Italy: Interest Rate Swap: The Joint Divisions Of The Supreme Court Reiterate The Jurisdiction Of The Italian Court.

With the recent decision of 29 May 2023, the Joint Divisions once again ruled in favour of the Italian Court with regard to a dispute arising from derivative contracts signed by an Italian local authority. The Joint Divisions applied the consolidated case law according to which jurisdiction is determined exclusively on the basis of the principal claim, regardless of the content of the ancillary claims.

On numerous occasions concerning similar disputes, the Joint Divisions have repeatedly stated that (i) only disputes of a contractual nature are attracted by the rule of the prorogation of jurisdiction clause (i.e. Article 13 of the ISDA Master Agreement), while disputes of a pre-contractual and extra-contractual nature remain under Italian jurisdiction and that (ii) jurisdiction is determined on the basis of the main claim presented by the plaintiff contract (see Joint Sections 11 June 2021, no. 16491; 18 December 2020, no. 29107; 27 February 2012, no. 2926; 20 February 2007, no. 3841).

The order of the plaintiffs' claims is therefore particularly relevant in this type of litigation. In this case, the Province of Pesaro Urbino had requested, only in the alternative, a declaration of the nullity of the derivative contracts, while, as a principal claim, it had formulated two alternative requests: (i) the first consisted of the verification of the breach by the bank counterparty of the consultancy contract entered inter-partes, for alleged breach of the obligations to provide information and the duty of adequacy of the contracts; (ii) the second claim requested compensation for the alleged damage caused by breach of the duties of fairness during negotiations. It is therefore with respect to these claims that the existence of jurisdiction must be assessed and not with respect to the claim for nullity of the swap contract, formulated in the alternative.

The Joint Divisions further clarify that liability for breach of pre-contractual information obligations, by the intermediary or advisor, may exist "even when, ..., a perfectly valid and effective, but inadequate (violation of the so-called ... know-your-customer rule) contract is entered into " and that if there is no link of a pre-judicial nature between two claims "the party who has proposed them remains free to determine which of the two actions to bring as a principal or subsidiary action, and such a choice – constituting the exercise of the right of defence – is not open to censure, nor can it be reviewed in this court".

The Joint Divisions do not apply the previous decision (Joint Divisions no. 3841/07) which stated the preliminary nature of the claims for contractual nullity with respect to the claims for damages because "...in that case the two claims were put forward alternatively, and not subordinately". In essence, the principle seems to emerge whereby the preliminary nature of the request for nullity with respect to the request for compensation is relevant when the requests are made alternatively to each other, while it is not relevant when the requests are subordinated as a result of the party's choice which is unquestionable by the Joint Divisions.

Originally published 14 July 2023.

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