Deutsche Bank AG London & Anor v Provincia Di Brescia

In these proceedings (“the Claims”), which are being jointly case managed and tried together, the Claimants (Deutsche Bank AG London and Dexia SA, individually “DB” and “Dexia”, and together “the Banks”) seek declaratory relief in respect of two interest rate swap transactions entered into between the Banks and the Defendant (Provincia di Brescia (“Brescia”)) on 28 June 2006 (“the First Transaction”) and 20 December 2006 (“the Second Transaction”, and together, “the Transactions”). The Banks also seek declaratory relief in respect of two settlement agreements between the same parties (“the Settlement Agreements”).

The Transactions are expressly governed by English law and this Court has exclusive jurisdiction in respect of them. The Settlement Agreements are governed by Italian law but neither contains a jurisdiction clause.

After unsuccessfully challenging this Court’s jurisdiction over the Claims, (Footnote: ¹) Brescia has not participated in the proceedings to date and although it continues to have solicitors on the record (Spencer West LLP), it did not attend the trial.

As elaborated later, the Banks have made extensive efforts to ensure that all documents in the Claims (including the Claimants’ skeleton argument for these proceedings) and all steps in the proceedings have been brought to Brescia’s attention, and Spencer West LLP has been given access to the trial bundle.

The Transactions were entered into pursuant to (in the case of each Bank) an ISDA Master Agreement dated 28 June 2006 (“the Master Agreement”), a bespoke Schedule (“the Schedule”) and Confirmations dated 28 June 2006 and 20 July 2006 for the First Transaction and 20 December 2006 and 2 January 2007 for the Second Transaction (“the Confirmations” and, together with the Master Agreement and the Schedule, “the Transaction Documents”). There are minor differences in the Transaction Documents for each Bank, but the economic terms of the Transactions are identical.

The Transactions were entered into in connection with two floating rate bond issuances by Brescia, the first on 30 June 2006 in the amount of €104,892,000.00 (“the June 2006 Bond”) and the second on 22 December 2006 in the amount of €55,832,000.00 (“the December 2006 Bond”, and together “the Bonds”). The proceeds of the Bonds were used to refinance a large proportion of Brescia’s pre-existing loan portfolio with Cassa Depositi e Prestiti (“CDP”), and to finance new investments.

To date, Brescia has complied with and/or discharged its payment obligations under the Transactions.

However, after performing the Transactions for nearly 10 years without any suggestion of any issue as to their validity or enforceability, Brescia indicated in November 2015 that it intended to seek suspension or cancellation of the Transactions.

In those circumstances, DB issued a claim against Brescia in England on 10 December 2015 seeking declaratory (and further or other) relief in connection with the Transactions.

Thereafter, Brescia commenced proceedings in Italy against the Banks in March 2016 alleging (among other things) that they were liable to pay damages in respect of losses suffered under the Transactions (“the Original Italian Proceedings”).

On 21 April 2016, Dexia issued its own claim against Brescia in England seeking declaratory (and further or other) relief in connection with the Transactions (together with DB’s claim issued on 10 December 2015, “the Original English Proceedings”, and together with the Original Italian Proceedings, “the Original Proceedings”).

The Banks and Brescia subsequently negotiated and entered into Settlement Agreements which, among other things, resolved the Original Proceedings, on 18 September 2017 (Dexia and Brescia) and 25 September 2017 (DB and Brescia).

More than two years later, in May 2020, the Joint Sections of the Italian Supreme Court handed down judgment in a case between an Italian bank and the Municipality of Cattolica (“the Cattolica Decision”).

Following the Cattolica Decision, the Banks became aware of press reports in June 2020 suggesting that Brescia was seeking to rely on it to set aside the Settlement Agreements and to mount a further challenge to the Transactions in Italy.

In light of this, DB sought and obtained permission (by Order of Andrew Baker J on 23 October 2020) to issue a new claim form under CPR 38.7 setting out the present Claim in England on 13 November 2020, seeking similar Declarations as it had previously, together with further Declarations in relation to the effect of its Settlement Agreement on the Transactions.

In March 2021, Brescia commenced proceedings against the Banks in the Court of Rome seeking to challenge the Settlement Agreements and the Transactions (“the New Italian Proceedings”).

On 15 September 2021, Dexia issued a Claim of its own in England, seeking similar relief to DB.

In response to the Claims, Brescia issued applications in England seeking to challenge the English Court’s jurisdiction to grant the declaratory relief sought by the Banks in respect of the Settlement Agreements (but not the other relief sought by the Banks, which it accepted the English Court had jurisdiction to try). The Court dismissed these applications and declared that the English Court has jurisdiction to determine all of the Banks’ claims against Brescia. (Footnote: ²)

By their respective Claims, the Banks are seeking declaratory relief in terms that track the wording of the Transaction Documents and the Settlement Agreements, together with certain other relief that the Banks submit follows inevitably from such declaratory relief or is otherwise straightforward. No money claims are advanced by the Banks in these proceedings.

These proceedings are the latest in a series of Business and Property Court cases concerning English-law governed derivative transactions on standard ISDA terms and subject to exclusive English jurisdiction, in which Italian local authorities have sought to challenge derivatives into which they had entered by relying on Italian law arguments as to capacity, authority and/or validity.

In previous cases of this kind, the Commercial Court and the Court of Appeal have consistently granted and upheld relief in substantially identical terms to the relief sought by the Banks in respect of the Transaction Documents.

Most relevantly, since the Cattolica Decision, Cockerill J granted such relief in relation to similar transactions in Banca Nazionale del Lavoro v Provincia di Catanzaro [2023] EWHC 3309 (Comm) (“Catanzaro”) and Deutsche Bank AG London v Comune di Busto Arsizio [2021] EWHC 2706 (Comm); [2022] EWHC 219 (Comm) (“Busto”), as did the Court of Appeal in Banca Intesa Sanpaolo SpA and Dexia Credit Local SA v Comune di Venezia [2023] EWCA Civ 1482 (“Venice in the Court of Appeal”) (overturning the decision of Foxton J in [2022] EWHC 2586 (Comm) (“Venice at first instance”)) and Peter MacDonald Eggers KC (sitting as a Deputy High Court Judge) in Dexia Crediop SpA v Provincia di Pesaro e Urbino [2022] EWHC 2410 (Comm) (“Pesaro”). The Banks have filed notices under Section 4 of the Civil Evidence Act 1972 (“the Hearsay Notices”) in respect of the relevant findings of Italian law in these cases and certain other previous decisions of this Court.

As regards the Master Agreement, the Schedule and the Confirmation together comprising the Transaction Documents in each of the Transactions, the principles recognised in the above cases can (for the most part) be applied in determining the Claims, though I shall have to consider in more detail the effect of small differences in wording.

However, the Settlement Agreements are not standard, and none of the previous cases concerned the effect of settlement agreements governed by Italian law. Counsel told me that this will be the first time that an English Court has been called upon to determine the effect of Italian law on settlement agreements governed by that law but entered into in respect of English law derivatives alleged to be void or invalid under Italian law. I note, however, that Brescia agreed thereunder that the Transactions were valid, binding and enforceable and waived the Italian law arguments it is currently advancing in the New Italian Proceedings, which it accepted were incorrect.

The Italian law arguments Brescia has raised in the New Italian Proceedings (and could have raised in England if it had continued to participate after losing its jurisdiction challenges) fall into three categories:

I turn to address these issues in more detail. In doing so, I follow below the same structure and sequence as in the Banks’ helpful skeleton argument and in their oral submissions.

The structure of the rest of this judgment is as follows:

The Banks’ Written Opening contained two annexes which I have found to be invaluable in identifying (a) points of distinction between this case and the previous cases which I have identified above and (b) the issues of Italian law to be decided. I annex both to this Judgment without alteration:

In Catanzaro at [2]–[6], Mrs Justice Cockerill considered the principles applicable to an uncontested hearing or trial in very similar circumstances to the present case before deciding to proceed in the absence of the Province of Catanzaro. In summary, CPR 39.3 gives the Court a discretion to proceed with a hearing or trial in the absence of a party. The discretion must be exercised with caution since a party must be afforded a fair opportunity to present its case in court, and to be legally represented to that end. But cases must be brought to a conclusion: and further, it may be obvious that the defendant has no real intention of taking up the opportunity. The court must be reasonably robust, and has the comfort that CPR 39.3 “furnishes a safeguard in the event of mishap” (Williams v Hinton [2011] EWCA Civ 1123).

In this case, I am satisfied that, as in Catanzaro, it is appropriate to proceed in Brescia’s absence. In particular, it seems to me to be clear from the evidence that:

Where a trial is undefended, but substantive relief is sought, the required approach of the Court, and the legal representatives of the represented party, is explained in a number of recent authorities, in particular CMOC Sales & Marketing Ltd v Persons Unknown [2018] EWHC 2230 (Comm) at [12]–[15] (HHJ Waksman QC, as he then was) and Lakatamia Shipping Co Ltd v Morimoto [2023] EWHC 3023 at [12]–[13] (Foxton J).

In short, the claimant can prove its case by reference to witness statements and documents, without calling oral evidence (see CPR 32.2(2)(b) and 32.5(1)(b)). In that regard, I was invited before the trial commenced to consider whether I would require any oral evidence and/or cross-examination. I considered it to be unnecessary.

However, the Court must be satisfied, on the balance of probabilities, that the claim is made out. The represented parties bear “an obligation of fair presentation which is less extensive than the duty of full and frank disclosure on a without notice application” such that they must draw to the attention of the Court “points, factual or legal, that might be to the benefit of [the unrepresented defendant]” (Lakatamia Shipping v Morimoto at [13]).

I confirm that in those circumstances, I have been particularly concerned to consider especially carefully the evidence and arguments put before me, and notwithstanding the additional assistance provided by earlier cases, to assess whether in this particular context, the Claims have been proved and the need for the relief sought established.

The Claims have been punctiliously argued. I have been assisted by both a detailed and comprehensive skeleton argument, and also detailed and clear oral submissions. These submissions have carefully identified particular aspects of these Claims (including the particular wording of the relevant Transaction Documents) which differ from previous cases. They have also assiduously sought to identify points that Brescia might have sought to advance. I am grateful to Counsel for the Banks for this admirable assistance.

By paragraph 6 of the Order of Bryan J dated 10 May 2024, the Banks are entitled to rely on the documentary evidence in the trial bundle as evidence of the truth of its contents: and see also Section J.8.5 of the Commercial Court Guide.

