BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
FINANCIAL LIST (COMMERCIAL COURT – KBD)
Fetter Lane, London, EC4A 1NL |
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B e f o r e :
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DEXIA S.A. | Claimant | |
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REGIONE EMILIA ROMAGNA | Defendant |
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The Defendant has solicitors on the record but did not appear.
Hearing date: 21 November 2024
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Crown Copyright ©
MR JUSTICE BRYAN:
A. INTRODUCTION
B. THE TRANSACTION AND SUBSEQUENT EVENTS
(1) Banca Nazionale del Lavoro v Provincia di Catanzaro [2023] EWHC 3309 (Comm) ("Catanzaro") (Cockerill J).
(2) Deutsche Bank AG London v Comune di Busto Arsizio [2021] EWHC 2706 (Comm), [2022] EWHC 219 (Comm) ("Busto") (Cockerill J).
(3) Banca Intesa Sanpaolo SpA and Dexia Credit Local SA v Comune di Venezia [2023] EWCA Civ 1482 ("Venice CA") (Court of Appeal) (overturning the decision of Foxton J in [2022] EWHC 2586 (Comm) ("Venice")).
(4) Dexia Crediop SpA v Provincia di Pesaro e Urbino [2022] EWHC 2410 (Comm) ("Pesaro") (Peter MacDonald Eggers KC, sitting as a Deputy High Court Judge).
(5) Deutsche Bank AG London v Provincia di Brescia [2024] EWHC 2967 (Ch) ("Brescia") (Hildyard J).
(1) Annex 1, in the left hand column sets out the relevant declaration sought by Dexia, together with footnotes to the wording in the Transaction Documents that is the source for the declaration whilst in the right hand column the text common to all four precedent orders is shown in black, with any material differences between the Busto, Pesaro, Catanzaro and Brescia judgments shown in blue, red, green and yellow respectively.
(2) Annex 2 identifies the relevant Italian laws relied upon by Emilia Romagna in the Italian Proceedings and sets out where those arguments are addressed by Dexia's expert Professor Rimini, together with references to the relevant precedent and the equivalent declaration sought in each precedent.
Capacity
(1) Emilia Romagna has raised two arguments in Italy that could conceivably go to its capacity to enter into the Transaction (although Emilia Romagna has not clearly put the argument in terms of capacity):-
(i) The first is a suggestion that the Transaction was "speculative", essentially because the initial mark-to-market ("MTM") was negative for Emilia Romagna (the "Speculation Ground"). Dexia submits that this is a non sequitur and is a suggestion without merit. As an Italian region, Emilia Romagna has wide powers to enter into derivatives it considers appropriate. Even if the national laws relied on by Emilia Romagna in the Italian Proceedings applied to it (and Dexia submits that they do not), the Transaction is a plain vanilla derivative, falling within the categories expressly permitted under the relevant laws, and it was expressly designed and intended to hedge Emilia Romagna's exposure under the CDP Loan.
(ii) The second is a suggestion that the Transaction involved resorting to "indebtedness" otherwise than for the purpose of financing investment expenditure (the "Indebtedness Ground"). This argument is made on the same basis: that because the initial MTM was negative (and no upfront was paid), it constituted a form of borrowing. Dexia submits that this is again a non sequitur, and that such suggestion is without merit, because the test for indebtedness under Italian law is whether the derivative involved the payment (rather than non-payment) of an upfront, or substantial modification or extinction of the underlying borrowing. Dexia says that there is no plausible basis for suggesting the Transaction involved "indebtedness" in any of these senses.
Authority
(2) Emilia Romagna raises a number of points that are said to go to its authority to enter into the Transaction. Dexia submits that they are (a) wrong as a matter of Italian law but also (b) irrelevant, as what is under consideration is the validity of the Transaction, which is governed by English law, and questions of ostensible authority and ratification fall to be decided by applying English law. Dexia submits that under English law (a) it cannot seriously be suggested that the relevant individuals at Emilia Romagna did not have ostensible authority to enter into the Transaction and (b) in any event, the Transaction has been repeatedly ratified by the Region over two decades.
