Dexia SA v Comune di Torino

A court may proceed with a trial in a defendant’s absence where the defendant knowingly and voluntarily waives participation, the trial can remain fair, and adjournment would serve no useful purpose. In cross-border contractual disputes, capacity is characterised by the forum, while the legal consequences of incapacity and material contractual validity are determined under the applicable governing law. An interest-rate derivative is not speculative merely because it has a negative initial mark-to-market or incorporates the margin on an earlier transaction. A hedge is non-speculative where it reduces risk in an existing debt position and maintains a high degree of correlation with that debt. A contractual choice of law is not displaced by foreign mandatory rules where the situation has material connections beyond the chosen-law country. Declaratory relief may confirm contractual validity and obligations, but should not be granted concerning hypothetical damages where no damages claim has been brought.

Dexia, successor to Crediop, sought declarations concerning interest-rate swaps entered into with the municipal authority of Turin in 2001, 2003 and 2006 under a 1992 ISDA Master Agreement governed by English law and containing an exclusive English jurisdiction clause. Torino had brought proceedings in Italy alleging advisory duties, defective disclosure, lack of capacity or authority, breach of mandatory Italian laws, invalidity and entitlement to restitution or damages.

Torino did not appear at trial, although it knew of the English Proceedings, had received the relevant documents and had previously participated to a limited extent. The court therefore determined whether it was just to proceed in its absence and, if so, whether the Transactions were valid, enforceable and non-speculative, whether Torino had suffered recoverable loss, and what declaratory and indemnity relief should be granted.

1. Trial in absence. Applying R v Jones [2001] EWCA Crim 168, the court proceeded under CPR 39.3. Torino had made an informed, deliberate and voluntary choice not to participate. It had waived its right to appear and be represented, and an adjournment would not have altered that position. Dexia fairly identified Torino’s likely case from the documents and Italian pleadings.
2. Applicable law. Under Haugesund Kommune v Depfa ACS Bank [2010] EWCA Civ 579, capacity was characterised broadly under English private international law and its existence was governed by Italian law. The private-law consequences of incapacity and material validity were governed by English law. Article 3(3) of the Rome Convention did not displace the parties’ choice of English law because the relevant circumstances were not exclusively connected with Italy.
3. Advisory duties and loss. The Transaction Documents contained an effective entire-agreement clause and provisions excluding advisory status and reliance. No separate advisory agreement existed. In any event, the evidence showed that Torino had independently decided to hedge its variable-rate debt, obtained independent advice, and would have entered into the same or no better transaction. It had suffered no recoverable loss.
4. Capacity and speculation. The Transactions were hedges of existing BOC indebtedness, not free-standing bets. Applying the Consob criteria, they were entered into to reduce risk and had a high degree of correlation with the underlying debt. Negative initial mark-to-market, implicit costs and the rolling over of earlier mark-to-market did not make them speculative. They did not create impermissible indebtedness or significantly modify the BOCs.
5. Authority and mandatory rules. The Transactions were authorised by Municipal Council resolutions. The executing officials also had ostensible authority, and Torino’s subsequent payments, budgets and financial statements amounted to ratification. The Transactions complied with the relevant Italian rules, including Article 41, Decree 389, the 2004 MEF Circular, TUF and the Civil Code provisions relied upon by Torino. Torino was a professional investor under Article 31 of the Consob Regulation.
6. Relief. Most declaratory relief was granted, with wording adjusted to reflect the collared rather than wholly fixed rate before 2010. A declaration of entitlement to damages was refused because Dexia had brought no damages claim and had not shown useful purpose. A declaration confirming Dexia’s contractual indemnity entitlement was granted in substance for reasonable loss, expenses and legal fees arising from the Italian Proceedings and their continuation.

First-instance decision. No appellate history is stated in the judgment.