The Claims are supported by witness statements for the Trial from:

The Banks also rely on expert reports from:

The following statement of the factual background to the Transactions and the Settlement Agreements, in a form intended to be neutral, is taken from the Banks’ Skeleton Argument. I am satisfied that each of the factual assertions that follow is supported by the relevant documentary and witness evidence, and I make findings of fact for the purposes of the Claims accordingly. (Unless otherwise expressly stated, the documents were provided to me in the bundles, and the evidence of fact is derived from the witness statement of Mr Belarbi.)

In November 2005, Brescia had extensive borrowing with CDP from the end of 1996 onwards in the amount of €84,229,834.35. Of this, €67,821,399.36 comprised fixed-rate loans at rates between 4.75% and 6.5% per annum and €16,408,435 comprised floating-rate loans with a spread of 0.18% (“the CDP Loans”). The rates on these CDP Loans were, as confirmed by Mr Belarbi in his witness statement, “significantly higher than the market rates at the time of our discussions with the Province in 2006” and made up nearly half of Brescia’s total borrowing.

Brescia was thus saddled with a large amount of expensive long-term borrowing from CDP, most of it fixed at above-market rates. This meant that it could not benefit from any fall in rates (which in the event occurred). It therefore wanted to reduce the costs of its existing indebtedness by terminating its CDP Loans early and issuing a floating-rate bond, while at the same time hedging its interest rate exposure; and further, as some of the CDP Loans were approaching maturity, Brescia also wanted to reduce its capital repayments and free up cash flows.

On 23 November 2005, therefore, Brescia’s Provincial Council (which Prof. Rimini has explained in his witness statement is an elected assembly charged with setting policies for the general affairs of the province) passed a resolution authorising an application to CDP for the early repayment of the CDP Loans, as Brescia was permitted to do by Article 41(2) of Law 448/2001 (“Article 41”).

On 17 March 2006, Brescia’s Provincial Council passed resolution no. 12, which approved Brescia’s budget for 2006. The Budget envisaged the rescheduling of Brescia’s pre-existing indebtedness, with the aim of reducing its effect on the budget.

In early 2006, Brescia initiated discussions with several banks in relation to the possible refinancing of the CDP Loans, including Dexia and DB. As regards each of the Banks:

On 2 May 2006, the Provincial Board (which Prof. Rimini has explained is an executive body entrusted with the role of implementing the policies of the Provincial Council) passed Board resolution no. 203, which approved Brescia’s Executive Management Plan. The Executive Management Plan included the minimization of the cost of Brescia’s outstanding debt by refinancing CDP Loans through the issuance of a bond and the identification of one or more banks to manage the refinancing.

On 23 May 2006, the Banks sent Brescia a joint presentation setting out with slides the details of the proposed refinancing of the CDP Loans. The presentation described two options to refinance 206 CDP Loans in an amount of €85,945,847.60: (i) issuance of a variable rate bullet bond in an amount of €90,203,288.50, with a maturity of 30 years and a spread of 20bps above Euribor 12M, together with an amortising swap as required by Article 41 and an interest rate collar to minimise Brescia’s exposure to market rate volatility, and (ii) issuance of an amortising bond which directly amortised over time, without the need for an amortising swap.

Following discussion of the Banks’ proposals and those received from other banks, (Footnote: ⁵) Brescia’s Board passed resolution no. 271 of 24 May 2006, which delegated to Dr Fenaroli (“Dr Fenaroli”, the Director of the Financial Services of Brescia Province) the identification of the institutions to be appointed pursuant to a multi-year mandate to assist Brescia with the active management of its debt and liquidity for a period of up to 36 months.

On 29 May 2006, Brescia’s Council approved resolution no. 16, which approved a request to CDP for early repayment of the CDP Loans to be financed by the issuance of a bond and amended the 2006 Budget to take account of the proposed refinancing. On the same day, Dr Fenaroli approved Executive Resolution no. 1380, which awarded the mandate for the refinancing to the Banks pursuant to Board resolution no. 271 of 24 May 2006.

On 31 May 2006 Brescia entered into a mandate agreement (“the Mandate”) with the Banks for a term of 36 months, to provide assistance to the Defendant in relation to the specific matters concerning the management of the Defendant’s indebtedness that were expressly identified in Article 1.2 of the Mandate. Those matters included, among other things:

Further:

Accordingly, the Banks’ obligations under the Mandate did not include the provision of investment advice, and any transactions entered into between the Banks and Brescia thereafter were to be governed by separate contracts, in this case the Transaction Documents.

The terms of the First Transaction were negotiated between Brescia and the Banks in the period between the signing of the Mandate and around 20 June 2006. During these discussions, Brescia provided relevant information regarding the key characteristics of its indebtedness, its financial objectives and risk appetite. Brescia (like many local authorities) had a low appetite for risk and was required by law to set aside in its annual budget the estimated expenditure for servicing its debt, which meant it favoured predictability in the cost of its debt. Mr Belarbi’s evidence is that the Banks therefore proposed a “simple and straightforward” transaction with “clear capping rates to mitigate the risk of increasing interest rates”.

On 9 June 2006, DB sent Brescia a draft of the standard Master Agreement and Schedule commonly used for local authorities, together with Italian translations of them both.

Between 12 and 21 June 2006, Brescia negotiated a reduction in the proposed spread from 20bps above Euribor 12M to 19bps.

An updated version of the Banks’ joint presentation of 23 May 2006 was sent to Brescia on 20 June 2006, together with a spreadsheet summarising the future expected cash flows under the First Transaction based on the current forward curve. The fundamentals of the two proposed refinancing options remained the same as the earlier presentation (see paragraph [46] above). As regards the bullet bond structure that was ultimately adopted, slide 9 of the joint presentation showed that refinancing the CDP Loans with the bullet bond structure would result in savings of around €3.8 million. The slide also showed the outcome of what Prof. Rimini referred to as the ‘economic convenience’ test under Article 41 and denotes the obligation placed on Brescia by Article 41(2) (rather than its counterparty) to ensure that any refinancing of its existing indebtedness is “under refinancing conditions that allow a reduction of the financial value of total liabilities to be paid by the bodies themselves”. Mr Belarbi confirms that this was the subject of discussions with Brescia. The First Transaction easily passed the ‘economic convenience’ test. Slide 11 showed the interest rate collar swap against the prevailing forward rate curve, which indicated that, after the initial fixed rate period, Brescia would be expected to pay a rate between the cap and floor until the last few years of the First Transaction, when it would pay the floor rate.

The following day, another version was provided updating the economic information to reflect the latest information. This version reflected the lower 19bps spread negotiated by Brescia and showed expected savings to Brescia of around €4 million from the refinancing.

An updated draft of the Master Agreement and Schedule to be signed between Brescia and DB was provided to Brescia on 23 June 2006, together with an explanation of their contents and translations of all the documents into Italian. Dexia provided Brescia with its own version of the Master Agreement and Schedule on 27 June 2006. The covering email made clear that there were minor differences between the DB and Dexia contracts and that the contracts were governed by English law.

By Council Resolution no. 20 of 26 June 2006, Brescia approved the issuance of the June 2006 Bond and authorised Dr Fenaroli to enter into the First Transaction. The Council stated that the First Transaction was “aimed at hedging the interest rate risk and amortising the debt, in accordance with Article 41”. Annex B identified €15,091,787.16 in new investments to be funded by part of the proceeds of the June 2006 Bond.

Two days later, on 28 June 2006, Dr Fenaroli signed Executive Resolution no. 1750, which approved the terms of and documentation for the First Transaction and confirmed that it complied with Ministerial Decree no. 389/2003 (“Decree 389”). The Executive Resolution stated that the First Transaction was entered into “to transform the repayment profile of the [Bonds] by Bullet into Amortising as well as in order to contain the risks due to interest rate movements”.

In accordance with Executive Resolution no. 1750, Dr Fenaroli signed each of the Master Agreements with DB and Dexia on behalf of Brescia on the same day. DB and Dexia subsequently provided Brescia with the Confirmations for the First Transaction on 28 June 2006. Dexia’s confirmation included a statement that Brescia had:

“… come to the determination to complete this [Transaction] not for speculative purposes but only for the hedging of interest rate risks and for the management of liabilities arising from bond issues, mortgage liabilities and other forms of recourse to the financial market permitted by law. In particular, this [Transaction] is therefore carried out on underlying amounts that are actually due by [Brescia], which undertakes to maintain for the entire duration of the [Transaction] an underlying debt that has a high financial correspondence with the [Transaction] with particular regard to the duration and type of rate.”

Also on 28 June 2006:

On 30 June 2006, Brescia issued the June 2006 Bond, a floating rate bond in the amount of €104,892,000.00 to refinance its existing indebtedness and to finance new investment. The June 2006 Bond was underwritten in full by DB and Dexia in equal parts. Pursuant to the June 2006 Bond, Brescia agreed to pay interest at a variable rate equal to Euribor 12M plus 0.19% payable annually on 30 June of each year. The principal amount of the June 2006 Bond was repayable by Brescia in full by way of a single bullet repayment on 30 June 2036.

For the First Transaction with DB, a revised Confirmation was signed on 20 July 2006.

In the case of both Banks, the economic terms of the First Transaction were identical:

Negotiations for the December 2006 Bond Issuance and Second Transaction began in around September 2006.

On 17 November 2006, the Banks sent Dr Fenaroli an analysis of the capital and interest flows from the proposed second Bond issuance to take place in December 2006, with indicative rates of Euribor 12M with a spread of 19bps (which was the same as the First Transaction). The Banks also proposed that, once again, Brescia would enter into an interest rate collar swap to hedge its exposure to market rate volatility under the Bonds, with indicative floor rates of between 4.25% and 4.5% and indicative ceiling rates of between 5.5% and 6%.

By Council Resolution no. 38 of 27 November 2006, Brescia approved the early termination of a further tranche of CDP Loans in an amount up €25 million and the amendment of the 2006 budget to provide for new investments of up to €45 million, to be funded by a thirty-year bond issuance of up to €70 million, with a rate of Euribor 12M plus 19bps. In the same Council Resolution, it authorised Dr Fenaroli to enter into any documents necessary to finalise the December 2006 Bond and to enter into the Second Transaction to hedge its exposure under it. The Council stated that its purpose was “to implement an active management of its indebtedness by using derivative financial instruments (such as interest rate swaps) and renegotiation transactions, in order to restructure its indebtedness, change the interest rate risk profile and optimise the cost of debt”. As with the First Transaction, it identified the Second Transaction as being “aimed at hedging the interest rate risk and amortising the debt”.