Validity under Italian law
C. THE STRUCTURE OF THIS JUDGMENT
(1) Section D addresses Emilia Romagna's non-participation in these proceedings and the trial.
(2) Section E introduces the evidence before the Court for the trial.
(3) Section F sets out the factual background.
(4) Section G addresses Dexia's claims in respect of the Transaction.
(5) Section H deals with the specific declaratory relief sought by Dexia, including in respect of the loss and damage it has suffered as a result of the Region's breaches of the Transaction Documents.
(6) Section I sets out my conclusions.
D. EMILIA ROMAGNA'S NON-PARTICIPATION
(1) Emilia Romagna is represented by Spencer West, who have confirmed that the Region has instructed them to remain on the record.
(2) Emilia Romagna has been served with all of the relevant documents in the proceedings since its decision not to participate, including the Order to fix the trial date, the notice of the hearing, and all the witness statements and expert reports supporting the claim.
(3) Emilia Romagna has generally declined to give Spencer West instructions to defend the claim. However, it initially engaged with the proceedings by filing an Acknowledgment of Service indicating its intention to contest the jurisdiction of this Court, although it never filed an application to that effect, and has given other instructions when it suits it, including by agreeing to extend the deadlines for filing Dexia's Particulars of Claim, and Emilia Romagna's Defence, on two separate occasions, and signing the relevant consent orders.
(4) On 8 November 2024, in accordance with the provisions of the Commercial Court Guide, Dexia made the trial bundle available to Spencer West. Spencer West responded by requesting access to the trial bundle for the solicitor with conduct of the matter on behalf of Emilia Romagna, demonstrating Spencer West's continuing involvement to the (limited) extent chosen by its client.
(5) Emilia Romagna has also been sent Dexia's Written Opening and transcripts of the trial direct from Opus 2 (at the same time as Dexia and the Court) from which it was clear that Dexia would, and did, invite the Court to proceed in Emilia Romagna's absence, and no complaint, or indication of objection, was received contemporaneously or thereafter.
E. THE EVIDENCE
F. THE RELEVANT FACTUAL BACKGROUND
F.1 Dexia's engagement in hedging Emilia Romagna's pre-existing indebtedness
(1) The ISDA documentation was drafted "in the English language in view of the fact that the contractual relationships to be established, in execution of this order, will be governed by English law and subject to the jurisdiction of the Courts of the United Kingdom";
(2) Dexia had nevertheless provided Italian translations of the contracts to the Region;
(3) The assessment and consequent approval of the technical-economic conditions of the transaction would be postponed to a subsequent act of the Region "on the basis of the subsequent proposals that will be requested" from the Banks "and that will constitute the reference parameters of the subsequent interest rate swap transaction".
F.2 The Italian Proceedings
(1) Alleges pre-contractual liability (the Italian concept of "pre-contractual liability" is a form of liability in contract – see Rimini at [179]) and/or non-contractual liability for alleged breaches of Italian laws and regulations in relation to Dexia's conduct in connection with the Transaction, in respect of which it seeks damages calculated by reference to unwinding the Transaction.
(2) Alternatively, Emilia Romagna seeks declarations that the Transaction is null and void because of alleged breaches of Italian law.
(3) In the further alternative, Emilia Romagna seeks a declaration terminating the Transaction and that Dexia is liable in contract for its conduct in negotiating the Transaction.
