In a judgment handed down in Banca Intesa Sanpaolo SpA v Comune di Venezia  EWHC 2586 (Comm), Mr Justice Foxton has held that two interest rate swaps purportedly concluded in 2007 on ISDA Master Agreement terms by the Municipality of Venice and two Italian banks are void for Venice’s lack of capacity.
This is the first occasion on which the English Court has held that the effect of Italian law, and in particular the decision of the Supreme Court of Italy in Banca Nazionale del Lavoro SpA v Comune di Cattolica (8770/2020), was that derivatives governed by English law were void – principally because of an Italian law prohibition on speculative swaps – and that restitution was therefore due. It is likely to have a significant impact on similar cases.
The claimant banks had sought declarations (inter alia) that the swaps were valid and binding, advancing an alternative claim for damages for breach of the terms of the swaps and/or a separate mandate agreement and/or in tort. Venice counterclaimed (inter alia) for restitution of the sums paid under the swaps and a declaration that the swaps were void, successfully arguing that it lacked capacity to enter into speculative swaps such as its two purported interest rate collars with the banks.
The judgment may be significant for its analysis of recent Italian case law regarding the capacity of Italian local authorities, several of which are currently challenging the validity of their derivative contracts in separate English proceedings. It also provides guidance as to when a change of position defence may be available to a restitution claim and the circumstances in which a breach of the law pursuant to which a corporation is incorporated may deprive that corporation of contractual capacity.
A copy of the judgment can be found here.