On 14 December 2006, the Banks performed an ‘economic convenience’ calculation for the refinancing which showed that the present value of Brescia’s liabilities post-refinancing would be €832,502.52 lower than the present value of the existing indebtedness being re-financed.

Later the same day, the Banks made a joint presentation to Brescia in similar terms to the presentation for the First Transaction. (Footnote: ⁷) Among other things, the presentation set out a proposal to refinance 47 CDP Loans in an amount of €20,524,874.15 and raise financing for new investments of approximately €32 million through the issuance of a bullet bond in an amount of €55 million, with a maturity of 30 years and a spread of 19bps above Euribor 12M, together with an amortising swap as required by Article 41 and an interest rate collar to minimise Brescia’s exposure to market rate volatility. The presentation also showed the outcome of the ‘economic convenience’ calculation, i.e. savings of €832,502.52.

On 18 December 2006, Brescia’s Provincial Council passed resolution no. 46, approving the issuance of the December 2006 Bond and approving a list of new investments, set out in Annex A to the resolution, in a total amount of €33,329,070.24, to be funded by the proceeds of the December 2006 Bond.

On 20 December 2006, the documentary evidence shows that Brescia was sent (among other things) another version of the documentation on the risks of investments in financial instruments, as it was prior to the First Transaction. It was also sent the Term Sheets for the Second Transaction.

On 20 December 2006, Dr Fenaroli signed Executive Resolution no. 3784, approving the December 2006 Bond, and Executive Resolution no. 3785, approving the terms of the Second Transaction. As with the First Transaction, the Executive Resolution stated that the purpose of the Second Transaction was “to hedge the interest rate risk and amortise the debt”.

On the same day, Brescia entered into the Second Transaction, to manage its debts under and in respect of the December 2006 Bond. Dexia’s Confirmation was provided on 20 December 2006 and DB’s Confirmation on 2 January 2007. Dexia’s confirmation included the same statement quoted at paragraph 60 above that Brescia had entered into the Transaction for hedging and not speculative purposes.

On 20 December 2006, Dr Fenaroli signed a declaration on behalf of Brescia confirming and representing to the Banks that the December 2006 Bond would be issued pursuant to and in accordance with all applicable legislation including, in particular, but without limitation, Article 41.

On 22 December 2006, Brescia issued the December 2006 Bond, a floating rate bond in the amount of €55,832,000.00 to refinance its existing indebtedness and to finance new investment. The December 2006 Bond was again underwritten in full by DB and Dexia in equal parts. Pursuant to the December 2006 Bond, Brescia agreed to pay interest at a variable rate equal to Euribor 12M plus 0.19bps payable annually on 22 December of each year. The principal amount of the December 2006 Bond was repayable by Brescia in full by way of a single bullet repayment on 22 December 2036.

The economic terms of the Second Transaction to hedge Brescia’s exposure under the December 2006 Bond were again identical for both Banks:

The Transactions were subsequently communicated to the Ministry of Economy and Finance (“MEF”, the central Italian authority on public finance and public debt), which received them on 20 November 2007.

From 22 December 2006 to the present day, Brescia and the Banks have fully performed their obligations under the Transactions. (Footnote: ⁸) The payments made are set out in tabular form in Tables 10 and 11 in Prof. Cucurachi’s Report. The relevant payments were made (without any suggestion that they were not due) from 2007 until Brescia began the Original Italian Proceedings in 2016 (and have continued thereafter, notwithstanding Brescia’s arguments that the Transactions are invalid).

Brescia also routinely approved the Transactions after they were entered into. In particular, Brescia’s Council each year by resolution approved its financial statements and budgets, which accounted for all of its expenses, including those relating to the Transactions. I have seen examples in the documentary evidence of the information approved in Brescia’s annual budgets for 2017 and 2018, each of which include notes setting out the expected financial cash flows arising from the Transactions.

The Court of Auditors audited the Bonds and the Transactions in 2011. In response, Brescia resolved to constantly monitor the differential cashflows from the Transactions and report them to the Provincial Council and the Court of Auditors every six months, and to identify resources to meet any negative cashflows in its budgets on an on-going basis. The Court of Auditors did not identify “any reason for [the Transactions’] invalidity nor any wrongdoing by the Banks”.

On or about 25 November 2015, the Banks became aware of press reports published by the Giornale di Brescia in Italy, which stated that Brescia had “decided to sue” the Banks in relation to the Transactions, that “experts” appointed by Brescia had “highlighted ‘serious issues nullifying the contracts’” and Brescia intended to seek “suspension” and/or “cancellation” of the Transactions. (Footnote: ⁹)

In response to these press reports, DB issued a claim against Brescia on 10 December 2015 seeking declaratory (and further or other) relief in connection with the Transactions.

On 18 March 2016, Brescia commenced the Original Italian Proceedings against the Banks alleging, among other things, that they had acted in breach of the Mandate in connection with the Transactions and that they were liable to pay damages in respect of losses allegedly suffered by Brescia under the Transactions.

On 21 April 2016, Dexia issued its own claim in England against Brescia seeking declaratory (and further or other) relief in connection with the Transactions.

In relation to DB’s claim in the Original English Proceedings, solicitors for Brescia confirmed in writing on 9 May 2016 that it did not dispute the jurisdiction of the English Court to determine the Original English Proceedings. The parties subsequently filed and served their respective Statements of Case and a Case Management Conference was heard on 12 May 2017.

In relation to Dexia’s claim in the Original English Proceedings, Brescia sought to challenge the Court’s jurisdiction over part of the claim by an application dated 26 July 2016. The jurisdiction challenge was rejected by Mr. Ali Malek QC (sitting as a Deputy High Court Judge) on 21 December 2016. (Footnote: ¹⁰) The Court ordered Brescia to pay Dexia’s costs to be assessed and a payment on account of £190,000. Brescia subsequently acknowledged service and the parties served their respective Statements of Case.

On 18 September 2017 (Dexia) and 25 September 2017 (DB), after negotiations described by Mr. Belarbi in his witness statement, the parties entered into the Settlement Agreements, in full and final settlement of all “Disputes” (as defined in the Settlement Agreement). This included any claim by Brescia against the Banks in relation to the validity and effectiveness of the Transactions, any supposed breach of the Mandate or any liability of the Banks for the losses allegedly suffered by Brescia as a result of entering into the Transactions.

Pursuant to the Settlement Agreements, it was agreed that the Original Proceedings were to be discontinued by consent.

The terms of the Settlement Agreements are addressed in detail in Section G below.

DB issued its Claim in the present proceedings on 13 November 2020. Brescia acknowledged service on 15 March 2021, stating that it intended to challenge the jurisdiction of the English Court to determine part of the claim.

Brescia subsequently commenced the New Italian Proceedings against Dexia by a Writ of Summons in the Civil Court of Rome dated 8 March 2021 (“the Dexia Writ”) and DB by a Writ of Summons also in the Civil Court of Rome dated 26 March 2021 (“the DB Writ”), in each case challenging the validity and/or enforceability of the Transactions and the Settlement Agreement. As regards the Transactions, in the New Italian Proceedings Brescia alleges (among other things) that:

In addition, Brescia contends that the Settlement Agreements are null and void or otherwise invalid for breach of provisions of Italian law on the following basis:

As noted above, Brescia’s arguments regarding the Transactions are addressed in Section F and its arguments regarding the Settlement Agreements are addressed in Section G.

On 6 May 2021, Brescia issued an application seeking to challenge this Court’s jurisdiction to grant declaratory relief in respect of Declarations 16–20 of DB’s Claim, all of which relate to the Settlement Agreements.

On 15 September 2021, Dexia issued its Claim in England, seeking similar relief to DB. On 19 November 2021, Brescia issued a similar application seeking to challenge the English Court’s jurisdiction to grant declaratory relief in respect of Declarations 20 to 29 of Dexia’s Claim.

The Court dismissed Brescia’s jurisdiction application in relation to DB on 7 July 2022 and its jurisdiction application in relation to Dexia on 24 April 2023. (Footnote: ¹²) The English Court thus has jurisdiction to determine the whole of the present Claims. This was recently confirmed by the Brescia Court of Appeal in a judgment on 7 June 2024 rejecting Brescia’s challenge to the recognition of the English judgment and affirming that it is fully valid and binding in Italy.

As highlighted in Section C above, Brescia’s response to the Claims since it lost the jurisdiction challenges has been to refuse to engage, despite having solicitors on the record throughout and being served with all of the relevant documents and advised of all of the procedural steps and hearings in the proceedings. It has failed to file either a revised Acknowledgement of Service or a Defence to the Claims.

The relevant terms of the Transaction Documents (as they apply to DB and Dexia respectively) are reproduced in Annex 1 to this judgment. Those terms, the most relevant of which I shall later identify and set out, provide the basis for Declarations sought by DB numbered 1 to 15 and Declarations similarly sought by Dexia numbered 1 to 19 in Annex 1, following the numbering in their respective Particulars of Claim (as amended).

The Declarations sought in relation to the Transactions (I address the Settlement Agreements separately later) for the most part either exactly track the contractual wording of the relevant Transactions or (so the Banks submit) follow straightforwardly from those Declarations. The Declarations sought are very detailed: but the Banks submit that that is a consequence of the approach in following as carefully as possible the detailed provisions of the Transactions themselves in order to forestall any later arguments based on the wording of particular provisions.

As I shall return to develop later, the further Declarations sought in respect of the Settlement Agreements are, in summary, intended (a) to confirm and stipulate that they are lawful, valid and enforceable and entirely consistent with Italian law, and (b) to pronounce that their effect is to preclude the claims Brescia is seeking to bring in Italy, including Brescia’s attempt in the Italian proceedings to set those Agreements aside.

It might be thought at first blush, as indeed I raised with Mr Handyside KC at the commencement of the hearing, that since the Settlement Agreements rehearse and appear contractually to bind Brescia to accept the validity and enforceability of the Transactions, it should be sufficient to declare the validity and enforceability of the Settlement Agreements. In this context, it is important to appreciate that the primary relief sought by Brescia in the New Italian Proceedings is setting aside the Settlement Agreements, as it recognises its arguments in Italy cannot succeed if the Settlement Agreements are valid, binding and effective.

However, the Banks contend that they do need Declarations in respect of the Transactions as well, because the primary basis on which Brescia seek to set aside the Settlement Agreements is that the Transactions are void or unenforceable, and (under Italian law) a settlement agreement cannot be valid if it purports to compromise matters relating to an unlawful and/or void or unenforceable contract. In other words, Brescia’s primary basis for setting aside the Settlement Agreements governed by Italian law is that the Transactions to which they relate (governed by English law) are invalid. To that extent, Brescia’s arguments in the Italian proceedings are parasitic on their arguments with respect to the Transactions.