(1) In alleged breach of Article 21 of the Consolidated Law of Finance (commonly referred to as "TUF") and Articles 26, 27, 28, 29 and 32 of the Consob Regulation n. 11522 of 1998 (the "Consob Regulation"), Dexia was obliged, and failed, to:
(A) provide Emilia Romagna with certain information prior to its entry into the Dexia Transaction, including information about the negative initial mark-to-market value, alleged "implicit costs" and risks of the derivative, and a "probabilistic representation of the expected movement" of Euribor, including certain additional disclosure obligations under Articles 28 and 32 of the Consob Regulation;
(B) pursue the best trading conditions for the Region in breach of the best execution rule in Article 26 of the Consob Regulation;
(C) disclose and seek consent for its alleged conflict of interest under Article 27 of the Consob Regulation because it was allegedly acting both as the Region's advisor and its counterparty to the Transaction;
(D) assess properly the "suitability" of the Transaction for the Region pursuant to Article 29 of the Consob Regulation;
(E) communicate to the Region that the Transaction should have been authorised by its Regional Council rather than its Regional Board; and
(F) make an upfront payment to cancel out the initial negative MTM of the Transaction.
(2) The Transaction lacked the fundamental requirements for a valid contract under Italian law, in particular a valid "causa" and "oggetto" (meaning 'object'), because of the alleged failure to provide information as to the negative initial MTM, "hidden costs" and "probabilistic scenarios";
(3) Emilia Romagna's Regional Council was required to be, but was not, involved in the authorisation process for the Transaction, alternatively the Transaction fell outside the approval granted by the Regional Board;
(4) In breach of Article 23 of TUF and Article 30 of the Consob Regulation, the Master Agreement was executed after the Transaction, and also failed to state the Region's right of withdrawal;
(5) In breach of Article 119(6) of the Italian Constitution, the Transaction involved resorting to indebtedness otherwise than to finance investment expenditures;
(6) The Transaction lacked the requirement of "economic convenience" under Article 41 of Law n. 448 of 2001 ("Article 41"), it appears solely on the basis that the Transaction had a negative initial MTM that was not disclosed;
(7) In breach of Article 3(2)(d) of Ministry of Economy and Finance Decree n. 389 of 2003 ("Decree 389"), the value of the floor of the collar swap component was higher than the value of the cap; and
(8) The Transaction failed to pursue a hedging purpose, both because of the negative initial MTM and because of some relatively small discrepancies between the Transaction and the CDP Loan during a period of negative interest rates from 2016 onwards.
F.3 The procedural history of the English Proceedings
(1) the trial, initially fixed for 16 July 2024, was vacated and re-listed on the first available date from 1 November 2024; and
(2) the deadlines for filing and serving factual witness evidence and expert evidence were postponed to 13 and 20 September 2024, respectively.
G. THE TRANSACTION
(1) The Trade Date is 17 September 2004, the Effective Date is 31 December 2004 and the Termination Date is 30 June 2032, i.e., the Transaction duration is 28 years.
(2) The initial Notional Amount was €142,025,647.17, decreasing as per Table 1 at Annex A to the Confirmation. This represented 30% of the outstanding amount of the CDP Loan as at the date of the Transaction.
(3) Emilia Romagna agreed to pay Dexia interest on the Notional Amount on each Payment Date in two periods:
(A) In the first period – from 31 December 2004 until 31 December 2009 – annual Euribor 6M subject to a cap and floor as follows:
(i) if average Euribor 6M was lower than or equal to an annual rate of 2.36%, a Floor Rate of 2.36%; and
(ii) if average Euribor 6M was higher than an annual rate of 7.00%, a Cap Rate of 7.00%.
(B) Second, from 31 December 2009 until 30 June 2032, a fixed annual rate of 5.25%.
(4) In return, Dexia agreed to pay Emilia Romagna annual Euribor 6M on the Notional Amount on each Payment Date. As Professor Cucurachi explains, therefore, "the Region receives from Dexia interest payments calculated on the notional amount of the Transaction and based on the same reference rate as the [CDP] Loan (i.e. the average 6-month Euribor of the month preceding the six-month accrual period). The purpose of Dexia's payments is thus to match the interest payments on the underlying debt." (Cucurachi at [38]).
(5) The Payment Dates are 30 June and 31 December of each year, commencing from 30 June 2005 and ending on the Termination Date. The Calculation Periods are periods of 6 months, from 31 December 2004 to the Termination Date.
