Dexia Crediop S.P.A. v Comune Di Prato

Mandatory Italian financial-services rules applied despite the parties’ choice of English law because all other relevant elements were connected only with Italy. The ISDA form and foreign hedge counterparties were not relevant connections.

Italian local-government restrictions were not contravened. But, following Mediolanum 13905/2013, each swap executed off-site was subject to a seven-day withdrawal right under the TUF. Failure to state that right made the contracts null and void at the client’s election. Dexia’s claim under swap 6 therefore failed.

Dexia Crediop S.P.A. v Comune Di Prato concerned an Italian bank’s claim against an Italian local authority for sums allegedly due under six interest-rate swaps, particularly swap 6.

Prato disputed the validity and enforceability of the swaps. It relied on Italian local-government finance law, mandatory Italian rules under article 3(3) of the Rome Convention, financial-services legislation and other civil-law defences. The central issue was whether the off-site execution of the swaps engaged the statutory right of withdrawal and consequent nullity despite the English governing-law clause.

Local-government law. The court rejected the alleged contraventions of Italian local-government finance law. Article 119 of the Constitution had to be read with the legislative definition of borrowing in paragraph 17 of Article 3 of Law 350/2003. The swaps were not, in substance, loans to be repaid: there was no advance, fixed debt or certain repayment obligation. Article 41(2) of Law 448/2001 imposed its financial-advantage requirement only on refinancing involving new debt. That requirement therefore did not apply to swaps 1 to 3 or swap 6. The court also found no breach of Article 3 of Ministerial Decree 389/2003. In particular, the decree did not require equality between the initial values of a collar’s cap and floor, the evidence did not show an increasing payment profile, and an MTM was not a paid discount or premium. No general prohibition on speculative derivatives had been established.

1. Applicable mandatory rules. Under article 3(3) of the Rome Convention, the English governing-law clause did not exclude Italian mandatory rules. The parties, communications, contracting and performance were connected with Italy. The international ISDA form and Dexia’s separate foreign hedging transactions were not relevant elements of the parties’ situation.
2. Off-site transactions. The court treated Mediolanum 13905/2013 as authoritative. Article 30(6) of the TUF applied to an off-site sale of financial instruments made in execution of any investment service, not merely a narrow placement service. Prior dealings, a framework relationship, a public tender, prior resolutions, tailored proposals, irrevocable offers and the absence of actual surprise did not remove the protection.
3. Disposition. The forms did not state the seven-day withdrawal right. Article 30(7) of the TUF, a mandatory rule, consequently made the related contracts null and void, with only Prato entitled to enforce that consequence. Dexia’s main claim based on swap 6 failed. Further submissions and directions were required concerning Prato’s restitutionary counterclaim and Dexia’s alternative claims.