To return to the terms of the Transaction Documents themselves, their key provisions include the following:

However, Brescia maintains that these promises do not bind it. It claims that the Transactions are invalid under Italian law. The arguments advanced by Brescia in the Italian Proceedings, and the further arguments raised by other Italian local authorities in previous cases in the English Courts to support their position that derivatives transactions of this kind are void or not binding upon them, fall into three categories:

I shall address each in turn; but there is a preliminary question of the proper characterisation for the purposes of private international law of an issue of capacity raised in respect of a foreign entity such as Brescia, and what is the law applicable.

What law should be applied in the determination of an issue depends in the first instance on identifying the appropriate categorisation or classification of that issue. In this case, the question of characterisation is whether the basis on which Brescia seeks to set aside the Transactions raises an issue properly classified as an issue of its own “capacity” or whether it raises an issue properly classified as a legal challenge to the validity and efficacy of the Transactions. If the correct characterisation of the relevant issue is that it is an issue of capacity, then Italian law must be applied in the determination of that issue, since it is clear that an issue as to the capacity of Brescia must be determined by the law under which it was brought into being as a legal entity and under which law alone it has its existence. If, however, the correct characterisation is that the issue raised concerns the validity and effect of the Transactions, then it is equally clear that the issue must be determined by the application of English law, which is the law chosen to apply to the Transactions. Only if the issue is characterised as one of capacity can Brescia hope to succeed. The Banks accept that the Transactions would be void if Brescia lacked capacity to enter into them under Italian law.

“Capacity” is a word of flexible meaning, which can mean different things in different legal systems The issue of characterisation is governed by English law as the law of the forum. Under English domestic law, there is a crucial distinction between capacity, in the one hand and acts done in excess or abuse of the powers of the company. Lack of capacity (legal impossibility) and abuse of power (impropriety) are distinguished and their effect is different. The capacity of a legal entity is defined and confined by its constitution, and an act without or outside its capacity thus defined as “ultra vires” and incapable of having legal effect.

Other legal systems, however, take a different approach and, in particular, regard a legal entity’s “power of law” to be universal save as expressly restricted under the relevant law, so there is no room for an act to be “ultra vires”. Those systems have a broader approach to the concept of capacity, extending it to the legal ability of an entity to bring about an event having a legal consequence. On that approach, a lack of substantive power to conclude a contract of a particular type, because prohibited by express provision of law, is equivalent to or comprehended within the concept of “capacity”.

It has been clarified by the Court of Appeal in Haugesund Kommune v Depfa ACS Bank (Footnote: ¹³) that in the context of private international law, the English Court should give a broader, “internationalist”, meaning to the concept, and should not restrict its application to the narrow definition accorded by domestic English law.

The effect of Haugesund is that the concept of capacity is given a broad “internationalist” meaning which refers to “the legal ability of a corporation to exercise specific rights, in particular the legal ability to enter into a valid contract with a third party”. (Footnote: ¹⁴) It was held that “a lack of substantive power to conclude a contract of a particular type is equivalent to a lack of ‘capacity’, to use English terminology.” (Footnote: ¹⁵)

Brescia has not advanced and, given the Italian law, could not advance any argument that it lacked capacity in the narrow (English) sense. There is no general limitation on the capacity of Italian local authorities to enter into private law contracts, such as derivatives transactions, and Italian law has no principle of an act being ultra vires the civil law capacity of a local authority: Venice at para. [201] and Busto at paras. [174] and [251]. It is uncontroversial that Italian local authorities have general civil law capacity and the Italian Supreme Court has held that “In our legal system there is no rule of nec ultra vires (which characterises the activity of public legal entities in the Anglo-Saxon system) so that both public legal entities and private legal entities have the same legal capacity”. (Footnote: ¹⁶)

However, the approach to the capacity of foreign corporations that was adopted in Haugesund (Footnote: ¹⁷) raises a question of Italian law as to Brescia’s capacity (i.e. legal ability / substantive power to enter into contracts). However, the civil law consequences of lack of capacity are determined under the putative applicable law of the relevant contract (i.e. English law in this case). As a matter of English law, the lack of capacity of a party results in the contract being void. The Banks therefore accept that the Transactions would be void if Brescia lacked capacity to enter into them under Italian law.

It is important, therefore, that the issue of capacity, albeit in the internationalist sense, must be distinguished from other issues which may affect the validity of a contract, including in particular: (Footnote: ¹⁸)

In the present case, as the Banks pointed out, only a lack of capacity in the Haugesund “internationalist” sense, will lead to the conclusion that the Transactions are not valid, binding and enforceable against Brescia. That is because, as a matter of English law:

In this regard, it has been held in previous cases, and Brescia has not contested, that any specific limits on the capacity of Italian local authorities must be specifically prescribed by Italian law: Venice at para. [200(ii)] and Busto at paras. [177]–[179] [184]–[190]. So the question becomes whether, in Italian law, there is any provision specifically prohibiting Brescia from entering into the Transactions so as to limit its capacity (in the internationalist sense of “substantive power”).

The only provisions which it has been contended in various prior cases limited Italian public authorities’ capacity (in the sense of “substantive power”) to enter into derivatives arise out of an Italian law prohibition on such entities entering into “speculative” derivative transactions (as opposed to hedging derivative transactions) or resorting to indebtedness for purposes other than financing investment expenditure. These prohibitions arise out of Article 119 of the Italian Constitution as interpreted by the Italian Supreme Court in the Cattolica Decision. (Footnote: ²⁴)

That contention and the Cattolica Decision have been considered in several judgments of the English Court, and, in particular, in Venice (both at first instance and on appeal), Busto, Pesaro and Catanzaro. The focus in that regard is on:

In this regard the Banks made four observations:

I turn to consider whether (i) the Transactions were “speculative”, as a matter of Italian law or (ii) the Transactions involved indebtedness otherwise than as a means of funding investment expenditure. No other argument going to capacity has been identified by Brescia in the New Italian Proceedings. Nor has any other capacity argument advanced by any Italian local authority found success in the English Courts.

As to (i) in the preceding paragraph ([119]), I accept the submission on behalf of the Banks that there is no serious argument that the Transactions were “speculative” (as opposed to hedging) as a matter of Italian law.

As the Court of Appeal held in Venice in the Court of Appeal at paras. [159]–[166], the Italian Supreme Court (Footnote: ²⁸) and the Italian financial regulator, CONSOB, have clarified that a derivative will not be speculative when it satisfies the two conditions set out in Prof. Rimini’s Report, being: (Footnote: ²⁹)

Although Foxton J had held at first instance in Venice at paras. [208]–[209] and [222] that the CONSOB definition was not exhaustive and certain other indicia may be relevant in identifying speculative derivatives, that conclusion was reversed in Venice in the Court of Appeal at paras. [159]–[160]. In consequence, I accept that the relevant test is whether the two conditions in the CONSOB test are satisfied; and, in my judgment, they are.

The first condition of the CONSOB test is satisfied because the Transactions were entered into by Brescia explicitly on the basis that they would reduce the riskiness of its existing indebtedness. In each case, Brescia expressly stated the purpose of the Transactions was to amortise the bullet repayment and hedge the interest rate risks arising from the Bonds. It was on this basis that Brescia itself took the view, at the time it entered into them, that the Transactions complied with the relevant Italian laws and declared the same to the Banks. As Foxton J held in Venice at para. [210], whether a transaction is speculative has to be assessed ex ante rather than in hindsight, and Brescia’s ex ante assessment was that the Transactions reduced its risk exposure.

Prof. Rimini has explained that the second condition of the CONSOB test (which is that there must be a high degree of correlation between the derivative and the underlying borrowing being hedged) will be satisfied if:

In his Report, Prof. Rimini has also explained that the above are exemplars, but the CONSOB test is “a high degree” and not exact correlation; and a mismatch which plainly does not suggest that the counterparty is pursuing some other objective than hedging through the derivative transaction should not render a derivative speculative.

In the present case, however, there is no mismatch: as Prof. Cucurachi explains, the “correlation between the financial features of the Bonds (notional, rate, frequency of payments, etc.) and those of the leg of the swaps received by Brescia is perfect, since the Transactions were structured to provide Brescia with the funds needed to pay the cashflows due under the Bonds”. Specifically:

Furthermore, as Prof. Cucurachi goes on to explain:

Against this background, the conclusion urged by the Banks is that the Transactions complied with both limbs of the CONSOB test and were thus hedging transactions. None of the arguments which Brescia has advanced in the New Italian Proceedings seem to me to disturb this conclusion. As to those arguments:

In summary, I do not accept Brescia’s arguments. I agree with the submission made on behalf of the Banks that the Transactions were ‘plain vanilla’ derivative transactions that effected a straightforward hedge through an interest rate swap with a collar. It follows that, in my judgment, the Speculation Limit in Article 119 of the Italian Constitution was not breached by the Transactions.

As to point (ii) in paragraph [119] above, I have already noted that Brescia has not alleged that the Transactions involved a resort to indebtedness otherwise than as a means to fund investments in breach of Article 119(6) of the Italian Constitution. Nevertheless, the Banks invited me to deal with this point for completeness, as the Indebtedness Limit is the only other limitation on the capacity of Italian local authorities recognised in the cases.

Article 119(6) of the Italian Constitution permits local authorities to resort to “indebtedness”, but only to finance their investment expenditure. The meaning of “indebtedness” for this purpose is set in Article 3(17) of Law 350/2003, by way of a list of (apparently exhaustive) (Footnote: ³⁵) transaction types. The list specifically excludes restructuring existing borrowing to improve liquidity in a way that does not involve “additional resources”, (Footnote: ³⁶) which Cockerill J held in Busto was “apt to cover swaps which restructure borrowing by adjusting the repayment profile” (at para. [200]). The Transactions in this case adjust Brescia’s repayment profile under the Bonds solely by amortising the bullet repayment over the lifetime of the Bonds. The Banks submitted that the Transactions do not involve Brescia incurring any additional borrowing to which it was not already exposed by issuing the Bonds.