(1) That Emilia Romagna had the power to execute and perform the Transaction Documents and had taken all necessary action and made all necessary determinations and findings to authorise such execution and performance (see Section 3(a)(ii) of the Master Agreement, as amended by Part 5(5)(ii) of the Schedule).
(2) That such execution and performance did not violate or conflict with any law applicable to Emilia Romagna (see Section 3(a)(iii) of the Master Agreement).
(3) That Emilia Romagna's obligations under the Transaction Documents constituted its legal, valid and binding obligations enforceable in accordance with their respective terms (see Section 3(a)(v) of the Master Agreement).
(4) That the Transaction was entered into for the purposes of managing Emilia Romagna's borrowing or funding investments and not for the purposes of speculation (see Section 3(g), as added by Part 5(5)(iv) of the Schedule).
(5) That Emilia Romagna was acting for its own account, had made its own independent decision to enter into the Transaction Documents based on its own judgment and upon advice from such advisors as it deemed necessary and was not relying on any communication from Dexia as investment advice or as a recommendation to enter into the Transaction (see Section 3(i), as added by Part 5(5)(vi) of the Schedule).
(6) That Emilia Romagna had received the Document on General Risks involved in the Investment in Financial Instruments referred to under the Consob Regulations and Dexia had requested, and Emilia Romagna had provided, information regarding its experience in investment in financial instruments, financial data, investment objectives and risk propensity (see Section 3(i), as added by Part 5(5)(vi) of the Schedule).
(7) That the Transaction complied with Decree 389 (see Section 3(k), as added by Part 5(5)(viii) of the Schedule).
(8) That Emilia Romagna has a specific expertise and experience in transactions having as an object financial investment and is a professional investor pursuant to Article 31 of the Consob Regulations.
(1) Capacity arguments, i.e., that Emilia Romagna lacked the substantive capacity to enter into the Transaction as a matter of Italian law;
(2) Authority arguments, i.e., that the relevant bodies/individuals within Emilia Romagna who authorised the Transaction lacked capacity to do so as a matter of Italian law;
(3) Validity and breach arguments, i.e., that the Transaction is invalid or damages or other relief is available to Emilia Romagna as a result of breaches of Italian law.
G.1 Characterisation and Applicable Law
G.2 Capacity arguments
(1) There is no general limitation on the capacity of Italian local authorities to enter into private law contracts, such as derivatives transactions, and Italian law has no principle of an act being ultra vires the civil law capacity of a local authority (see Venice at [201] and Busto at [174] and [251]);and see also Rimini at [83]–[91]).
(2) Any specific limits on the capacity of Italian local authorities must be specifically prescribed by Italian law (see Venice at [200(ii)] and Busto at [177]–[179] and [184]–[190]).
(3) At the time of the Transaction, there were no such limits on Italian local authorities' capacity to enter into derivatives, save for the following two points which are said to arise from Article 119 of the Italian Constitution as interpreted by the Italian Supreme Court in decision no. 8770/2020 (the "Cattolica Decision") (see Catanzaro at [76(iii)]):
(A) A prohibition on Italian local authorities entering into "speculative" derivative transactions (as opposed to hedging derivative transactions) (see Venice at [196]–[197], Venice CA at [159]–[179], Busto at [277]–[280] and Catanzaro at [76(iii)]). This is the basis for the Speculation Ground advanced by Emilia Romagna in the Italian Proceedings.
(B) The requirement under Article 119(6) of the Italian Constitution that Italian local authorities may resort to "indebtedness" only as a means of funding investments (see Venice at [233]–[234] and [248]–[252], Venice CA at [159]–[179], Pesaro at [91]–[97] and Catanzaro at [76(iii)]). This is the basis for the Indebtedness Ground advanced by Emilia Romagna in the Italian Proceedings.
