Background
Dexia SA, a French banking corporation that succeeded to the rights of its former Italian subsidiary Dexia Crediop SpA (formerly Crediop SpA), brought English declaratory proceedings against the Comune di Torino (the municipal authority of Turin, Italy) in response to litigation Torino had commenced in Italy. The dispute centred on a series of interest rate swap transactions — concluded in 2001, 2003, and 2006 — entered into under a 1992 ISDA Master Agreement with an exclusive English jurisdiction clause. The swaps were linked to municipal bonds Torino issued in 1998 and 1999 (the “BOCs”), representing over €400 million in variable-rate borrowing used partly to fund infrastructure for the 2006 Winter Olympics. With approximately 75% of its total €5 billion debt at variable rates, Torino retained Lazard as independent financial advisor, ran a competitive tender among three banking groups, and chose Crediop’s proposal to hedge its interest rate risk. The 2006 Transactions replaced all earlier swaps and converted Torino’s BOC exposure to a semi-fixed, then fully fixed, rate through maturity.
Due to the 2008 global financial crisis and the ensuing prolonged period of ultra-low EURIBOR rates — which fell below 2% in early 2009 and turned negative from late 2015 to mid-2022 — Torino’s hedged debt cost substantially exceeded what an unhedged variable rate would have produced. On 18 June 2024, Torino commenced proceedings in the Tribunale di Torino seeking damages equal to its net payments under the 2006 Transactions or, alternatively, declarations of nullity with restitution. Dexia responded by filing the present English proceedings on 18 October 2024 for declaratory relief. On 25 July 2025, Butcher J ([2025] EWHC 1903 (Comm)) granted summary judgment for Dexia on jurisdiction, declaring that the ISDA Master Agreement conferred exclusive English jurisdiction over all disputes and that Torino’s Italian claims were brought in breach of that clause. The Italian proceedings were subsequently stayed pending an interlocutory petition to the Italian Supreme Court on jurisdiction.
Torino filed no acknowledgment of service, no defence, and did not appear or instruct English solicitors at any stage beyond a single consent order on a time extension. It was served with all trial materials, including witness statements, expert reports, and Dexia’s detailed written submissions. Mr Justice Andrew Baker found that Torino had made a deliberate and fully informed tactical choice not to participate in the English proceedings, and directed that the trial proceed in Torino’s absence under CPR 39.3, satisfying himself that the hearing would be conducted fairly by identifying and addressing the arguments Torino had advanced in the Italian proceedings.
The Court’s Holding
Mr Justice Andrew Baker granted Dexia the declaratory relief it sought. He found that the Transactions — straightforward interest rate swaps substituting Torino’s variable BOC coupon obligation for semi-fixed and then fully fixed rates — were entirely consistent with Torino’s own stated debt management strategy and fell squarely within the category of permissible hedging instruments under Italian law. The transactions involved no upfront payment, no modification of Torino’s principal indebtedness, no speculative indexation to off-market rates, and no calculation of interest on notional amounts exceeding Torino’s actual outstanding debt — conditions Torino itself had mandated in its tender specifications and recorded in successive Municipal Board and Council resolutions. Dexia’s expert Professor Cucurachi demonstrated persuasively that no alternative swap structure available at the time would have served Torino’s stated purposes on better terms; if anything, the alternatives would have left Torino worse off.
On Italian law, the court received expert evidence from Professor Emanuele Rimini and applied findings of Italian law from a series of earlier English decisions under section 4(2) of the Civil Evidence Act 1972, including Dexia v Regione Emilia Romagna [2023] EWHC 3236 (Comm), Deutsche Bank v Provincia di Brescia [2024] EWHC 2967 (Ch), BNL v Provincia di Catanzaro [2023] EWHC 3309 (Comm), Deutsche Bank v Comune di Busto Arsizio [2021 & 2022] EWHC (Comm), Dexia Crediop v Provincia di Pesaro e Urbino [2022] EWHC 2410 (Comm), and the Court of Appeal’s decision in Banca Intesa Sanpaolo v Comune di Venezia [2023] EWCA Civ 1482. Two Italian Supreme Court decisions of February 2026 (Nos. 2262/2026 and 2358/2026) clarifying and limiting the scope of the earlier Cattolica decision (No. 8770/2020) further simplified the analysis in Dexia’s favour.
The court reaffirmed that Torino’s resulting dissatisfaction — the economic consequence of a hedge that, with hindsight, proved more costly than an unhedged position after interest rates collapsed — gave rise to no legal claim. The situation was analogous to a homeowner who took out a fixed rate mortgage in 2008 for sound reasons and later observed that a variable rate would have been cheaper: hindsight regret does not generate liability. Having proceeded through the proper tender process with independent expert advice from Lazard, documented its rationale and non-speculative intent in formal resolutions, and then performed its payment obligations without default throughout, Torino had no cognisable ground for challenging the validity of the Transactions.
Key Takeaways
- An Italian municipality’s deliberate and informed choice not to appear in English proceedings constitutes a waiver of the right to participate; the court may proceed to trial under CPR 39.3 where adjournment would serve no purpose and the claimant’s legitimate interest in a final determination is strong.
- English courts continue to uphold ISDA Master Agreement exclusive jurisdiction clauses against Italian local authority counterparties attempting to re-litigate swap disputes in Italian courts, building on a consistent line of authority including Venezia CA, Emilia Romagna, Brescia, Catanzaro, and Busto.
- Interest rate swaps structured to hedge existing variable-rate municipal debt — with no upfront payment, no off-market indexation, and notional amounts not exceeding actual outstanding principal — fall within the permissible hedging category under Italian law; the two Italian Supreme Court decisions of February 2026 (Nos. 2262/2026 and 2358/2026) confirm and narrow the scope of the Cattolica ruling.
- Prior findings of foreign law in English judgments are admissible and presumptively correct under section 4(2) of the Civil Evidence Act 1972; a party that does not rebut them is bound by them.
- A municipality that ran a competitive tender, retained a globally recognised independent financial advisor (Lazard), adopted formal resolutions documenting non-speculative intent, and performed its obligations without default throughout has no viable claim in nullity or damages merely because prevailing interest rates moved contrary to expectations.
Why It Matters
This decision is the latest in a substantial body of English litigation in which Italian local authorities have sought to unwind interest rate derivatives — typically after suffering losses attributable to the unexpectedly prolonged low-rate environment following 2008 — by invoking Italian public law arguments about capacity, authority, or mandatory rules. The judgment reinforces, with the additional support of the Italian Supreme Court’s own 2026 clarifications, that English courts will grant declaratory relief protecting contractual rights under English-law ISDA agreements and will not permit a foreign counterparty to circumvent an exclusive English jurisdiction clause by litigating in its home jurisdiction instead.
For practitioners advising financial institutions or public authorities on cross-border derivatives, the case underscores the critical importance of: (i) well-documented tender procedures and independent advice at the time of contracting; (ii) formal municipal resolutions that record compliance with applicable legal constraints; and (iii) the procedural consequences — including adverse declaratory judgments and significant costs orders — of deliberately abstaining from proceedings in the agreed contractual forum while simultaneously pursuing parallel litigation elsewhere.