The list in Article 3(17) was amended from 1 January 2009 (after the Transactions and with prospective effect only) to include the upfront payment component of a derivative, highlighting that derivatives more generally are excluded from the definition of “indebtedness” in Italian law (as Foxton J held in Venice at para. [233] and Cockerill J held in Busto at paras. [195], [280] and [328]). (Footnote: ³⁷)

In the Cattolica Decision, the Italian Supreme Court held that, while derivatives typically do not fall within the definition of indebtedness:

However, the Banks submit that even if the Cattolica Decision is assumed to be correct on these points, it has no bearing on the Claims because no part of the Transactions could potentially constitute indebtedness for the purposes of Article 119(6). In particular the Banks contend that:

In Venice, Foxton J considered, but did not decide, whether the Indebtedness Limit might apply to derivative transactions that are part of a wider re-financing that involves extinguishing or significantly modifying a local authority’s existing indebtedness: see Venice at paras. [262]–[267]. The Banks’ position is that the requirement applies only to the refinancing element of the relevant transaction (in this case the Bonds) and not to a separate derivative concluded in connection with it; and that accordingly, the Indebtedness Limit applies to a derivative only where the derivative itself involves significant modifications to the local authority’s debt, for example a cash flow swap that re-schedules the maturity of the underlying indebtedness or which substantially modifies the profile of the debt.

The Banks’ position depends on an analysis of the true intent of the relevant part of the decision of the Supreme Court in the Cattolica Decision. Like Foxton J, I consider there to be “scope for argument” in this context (see especially para. [265] of Venice); and like him, I prefer not to reach a final view on the question whether the Indebtedness Limit might apply to derivative transactions that are part of a wider re-financing that involves (in economic terms, even if strictly not in legal terms) extinguishing or significantly modifying a local authority’s existing indebtedness such as to require specific Provincial Council approval of the derivative transactions themselves. It is not necessary for me to decide this because I accept the Banks’ alternative or further submission as set out in the next paragraph, and that seems to me to be sufficient.

That submission is that, even if the Indebtedness Limit were to apply to the Transactions, on the basis of the argument that they were concluded in connection with a re-financing that extinguished the CDP Loans, then it is nevertheless clear that:

In the circumstances, the Banks submitted that the Transactions did not involve incurring any indebtedness otherwise than for investment purposes and the Indebtedness Limit has no application to them; or alternatively, that even if (contrary to the Banks’ case) the Indebtedness Limit does have wider application to the whole re-financing, the Transactions did not form part of a refinancing that involved Brescia incurring any indebtedness for a purpose other than funding investment expenditure. I prefer to determine the issue on that alternative ground.

Brescia contends in the New Italian Proceedings that the Transactions do not comply with Article 42 of TUEL, which, as Prof. Rimini has explained, reflects “the general principle of administrative law according to which “policymaking” and “policy implementation/managerial activity” shall be separate and carried out by different organs within the local authority”. Prof Rimini’s Report provides a useful summary of the division of responsibilities and the effect of Article 42. In summary, Italian provinces are generally composed of (i) a Provincial Council, which is an elected assembly, setting out the policies in relation to the general affairs of the province; (ii) a Provincial Board, and trusted with the role of implementing the policies set out by the Provincial Council;; and (iii) senior civil servants, who are mostly directors of the province entrusted with management of public offices and managerial activity. Prof. Rimini spells out the effect of Article 42 of TUEL as being that it “sets out the division of competences between the Provincial Council and the Provincial Board”, where the Council is the body “of policy making and political-administrative control” and “programmes, plans, statutes and guidelines are adopted by the Provincial Council, while administrative acts and contracts fall within the competence of the Provincial Board and the senior civil servants.”

The real point in issue lies within a narrow compass. Brescia has accepted that the Provincial Council purported to authorise Dr Fenaroli to enter into the Transactions in Resolution 20/2006 (First Transaction) and 38/2006 (Second Transaction); the real essence of its complaint is Brescia’s argument that the authorisations given by its Provincial Council (quoted in paragraph [144] below) were too “generic” to comply with Italian law and/or combined the authorisation of the amortising swap and interest rate collar in a single approval that Brescia contends was “equivocal”. (Footnote: ⁴⁰)

The Bank’s primary point, which would be conclusive if I accept it, is that on its true characterisation this argument does not go to Brescia’s capacity to enter into the Transactions, but rather its authority to do so under Italian law. Substantially the same issue of characterisation was addressed by Cockerill J in Busto at paras. [372]–[373] and Foxton J in Venice at paras. [304]–[317]. (Footnote: ⁴¹) Both accepted the Banks’ argument: see Busto at paras. [377]–[382] and Venice at para. [317]. I agree with their analysis. It follows that, in my judgment, these arguments, being properly characterised as raising an issue of authority and not capacity, can be of no assistance to Brescia in defending the Claims because the Transactions are governed by English law, not Italian law, and matters of ostensible authority and ratification are governed by English law.

As indicated above, in case I were not to accept their characterisation of the issue, the Banks went on to submit also that Brescia’s argument that it lacked actual authority to enter into the Transactions is also wrong as a matter of Italian law. Brescia’s argument in this regard appears to depend on whether the Transactions required the approval of the Provincial Council, as Brescia contend was the case.

Citing Article 42(2) of TUEL, Prof. Rimini’s evidence is that the competence of the Provincial Council includes approving “expenditures which commit the budgets for subsequent financial years”. The Bonds, which did commit Brescia to new expenditures over multiple years, were approved by the Provincial Council: and Brescia does not suggest otherwise. The question of whether the Transactions required the approval of the Provincial Council depends on whether the derivatives committed Brescia to new expenditures over multiple years that had not been already included or accounted for in its budget. (Footnote: ⁴²) That is because the Italian Supreme Court made clear in the Cattolica Decision that this will only be the case for derivatives “which involved an upfront, or involved the extinguishment or significant modification of existing loans so as to give rise to new indebtedness”. (Footnote: ⁴³) The Banks contended that this is not the case here, and that it follows that Provincial Council approval was not required for the Transactions.

In any event, and even if that is wrong, the Banks submit that Article 42 of TUEL was complied with because the Provincial Council authorised the Transactions. Specifically:

On that basis, the Banks seek Declarations that the Transactions complied with Article 42 of TUEL, either because it did not apply to them or, if it did, because sufficient Provincial Council approval was in fact obtained for the Transactions.

Second, even if that too is wrong, the Banks’ alternative case is that Brescia held out Dr Fenaroli as having been properly authorised and/or represented to the Banks that all necessary authorisations had been obtained in compliance with TUEL, and that Dr Fenaroli therefore had ostensible authority as a matter of English law. In addition to the resolutions authorising Dr Fenaroli to enter into the Transactions, which are summarised above, Brescia held out Dr Fenaroli as having such authority in the Transaction Documents, which included, among other things, representations that:

I accept the Banks’ two alternative arguments at paragraphs [144] to [146] above; but for reasons similar to those that underlie paragraph [138] above, I prefer not to express a final view on the Banks arguments as summarised at paragraph [143] above (although I tend to consider the Banks have the stronger of the argument).

It is not strictly necessary in these circumstances to address the Banks’ ‘back-stop’ argument based on ratification; but I shall do so briefly given that I have set out the acts the Banks rely on in Section E.4 above. Those acts include:

I agree with the Banks that any issue as to ratification of a transaction is governed by English law. Cockerill J concluded that very similar conduct amounted to ratification under English law in Busto [383]–[386], as did Mr Peter MacDonald Eggers KC in Pesaro at paras. [100]–[101]. I agree with their analysis and consider that it applies to this case.

In the round, in my judgment, and in agreement with the Banks’ submissions, none of Brescia’s authority arguments have merit. The Transactions were duly authorised as a matter of Italian law; and, even if they were not, Dr Fenaroli had ostensible authority to enter into them. Furthermore, Brescia repeatedly ratified them by its subsequent conduct over a decade or more.

The other arguments set out in paragraph [91] above that are relied on by Brescia to attack the Transactions in the New Italian Proceedings are based on Brescia’s contention that the Transactions did not comply with mandatory rules of Italian law. Again, on their true characterisation, these arguments concern, not Brescia’s capacity, but its compliance with mandatory rules of Italian law. Thus, it is again important to emphasise at the outset that, although I address these arguments in the interests of comprehensiveness, none (as Brescia’s arguments in the New Italian Proceedings assume) goes to capacity (even in its broader sense), and all go to matters governed, not by Italian law, but by English law. This is clear as matter of analysis; but, with the exception of two of the arguments, it is also confirmed by prior English authority.

Thus, I agree with the Banks that:

As to the two further arguments not previously covered by the English Court:

Brescia’s position in the New Italian Proceedings is that the relevant provisions of Italian law apply by virtue of Article 3(3) of the Rome Convention (which the Banks suggested is, in and of itself, a concession that they are not rules going to capacity). I do not accept the argument that Article 3(3) applies, for the reasons given in Pesaro at paras. [77]–[79], Prato CA at paras. [126]–[137]; Venice at paras. [338]–[342]; and Catanzaro at paras. [102]. This is not a case where all the elements relevant to the situation at the time of the choice of law are connected with Italy alone. Giving just two examples, each of which is sufficient on its own: (Footnote: ⁴⁷)

Thus, for the purposes of the Claims in this jurisdiction, none of Brescia’s validity arguments (which make up all or most of its claims in the New Italian Proceedings) can properly be characterised as an issue of capacity and none under English law has any effect on the validity and enforceability of the Transactions.

The Banks are, however, also seeking substantive declaratory relief in respect of some of the Italian law arguments Brescia is advancing in Italy in support of its plea of invalidity. In particular, the Banks seek Declarations in respect of the following Italian laws: (Footnote: ⁴⁸)

It is therefore necessary to address some of these points of Italian law in a little more detail. The descriptions in this Section of provisions of Italian law are derived from Prof. Rimini’s Report.

Decree 389 comprises the general regulatory framework setting out technical rules on the use of derivative contracts by local authorities. Article 3(1) of Decree 389 deals with foreign currency swaps in cases where the indebtedness of a local authority is in a foreign currency. Article 3(2) lists the different types of derivative instruments that local authorities may enter into; and sub-paragraph (d) of Article 3(2) permits:

“The acquisition of an interest rate “collar” whereby the buyer is guaranteed an interest rate level payable, varying between pre-established minimum and maximum levels”. (Footnote: ⁴⁹)

The interpretation and application of these provisions is addressed in the MEF Circular 2004. Prof. Rimini has explained that the MEF is the central Italian authority on public finance and public debt, and its Circulars are the expression of its views on the interpretation and application of the existing law, and an effective tool in the interpretation of Italian law on derivative transactions.