G.2.1 The Speculation Ground
(1) The derivative must be entered into expressly for the purpose of reducing the riskiness of other positions held; and,
(2) There must be a high degree of correlation between the technical and financial aspects (maturity, interest rate, type, etc.) of the exposure being hedged and the financial instrument used for that purpose.
(1) the notional amount of the derivative instrument matches a portion (or the entirety) of the notional amount of the underlying liability;
(2) the maturity of the derivative instrument matches the maturity of the underlying liability; and
(3) the cash flows received (as either interest or principal amounts) match what is due pursuant to the underlying liability.
See Rimini at [251]–[254] citing the Court of Appeal of Milan decision 921 of 2021, the Court of Reggio Emilia decision 227 of 2023, and the decision of the Appellate Division of the Court of Accounts 12 of 2024.
(1) The notional amount under the Transaction exactly matches Dexia's 30% share of the notional amount of the CDP Loan and the aggregate notional amount of the three transactions entered into with the Banks sums to the notional amount outstanding on the date of the Transaction (see Cucurachi at [29] and [35]). The evolution of the Notional Amount also always matches the same percentage of the outstanding amount of the Regions' underlying debt under the CDP Loan (see Cucurachi at [36]).
(2) The maturity of the Transaction and the underlying debt is identical (see Cucurachi at [42] and Table 1).
(3) The cashflows received by Emilia Romagna, for both principal payments and interest payments, precisely replicate the cashflows due to CDP under the CDP Loan (see Cucurachi at [42] and Figure 2).
(1) As regards the interest rate collar swap for the first five years from 2004 to 2009, the Transaction was a plain vanilla interest rate swap whereby the Region hedged its variable rate borrowing under the CDP Loan with a variable interest rate floating within a range of maximum and minimum interest rates provided for by the cap and the floor of the swap. As Cockerill J stated in Busto (at [305]–[306]), interest rate collar swaps of this kind were "…a classic form of hedging – seeking to manage and contain the interest rate risks to which Busto was already exposed on its borrowing" and "were not speculative". I respectfully agree.
(2) Thereafter, for the 23 years from 2009 to 2032, the precise amount of interest to be paid by Emilia Romagna on every Payment Date was known when it entered the Transaction, given the rate was fixed in advance. In such circumstances any suggestion that this element of the Transaction was, in any sense, speculative does not bear examination.
(3) As Professor Cucurachi rightly explains, therefore, "the overall interest cost for the Region under the [CDP] Loan and the Transaction was already known in advance with certainty. For the first 5 years of the Transaction, the cost of the debt was within the collar in 100% of the cases; for the subsequent years the cost of the debt was 5.25% in 100% of the cases" (Cucurachi at [74]).
(1) Emilia Romagna's principal point in the Italian Proceedings is that the Transaction had a negative MTM for the Region on the trade date that was not offset by an upfront payment, which it says made the Transaction "ineffective" as a hedge because the absence of an upfront payment "frustrates the suitability of the derivative to offer an adequate hedge". I am satisfied that that does not follow. As Professor Rimini explains (at [255]), the Italian Supreme Court made clear at paragraph 4.6 of the Cattolica Decision that derivative transactions are non-par transactions and will always have a negative MTM at inception for one of the parties (this is because anyone offering a derivative will have to cover their costs and would also expect to make a profit). Likewise, the Council of State held in decision no. 5962 of 2012 of the Council of State (the "Pisa decision") that a negative MTM is not a "hidden cost" and a zero MTM merely represents "the value that the swap could have had in an abstract and hypothetical (but absolutely unrealistic and not real) negotiation" (decision no. 5962 of 2012 of the Council of State, as explained in Rimini at [204(v)]). Accordingly, whether the Transaction as a whole, or any of its component parts, has a negative MTM, forms no part of, and is irrelevant when applying either limb of, the Consob test.
