jurisdiction on the case and decided to continue the proceedings. The Bank applied to the Court of Cassation to resolve the dispute on the jurisdiction (s.c. regolamento di giurisdizione).

The position of the Court of Cassation
The Court of Cassation has rejected the motion on jurisdiction raised by the Bank on the basis of the connection between the first claim (which was related to the advisory agreement between the Bank and PPU) and the other claims raised in the summon. In other words, according to a well-established position of the Court of Cassation, the main claim (domanda principale) of the plaintiff is the one which should be considered for establishing the competent Court while the other secondary claims (domande subordinate) cannot alter the criteria to establish the competent jurisdiction.

Another argument of the Bank which was rejected by the Court of Cassation pertains to the argument that the choice of the claims made by PPU was fictitious and was designed to elude the jurisdiction of English Court on the judicial demands connected with the IRS (its nullity and/or its termination for breach of the Bank).

Another interesting point addressed by Court of Cassation is the jurisdiction applicable on the requests of damages connected with the liability in torts (responsabilità extracontrattuale) of the Bank. The latter raised the argument that, according to Section 13 of the ISDA agreement, the jurisdiction of the English Courts was provided for any dispute connected with the IRS. The Court of Cassation rejected such argument and held that the request of the plaintiff was primarily based of the breach of the advisory agreement by the Bank and accordingly the jurisdiction applicable for such (principal) demand was attracting under the same jurisdiction all the other (secondary) demands related to the same case.

It is important to point out that the above decision from the Court of Cassation was delivered on the specific point of jurisdiction and no decision was made on the merit of the case. This shall be decided by the Court of Pesaro as the court having jurisdiction on the overall dispute between PPU and the Bank.