Prof. Rimini has explained, and Brescia appears to accept (see its DB Writ), that the Transactions fell within the types described in Article 3(2) of Decree 389. (Footnote: ⁵⁰) Applying the guidance in the 2004 MEF Circular, the Transactions would be considered to be “plain vanilla” derivatives. (Footnote: ⁵¹)

Brescia only resists the conclusion that the Transactions complied with Decree 389 in two ways:

No points are taken by Brescia in the New Italian Proceedings as to its compliance with the directive in Article 3(3) of Decree 389 that it should “gradually strive” to ensure that the total nominal amount of transactions entered into with each counterparty does not exceed 25% of the total outstanding transactions. There does not appear to be any evidence to suggest that Brescia was not striving to achieve this over time. In any case, as Prof. Rimini explains:

“This is not a formal mandatory requirement in Ministerial Decree 389, but rather a requirement that the local authority endeavor over time to ensure that the credit risk of the counterparty bank is under control and properly managed.” (Footnote: ⁵⁴)

Decree 389 is augmented by the MEF’s guidance in the 2004 MEF Circular. Prof. Rimini explains that the 2004 MEF Circular “only seeks to explain and to assist with the interpretation of Ministerial Decree 389... It does not impose further requirements on local authorities wishing to enter into derivative transactions and, in any case … it is an interpretative tool which is not binding on a court.” In any event, Brescia does not suggest in the New Italian Proceedings that the Transactions breached any part of the guidance in the 2004 MEF Circular.

It follows that the only two requirements for the Transactions to comply with Article 3 of Decree 389 and the 2004 MEF Circular are that (i) the type of derivative falls within Article 3(2) and (ii) the derivative relates to an existing debt of the local authority.

In my judgment, both requirements are satisfied here. Accordingly, the Transactions complied in all respects with Decree 389 and the 2004 MEF Circular. The Banks seek Declarations accordingly. (Footnote: ⁵⁵)

As already noted above, Brescia argues that the Transactions put it in breach of the requirements under Article 41(2), which placed the obligation on Brescia (rather than its counterparty) to ensure that any refinancing of its existing indebtedness is “under refinancing conditions that allow a reduction of the financial value of total liabilities to be paid by the bodies themselves”. This requires a comparison between “the present value of the existing liabilities and the present value of the new liabilities” and “a refinancing is convenient only if there is a reduction of the latter” and is what Prof. Rimini described as ‘the economic convenience’ test (see especially paragraph [137(1)] above).

The Banks submit that Brescia’s argument is wrong for at least four reasons:

The Banks’ case is that the Transactions thus complied with any ‘economic convenience’ requirement, either because it did not apply or because the calculations are positive on both of the alternative bases set out by Prof. Cucurachi.

Prof. Rimini’s opinion is that the 2005 MEF Circular does not strictly apply to the Bonds or to the Transactions. Rather, it provides guidance on Law 311/2004, which concerns the analogous conversion of liabilities with amortising costs imposed on the State. However, Brescia relies on the 2005 MEF Circular in the New Italian Proceedings by way of analogy as setting out the approach to be adopted to a refinancing pursuant to Article 41(2). There is no suggestion in the New Italian proceedings that the Transactions themselves involved any breach of the guidance in the 2005 MEF Circular.

However, in relation to DB only, Brescia also contends that the Second Transaction breached Article 41(2) bis, which requires local authorities to send draft contracts for derivative transactions to the MEF prior to entering into them. On the basis of Prof. Rimini’s evidence, which I accept, there is a short answer to this: Article 41(2) bis applied only “From 1 January 2007” to draft contracts for any transactions that local authorities proposed to enter into after that date. The Second Transaction was, however, concluded on 22 December 2006. It is irrelevant that the Confirmation was sent to Brescia on 2 January 2007; the transaction was entered into prior to 1 January 2007.

I accept the Banks’ submission that it follows that the Transactions complied with Article 41 (including Article 41(2) bis) and the guidance in the 2005 MEF Circular. The Banks seek declaratory relief accordingly. (Footnote: ⁵⁷)

Article 1(736) of Law No. 296/2006 sets out certain general principles and guidance to public officials entering into derivative contracts, and in particular, that such contracts should be aimed at the reduction of the final cost of the debt and minimising exposure to market risks. It provides as follows:

“The rules of this paragraph are core principles for the coordination of public finance mentioned in articles 117, third paragraph, and 119, second paragraph, of the Constitution. Debt management transactions that use derivatives, performed by regions and entities referred to in the consolidated act referred to in Legislative Decree no. 267 of 18 August 2000, must be aimed at the reduction of the final cost of debt and at reducing exposure to market risks. Entities may enter into such transactions only on corresponding due liabilities, having regard to the hedging of the undertaken credit risks.”

Prof. Rimini has explained that the relevant assessment is to be made ex ante when the Transactions are entered into. Article 1(736) additionally points out that derivatives should be entered into only in respect of liabilities which are actually due, which is a requirement already imposed by Article 3(3) of Decree 389.

Article 1(736) was in turn the subject of guidance from the MEF in the 2007 MEF Circular. The 2007 MEF Circular clarifies that there is a balancing exercise between the overall total cost of the derivatives and the market risk being addressed by the derivatives, and that there should be a correlation between the notional amount of the underlying liability being hedged and the derivative transaction. This guidance is what forms the basis for the CONSOB test differentiating between speculative and hedging derivatives, which is considered in Section F.2.1 above.

On the basis of Prof. Rimini’s evidence, I agree that, as there explained, the Transactions complied with these guiding principles and are hedging transactions within the meaning of the CONSOB test and the 2007 MEF Circular: they were entered into expressly to minimise the market risks arising from Brescia’s exposure to floating rate borrowing under the Bonds and were perfectly correlated with Brescia’s underlying borrowing so as to function as a hedge in respect of that risk.

Declaratory relief is sought by the Banks in respect of Article 1(736) and the 2007 MEF Circular. (Footnote: ⁵⁸)

Articles 1703, 1710 and 1711 of the ICC are the provisions of the Civil Code that deal with agency relationships in a mandate context. In particular: (Footnote: ⁵⁹)

Prof. Rimini explains that these provisions have no application to the Transactions:

The Banks submit that it follows that the Transactions did not breach Articles 1703, 1710 or 1711: and I agree. The Banks seek declaratory relief in this respect. (Footnote: ⁶⁰)

Finally in relation to the Transactions, the Banks seek what Mr Handyside described as “the customary declaration” (presumably because it was made in both the Busto and Catanzaro cases) that Brescia was a professional investor pursuant to Article 31 of the 1998 CR in circumstances where it signed a written self-declaration to that effect prior to entering into the Transactions, as set out in paragraph [61(1)] above.

Article 31(2) of the 1998 CR provides that professional investors include “companies or legal persons possessing specific expertise and experience in matters of transactions in financial instruments expressly declared in writing by their legal representative.” As Prof. Rimini explains, the effect of this provision is that, when a local authority declares “in writing its possession of a specific expertise and experience in transactions involving financial instruments, it can be classified as a professional investor for regulatory purposes” and “the intermediary has no duty to verify that the written statement rendered by the investor is correct and the burden of provide evidence to the contrary is on the investor.”

In the New Italian Proceedings, Brescia argues that it is not a professional investor because it lacked the required experience and the written declaration it provided was incorrect or should be disregarded. However, it appears from Prof. Rimini’s Report that the Italian Court of Accounts has already rejected that contention in Italy in accounting proceedings brought by the Public Prosecutor. It found that:

In circumstances where Brescia, having had the plain opportunity to do so, has not adduced any evidence to show that it lacked the relevant experience and expertise in financial instruments, the Banks contend that they are entitled to rely on the declaration that Brescia provided, without more. In any event, Mr Belarbi’s evidence is that Brescia was a main client of Dexia, which investigated the position at the time and was satisfied that Brescia was so qualified. I accept the Banks’ submissions. The Banks seek declaratory relief in this regard. (Footnote: ⁶¹)

I turn to the declaratory relief sought in respect of the Settlement Agreements, which were intended to bring an end to all then existing English and Italian proceedings between the parties concerning the Transactions. More particularly, by the Settlement Agreements, the Banks and Brescia agreed to a full and final settlement of all “Disputes” between them (as that term is defined in the Settlement Agreements), including (amongst other things) the Original Proceedings (as to which, see E.5 above) and all future disputes in relation to the Transactions. The definition of “Disputes” expressly excludes the present Claims, which are:

“… disputes and/or proceedings initiated by the Parties after the Signing Date of this Agreement concerning the fulfilment of the obligations arising under this Agreement, the fulfilment of the future obligations arising under the [Transactions] and payment of amounts due, or compliance with obligations undertaken, or protection of the rights acquired under this Agreement and the [Transactions]…”

The key provisions of the Settlement Agreements (which are common to both Banks) include the following:

The Banks’ case is that the Settlement Agreements are relevant to the Claims in two ways:

As already noted in paragraph [92] above, Brescia has advanced four arguments of Italian law in respect of the Settlement Agreements in the New Italian Proceedings:

However, before addressing these arguments, I should first address the question of jurisdiction which arises out of the basic fact that the Settlement Agreements are governed by Italian law and in the Italian Proceedings Brescia is seeking to rely on arguments of Italian law to set them aside. In the skeleton argument on behalf of the Banks it is stated that “the principles to be applied to the declaratory relief sought by the Banks in respect of the Settlement Agreements are the same as for the Transaction Documents and the Court is requested to grant the relief sought on the same basis.” But it seems to me that this does not take into account whether, as Brescia would no doubt argue, issues as to the validity and effect of the Settlement Agreement are caught by the choice of Italian law in the Settlement Agreements.

The question whether there is an objection to the grant of Declarations as to the effect and validity of the Settlement Agreements, which (by clause 11.1 of the DB Settlement Agreement and clause 9.1 of the Dexia Settlement Agreement) the respective parties agreed were to be governed and interpreted in accordance with Italian law, has previously been considered by Robin Knowles J (at [2022] EWHC 2859 (Comm)) and by Butcher J (at [2023] EWHC 959 (Comm)) in the context of applications by Brescia for orders that the English Court does not have or should decline to exercise jurisdiction over the claims for such Declarations. Butcher J summarised neatly the issue as being whether the choice of that law in those Agreements “trumps the English jurisdiction clause [in the Master Agreements]”: see his judgment at [2023] EWHC 959 (Comm).

Both Knowles J and Butcher J decided that the Banks had “the better of the argument” (the relevant test in such an application, see Airbus SAS v Generali Italia SpA [2019] EWCA Civ 805 at paras. [49] to [53]) that the claims for such Declarations fell within the jurisdiction clauses in the Master Agreements (English law and the English Courts in each case). As both of them noted, those jurisdiction clauses provide for the jurisdiction of the English courts and the application of English law “with respect to any suit, action or proceedings relating to this Agreement.” Both judges also noted that the Settlement Agreement in issue does not itself have a jurisdiction clause. Instead, clause 9 of the DB Settlement Agreement and clause 11 of the Dexia Settlement Agreement provide as follows (the words in [] reflecting the DB Settlement Agreement and the words in {} reflecting the Dexia Settlement Agreement):

“This agreement and all contractual and [tort] {non-contractual obligations} arising therefrom shall be governed by and interpreted in accordance with Italian law.