(2) Emilia Romagna also argues that various disclosures should have been made by Dexia prior to the Transaction, including in particular the negative MTM for the Transaction, the "method of calculation" and a "probabilistic representation of the expected movement of" Euribor. As Professor Rimini observes (at [202]), and as decided in Busto at [263] and Venice at [192]–[201], these arguments do not go to whether a derivative is speculative (and so to capacity). I am satisfied that these arguments are in any event wrong, as addressed in Section G.4 below.
(3) Emilia Romagna also relies on relatively small discrepancies during a period of negative interest rates, which it claims "eliminat[ed] the hedging relationship for which the derivative was initially intended" (Writ of Summons at p.21). As Professor Cucurachi explains, as a result of an unprecedented period of negative interest rates after the global financial crisis and during the Covid pandemic, there were minor discrepancies in the interest amounts in the years from 2016–2022. This appears to have been the result of a decision of the Italian Ministry of Economy and Finance on 21 March 2016 – 12 years after the Transaction was executed – to apply a zero floor to government bonds in an environment of negative interest rates. In Professor Cucurachi's view, this led the MEF to apply "a zero floor to the [CDP] Loan (and not to the Transaction) that created a discrepancy between the interest payments under the Transaction as compared to the Region's underlying borrowing." If the CDP Loan had been performed according to its terms, "the Transaction would have perfectly matched the [CDP] Loan, even during the negative interest rate period" (Cucurachi at [75]). As the Transaction is to be assessed ex ante (see the judgment of Foxton J in Venice at [210]), I am satisfied that this point is irrelevant.
(4) In any event, the discrepancies amount only to a difference of €1.27 million over seven years in the context of interest payments of €94.97 million over the life of the Transaction i.e. around 1.3%. In this regard:-
(A) I am satisfied that the differences are sufficiently small that the interest amounts received by Emilia Romagna under the Transaction retain a high degree of correlation with its interest payment obligations under the CDP Loan (Professor Rimini gives examples of cases involving small discrepancies of this kind at [252]–[254], and [258]–[259]).
(B) The Italian case law shows that a close correlation with the notional amount and maturity of the underlying indebtedness is sufficient, on its own, to satisfy the second limb of the test (see Rimini at [253] and the cases he cites in footnote 79).
(5) Emilia Romagna also suggests (albeit in a different context rather than as part of any argument on speculation) that the value of the floor of the collar swap component was higher than the value of the cap. Professor Rimini explains (at [257]) that Italian law does not require a reasonable balance between the cap and the floor of a swap (and in any event, the point does not go to capacity – see Busto at [316]). Further, to the extent that there is authority for this proposition, it suggests that the MTM of the cap has to be "much lower than the mark-to-market of the floor option" and for there to be a "significant discrepancy between the value of the two options" (see Rimini at [257]). In this case, the MTM of the cap was €463,608.16 and the MTM of the floor was negative €602,964.92, meaning the difference was just €139,356.76 in the context of a swap with a notional amount of €142,025,647.17 and an overall initial negative MTM of €1.6 million (see Cucurachi Table 2). As Professor Cucurachi explains (at [56]), that is significantly within the margin that was considered a "prudential" estimate of the risks to and costs incurred by the banks in the Pisa decision.
G.2.2 The Indebtedness Ground
(1) The upfront component of a derivative could constitute indebtedness, even prior to the legislative change that added upfronts to the relevant list of transactions in Article 3(17) (see Venice at [190] citing paragraphs [10.1.3]–[10.1.4] of the Cattolica Decision). For the reasons given in Busto at [200]–[202] and [325]–[328], that conclusion is hard to defend, and also has the consequence that the list in Article 3(17) is not exhaustive, despite the plain legislative intention to the contrary.
(2) Derivative transactions that involve either extinguishing or significantly modifying the underlying debt could themselves involve a resort to indebtedness.
(1) The Transaction did not involve the payment of any upfront to Emilia Romagna (see Cucurachi at [41]).