However, it [is] {remains} understood that the swaps and the ISDA agreement relating [to them] {thereto} are subject to English law and {subject to} the exclusive jurisdiction of the English courts as contractually provided for.”

In my view, it is plain from the latter part of that provision (the expressed understanding as to the continuing application of the choice of law and exclusive jurisdiction in the swaps and the Master Agreements) that the parties accepted that the choice of Italian law in the Settlement Agreement would not “trump” the English choice of law and exclusive jurisdiction clauses in the Master Agreements. The issue then becomes what should be taken to be the agreed scope of those clauses.

Both Knowles J and Butcher J considered the relevant provision in the Master Agreements to be in very wide terms, amply broad enough to extend to capture any dispute about the Transactions, and to give jurisdiction to the English courts to give declaratory relief to prevent any challenge to the validity of the Transactions, including Declarations intended to confirm that validity and effect under English law by declaring invalid any step to challenge or undermine it, even one governed by Italian law. As Knowles J put it, in a passage quoted and adopted by Butcher J subject to two reservations as regards the specific relief then being sought by Dexia,

“the English jurisdiction clause covers the full field of the current proceedings. Read properly, all of the Declarations that are sought…have at their heart the transactions.”

On that basis, Knowles J dismissed Brescia’s jurisdictional challenge to DB’s claims as regards the Settlement Agreement and Butcher J likewise dismissed Brescia’s challenge to Dexia’s claim, subject in the latter case to two amendments to the Declarations sought (numbered 26 and 29 in Dexia’s Claim) in order to ensure (see para. [20] of Butcher J’s judgment) that they did not “trespass on the question of whether Dexia is liable for breach of the mandate, which has an exclusive Italian jurisdiction clause.” (In the event, it appears from Annex 1 (which I have taken to define and confine the Declarations sought) that Dexia no longer seeks either Declaration (numbered 26 and 29)).

I agree with the analysis in those two judgments, and propose to apply it. I turn, therefore, to the specific points of Italian law raised by Brescia in the Italian Proceedings in their attempts to set aside the Settlement Agreements

The requirements of Article 42 of TUEL are addressed in Section F.3 above: Brescia’s argument in the context of the Settlement Agreements (that Provincial Council approval was required because the contracts involved committing it to expenditure over multiple years) echoes the argument it has advanced in respect of the Transactions.

As with the Transactions, Prof. Rimini has identified the key question as whether the Settlement Agreements involved “expenditures which commit the budgets for subsequent financial years”. This turns on whether the Settlement Agreements created new multi-year liabilities or expenditures for Brescia that were not already included or accounted for in its budget.

Prof. Rimini explains that the Settlement Agreements in this case are so-called “conservative” settlement agreements under Italian law (as opposed to “novational” settlement agreements), meaning that they “do not alter the terms of any underlying contract and do not otherwise provide for any new expenditure”. In his opinion, such agreements “by definition do not require the approval of the Council”. Clause 2.3 and Clause 2.6 of the Dexia and DB Settlement Agreements, respectively, provide that the Transaction Documents will remain in full force and effect.

Further, Brescia accepts in the New Italian Proceedings that the Settlement Agreements were “conservative” in nature. Its argument is that the Settlement Agreements required Provincial Council approval because they were entered into (among other reasons) to settle disputes that had arisen in connection with the Transactions, which themselves required the approval of the Provincial Council.

The Banks reject this argument as doubly wrong: first, the Transactions did not require the approval of the Provincial Council, as explained in their argument summarised in paragraph [143] above and elaborated by Prof. Rimini; second, the cases cited by Brescia for the proposition that Council approval is needed for a settlement agreement in respect of underlying contracts that themselves required Council approval do not support that proposition, as explained by Prof. Rimini in his Report. In short, the Banks adopt Prof. Rimini’s evidence and submit that:

In the present case, Presidential Decree no. 209/2017 contained a statement from Brescia’s Financial Director confirming that the Settlement Agreements did not commit Brescia to any unaccounted for expenditure in future years. Further, Brescia’s balance sheet at the time included the cash flows arising from the Transactions and identified financial coverage to meet Brescia’s liabilities thereunder. The Banks contend that it follows that the Settlement Agreements did not require Provincial Council approval, which is consistent with the representations given by Brescia at the time that it had obtained all the necessary authorisations to enter into the Settlement Agreements.

As in the case of the Transactions, and having not reached a final determination on the question raised (and see paragraphs [143] and [147] above), I prefer to base my determination on the arguments summarised at paragraph [194] above. I accept those arguments as correct, on the evidence of Italian law submitted to me. I consider later whether to grant the relief sought by the Banks in this regard.

Prof. Rimini has explained that Article 1972 of the ICC deals with the situation where a settlement agreement relates to underlying contracts that are null and void. It provides as follows:

“1.

A settlement transaction in respect of an illicit contract is void, even if the parties have dealt with its nullity.

2.

In circumstances where the settlement transaction has been executed in respect of a void title, its nullity may be exclusively claimed by the party who was unaware of the nullity of the title itself”.

Prof. Rimini has gone on to explain that the first paragraph of Article 1972 deals with “illicit” contracts which are contrary to imperative rules of Italian law, public order and public ethics. There does not appear to be any case law to suggest that the Transactions were illicit in this strict sense and the Banks submit that there can be no serious suggestion that the Settlement Agreements were null and void for this reason. They submit further that, on the contrary, Brescia’s complaints relate in all or most cases to questions of material validity under Italian law. Court of Milan decision no. 7727/2021 (discussed in paragraph 199(3) above) is an example of a derivative that failed to comply with the requirements in the Cattolica Decision; this was held to fall in the second rather than the first paragraph of Article 1972 of the ICC.

The second paragraph applies where a contract is null and void for reasons other than being illicit in the strict sense identified above, but where one of the parties was unaware of the reasons for that at the time of the settlement agreement. Prof. Rimini considers that the various breaches of Italian law alleged by Brescia would fall within this second paragraph. In the present case, the allegations it made in the Original Italian Proceedings make it clear that Brescia knew about the reasons for the alleged invalidity of the Transactions prior to entering into the Settlement Agreements. On that basis, in his opinion, the Settlement Agreements would therefore not be invalid under Italian law. In any event, as the Transactions are governed by English law, not Italian law, the Banks also make the point that the various Italian law arguments raised by Brescia do not apply.

On the basis of the Italian law evidence that was presented to me, which seemed to me to be careful, cogent and consistent, I would accept the Banks’ case that the Settlement Agreements are not null and void pursuant to Article 1972 of the ICC. Again, however, I shall address later whether the Court should grant the declaratory relief sought by the Banks in respect of Italian law in this regard. (Footnote: ⁷¹)

The Banks submit that Brescia’s argument that Dexia did not give consideration for the Settlement Agreement is wholly without merit.

Prof. Rimini has explained that Article 1965 of the ICC requires that parties make “mutual concessions” in an agreement to compromise a dispute. He has cited a considerable amount of authority in Italian law that mutual concessions include the waiver of future litigation, and also the risk of having to pay the other side’s costs. This seems hardly surprising. Further, Dexia did not only waive any existing future litigation and its theoretical right to be awarded its costs in respect of the same; it also waived its extant right to payment of its costs of Brescia’s failed English jurisdiction challenge pursuant to an order of the English Court, which was the subject of detailed assessment proceedings at the time. Prof. Rimini’s view is that this was a concession for the purposes of Article 1965 of the ICC. Again, I have no reason not to accept that analysis, which (as the Banks submitted) also seems unsurprising.

It is accepted by the Banks that Italian law does not permit the ratification of a settlement agreement that is null and void pursuant to Article 1972 of the ICC or for want of consideration under Article 1965 of the ICC. The dispute about ratification under Italian law is limited to the situation where the Settlement Agreements are otherwise valid but were required by Italian law to be approved by the Provincial Council under Article 42 of TUEL and were not (contrary to the Banks’ arguments as set out in Section G.1 above).

Prof. Rimini explains that a breach of Article 42(2) of TUEL results in an administrative act that is affected by “relative incompetence” and so is “annullable”; and that this means that the administrative act is valid and effective but subject to being declared void by an administrative court or rendered void by self-redress actions taken by the local authority. He goes on to explain that neither is possible here as the time limit for Brescia to take either action has expired; (Footnote: ⁷²) and furthermore, that in any event, annulling an administrative act that was not taken consistently with Article 42 of TUEL would not affect the validity of a civil law contract entered into pursuant to that public administrative act, including the Settlement Agreements.

As the Settlement Agreements are governed by Italian law, the question of ratification is also a question of Italian law (unlike the Transactions, which are governed by English law). Prof. Rimini explains that Italian law will recognise ratification where there is any “behavior [sic] of a party that is clearly inconsistent with the intention of disputing the contract executed by the unauthorised representative”, including performance of the relevant contract. He gives as an example a local authority setting aside in its balance sheet specific funds to comply with the obligations arising from the contract. As explained in paragraph [194] above, this is what Brescia has done.

I accept the Bank’s submission that it follows from Prof. Rimini’s evidence that, if Provincial Council approval was required for the Settlement Agreements and was not obtained, Brescia has impliedly ratified the Settlement Agreements by its conduct and so is bound by them nevertheless. Again, that would not be a surprising result if English law were applicable.

The specific Declarations sought by the Banks are in two categories: one category relates to the validity and enforceability of the Transactions which by their terms are governed by English law; the other category relates to the validity and enforceability of the Settlement Agreements which the Banks accept are governed by Italian law.

The relief sought in respect of the Transactions is very similar to that sought and (for the most part) granted in the sequence of cases mentioned above, namely, Busto, Pesaro, Venezia and Catanzaro. I am satisfied that it would be in accordance with the principles underlying the grant of declaratory relief set out in the decisions of Cockerill J at paragraph [78] of BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2020] EWHC 2436 (Comm) and at para [8] in Busto (and rehearsed and followed in Pesaro at paras. [128] to [130]) for me to exercise my discretion to grant the relief sought by DB and Dexia respectively in respect of the Transactions.

I have considered the wording of each of the Declarations sought, as set out in Annex 1 to the Banks’s Skeleton Argument (which is also appended to this judgment). I have focused especially on those of the Declarations sought which either were refused or not sought in any of the previous cases. I address these below.

In Busto (for the reasons stated in paras. [19] to [21] of her judgment), and also in Catanzaro (for the reasons stated in para [114(i)] of her judgment), Cockerill J declined to make a declaration in a form similar to that now sought by DB (by Declaration numbered (2) in its Amended Claim Form) and by Dexia (by Declaration numbered 10) in its Re-re-Amended Claim Form. Her reasons were (in each case) that the declaration as sought in Busto was “not a declaration which tracks a warranty or representation in the contractual documentation. It is essentially a step on from a promise made by the parties. There has been no allegation of breach. There has been no dispute about this. The utility of the declaration sought remains unclear. Further, and importantly, this seems to me to have the potential to go wider than the matters in issue between the parties.” However, Cockerill J went on to note that “it might be different if Deutsche Bank were seeking Declarations which tracked actual findings as to breaches of law that had been asserted or rejected. Were such a declaration sought it would more properly reflected dispute and have a better claim to utility.”

In the present cases, however, the Banks submit that the position is different because the Settlement Agreements include in each case Brescia’s representation and warranty that the Transactions did not breach any Italian laws and its waiver of any claim to rely on any deformity with any relevant Italian law: see clause 5.2(a) of the DB Settlement Agreement and clause 5.2(b) of the Dexia Settlement Agreement.

Nevertheless, Mr Handyside did not ultimately press for either Declaration because he accepted that DB Declaration numbered (14B) and Dexia Declaration numbered (19) on page 9 of Annex 1 are more precise in their application to the specific laws that Brescia has relied on in the Italian Proceedings. Noting that Cockerill J had granted a similar declaration in Catanzaro, Mr Handyside clarified the Banks’ position as being that if those Declarations (14B and 19) were granted, they would not pursue DB Declaration (2) nor Dexia Declaration (10); and furthermore, and in order to conform more neatly with the declaration Cockerill J had given in Catanzaro. Mr Handyside agreed also to the deletion of the words “including but not limited to” in DB Declaration (14B) so as to confine the Declaration to the specific laws identified.

Accordingly, I do not propose to make DB Declaration (2) nor Dexia Declaration (10); but I do propose to make DB Declaration (14B) and Dexia Declaration (19) in the amended form explained, though I should perhaps refer back to paragraphs [138] and [147] above (as regards DB Declaration 14B(a) and (f) and (h) and Dexia Declarations 19(b) and (cb) and (h)) as to the basis on which I have determined the Bank’s arguments in that regard.

The next Declarations to consider specifically are DB Declaration (7) and Dexia Declaration (11) on page 4 of Annex 1. Those Declarations have two limbs: the first limb confirms conformity with Decree no. 389, and the second limb confirms compliance with a limitation that the Transactions should not exceed 25% of the totality of the derivative transactions entered into by Brescia. The second limb has not been considered in the previous cases. In Busto, Cockerill J refused a declaration similar to the first limb on the ground that no issue as to Decree No. 389 had been asserted to arise; but a similar declaration was granted in Pesaro and Catanzaro, Decree No.389 being in issue in both proceedings.

I am satisfied that in this case, where the relief sought (as to both limbs) simply tracks the wording in each of the Settlement Agreements which Brescia seeks to set aside in the Italian Proceedings, I should grant the Declarations with a view to preventing Brescia seeking to run arguments in the Italian Proceedings that the Transactions were in breach of Article No 389 in contradiction of what they had agreed (which is their utility).

The next Declarations that I should address are DB Declaration (13B) and Dexia Declaration (9) (on page 8 of Annex 1) which were not sought in any previous case. In doing so, I must take into account a material difference of wording between the DB and the Dexia agreements. The Dexia agreement contain language in line with Dexia Declaration (9(b)); but DB’s agreements do not. In those circumstances, Mr Handyside told me that DB was content not to pursue in the absence of the express wording prayed in aid by Dexia. That is so even though there is evidence to support that limb of the Declaration as set out in the Annex in the case of DB, just as in the case of Dexia.

As to the evidence, Mr Samir Belarbi (an employee of Dexia, as one of its Branch Managers) states in his witness statement that the documents of the type referred to in the Declarations and there declared to have been received by Brescia prior to entering in to the Transaction Documents and the Transactions were indeed provided. Although perhaps the evidence is not as specific in identifying the documents concerned as might have been preferable, I am content to make the Declarations sought (as modified in the case of DB).

The next Declarations I must consider are DB Declaration numbered (15) and Dexia Declaration numbered (26) on page 10 of the Annex. As recorded in the third column of the Annex, Cockerill J declined to make a similar declaration in Busto and also in Catanzaro. In Busto, the basis of her decision was that the declaration sought was not “reflective of the dispute out of which it emanates” and, in her view, the Declarations were too broad and were premised on allegations which had not yet been pursued and for which there was as yet no evidence, as well as possibly extending to matters referable to a mandate expressly governed by Italian law and agreed to be subject to the exclusive jurisdiction of the Court of Milan. Similarly, in Catanzaro, Cockerill J again refused to make a declaration closely comparable to that in Busto, on the ground (see para 114(i)) that while tracking an ISDA term, the declaration was “plainly capable of covering disputes which have not arisen and which I have not considered.”

In the present case, the Banks submit that the position is not as it was in Busto and Catanzaro because Brescia has expressly accepted in the Settlement Agreements that the Banks have no such liability and they seek Declarations accordingly. However, Mr Handyside told me that the Banks would be content not to press these Declarations if they are successful in obtaining the relief they seek in respect of the Settlement Agreements. I turn to that relief now; in light of my conclusions as explained below and Mr Handyside’s position as explained earlier in this paragraph, I do not consider it necessary and I would not propose to grant Declarations numbered (15) and (26).

None of the Settlement Agreement Declarations set out on pages 12 to 17 of Annex 1 has been considered in any previous decisions of the Court. That is unsurprising since the Settlement Agreements are particular to the parties, whereas the Master Agreements are standard forms.

Each of the Settlement Agreement Declarations tracks or is closely derived from a clause in the relevant Settlement Agreement itself. The clauses concerned are identified in the footnotes to Annex 1. Mr Handyside took me to the first of the pair of Declarations sought (numbered (16) in the case of DB and (20) in the case of Dexia, both on page 12 of Annex 1) to illustrate this. He showed me that those Declarations track clause 2.1 and 5.1 of the DB Settlement Agreement and clauses 2.1 and 5.1 of the Dexia Settlement Agreement, as noted in footnotes 19 and 20. He took me to a couple of other examples to illustrate the same point and expressly assured me that substantially the same applied to all the Settlement Agreement Declarations sought.

Notwithstanding my initial concerns about making any declaration as to the effect of Italian law, I am satisfied that I would not be exceeding my jurisdiction in making the Settlement Agreement Declarations. I am persuaded that all of them “have at their heart the transactions” and fall within the express jurisdiction clauses of the DB and Dexia Master Agreements for the reasons given by Knowles J and Butcher J in their respective judgments dismissing Brescia’s jurisdiction challenges at an earlier stage in these proceedings (see paragraph [211] above).

It seems to me that the utility of the Settlement Agreement Declarations pivots on their relevance to the Italian Proceedings and whether they would be recognised there. The relevance is to my mind plain, since in the Italian Proceedings Brescia accepts that if the Settlement Agreements are valid, that is dispositive of its Italian Proceedings; and it in effect seeks by its arguments there on the Settlement Agreement to undercut the Transaction Agreements by which it is bound in English law and to undermine the determinations of this Court in respect of the Transactions now elaborated and expressed in the Transaction Declarations. As to recognition, the recent decision of the Court of Appeal of Brescia dated 7 June 2024 dismissing an appeal by Brescia in respect of the decision of Butcher J in respect of Brescia’s jurisdictional challenge (see above) seems to me to confirm that recognition will be afforded to the Settlement Agreements Declarations in Italy.

Accordingly, with the exceptions I have identified, I propose to make the Declarations sought as set out in Annex 1.

The Banks also seek Declarations that they are entitled to damages for loss and damage (including legal fees incurred both here and in Italy) in respect of breaches of the Settlement Agreements and the Master Agreements and further, that they are entitled to be indemnified under Clause 11 of the Master Agreements. They do not seek quantification of their claims or any money judgment at this stage.

The form of the declaratory relief each of the Banks seeks is as follows:

As regards the first of the Declarations sought in this regard:

As regards the second of these Declarations:

In their respective Witness Statements, Ms Davison and Mr Danusso have given evidence that the result of Brescia’s conduct in breach of the Settlement Agreements and the Transaction Documents has been that the Banks have incurred significant costs in prosecuting the present Claims and defending the New Italian Proceedings. The Banks thus seek Declarations that they are entitled to be paid the costs of doing so and/or to be indemnified by Brescia in respect of the same, for the reasons set out above. I see no reason not to grant such a declaration.

I have considered carefully the arguments that have been identified or have emerged as ones which might have been raised by Brescia had it participated in the proceedings. Although I have not had the benefit of contrary evidence on behalf of Brescia or cross-examination of the evidence on behalf of the Banks, nor of the arguments being presented by Counsel on Brescia’s behalf, that was what I take to have been its deliberate decision (whether on grounds of cost or otherwise). Instead, however, I have had both a fairly clear view of its position from its case in the Italian Proceedings and the assistance of Counsel for DB and Dexia in accordance with their duty to the court as described in paragraph [33] above.

I have considered the evidence, particularly the expert evidence, with a critical eye, but I have found it to be (as I have previously mentioned) clear, cogent and comprehensive. None of the conclusions put forward seems to me to be discordant or inconsistent, or indeed surprising.

I am quite satisfied, subject to the exceptions and reservations I have mentioned, that the relief sought, though comprising unusually detailed Declarations, is of utility: indeed I consider it necessary in order to assist in bringing home to Brescia what it plainly agreed to, and to ensure as far as possible that their inappropriate resort to litigation in Italy, in furtherance of their attempts to create uncertainty about contractual commitments freely entered into, when there is none, are brought to an end.

I would ask Counsel to prepare a draft Order reflecting my decisions. I would suggest that the question of costs can be decided either when the judgment is formally handed down or on the papers.

Finally, I am very grateful to Counsel and those instructing them for the careful presentation of detailed documentation, and to the Experts on Italian law for the valuable assistance they have provided to me.

In the third column, the text common to all three precedent orders is shown in black, with any material differences between the Busto, Pesaro and Catanzaro judgments shown in blue, red and green respectively.

Annex 2: Sources of Evidence on Italian law declarations