(2) The Transaction did not affect the underlying debt owed by Emilia Romagna to CDP. The underlying CDP Loan was not extinguished or modified, whether significantly or at all. Emilia Romagna still had (and has) to make the exact same repayments of principal and interest under the CDP Loan as it did prior to entering into the Transaction.
(3) It is clear from previous case law that a plain vanilla interest rate swap with a collar does not involve any significant modification to the underlying borrowing being hedged - see Pesaro at [93]–[97] and Busto at [336]–[342] (and see also Rimini at [122]). I am satisfied that a straightforward variable-for-fixed interest swap is a fortiori.
G.3 Authority arguments
(1) Article 42 of TUEL does not apply to Emilia Romagna because it is a Region.
(2) Emilia Romagna has passed its own laws regarding the power to enter into derivative transactions, namely Regional Law 22 and Regional Law 40. By these laws, the Regional Council empowered the Regional Board to:
(A) Use financial instruments such as financial derivative transactions as per the practice of domestic and international financial markets (Article 1(5)-(7) of Regional Law 22); and
(B) Redefine its indebtedness by entering into transactions that transform maturities or interest rates (Article 34(8) of Regional Law 40).
(1) act as necessary to finalise, and define the final economic conditions of, the proposed swap transaction, including any alternative structures proposed after the date of Resolution 337; and
(2) to execute such derivative transaction, including signing the ISDA Master Agreement to be entered into by the Region with each of the Banks.
(1) The payments made by Emilia Romagna pursuant to the Transaction from 2004 to date, which, until at least December 2021, were made without any suggestion that the sums were not due; and
(2) Emilia Romagna's annual approval of its budgets and financial statements, which included the cashflows from the Transaction and specific information about Emilia Romagna's obligations thereunder.
G.4 Validity and breach of mandatory law arguments
(1) The alleged breaches of Article 21 and 23 of TUF and Articles 26, 27, 28, 29, 30 and 32 of the Consob Regulation;
(2) The allegation that the transaction lacked the fundamental requirements for a valid contract under Italian law, in particular a valid "causa" and "oggetto", because of the alleged failure to provide information as to the negative initial MTM, "hidden costs" and "probabilistic scenarios" (see the Writ of Summons at pp 56–57);
(3) The alleged breach of Article 41; and
(4) The alleged breach of Decree 389.
Emilia Romagna's argument |
Prior English authority |
Article 21 and 23 of TUF and Article 30 of the Consob Regulations |
Pesaro at [124]-[125]; Busto at [211] and [263] |
"Causa" and "Oggetto" |
Busto at [206]-[265] |
Article 41 |
Pesaro at [118] and [124]-[125]; Catanzaro at [41] and [100]. |
Decree 389 |
Pesaro at [118] and [124]-[125]; Busto at [316]; Venice at [331]-[332] and [343]; Catanzaro at [41] and [100]. |
(1) The ISDA Master Agreement chosen was the 'Multicurrency – Cross Border' agreement rather than the 'Local Currency-single Jurisdiction form' and thus contemplated more than one currency and the involvement of more than one country, as well as being in the English language;
(2) The Transaction was part of a wider set of derivative agreements entered into with the Banks, which included JPM, a foreign bank; and
(3) The Transaction was the subject of a back-to-back hedge with Goldman Sachs, a foreign bank.
(1) Article 31 of the Consob Regulation regarding Emilia Romagna's status as a professional investor.
(2) Article 41;
(3) Decree 389 and the MEF Circular of 27 May 2004 (the "2004 MEF Circular");
(4) Article 21 of TUF and Article 26 of the Consob Regulation;
(5) Article 23 of TUF; and
(6) Article 1337 of the Italian Civil Code (the "ICC").
G.4.1.1 Professional Investor
(1) The Region lacked the required experience;
(2) The written declaration it provided was in the wrong legal form; and/or
(3) The written declaration should be disregarded because it post-dated the Transaction.
(1) "the reasons put forward by the plaintiff to demonstrate the incorrectness of the self-declaration (and, consequently, the qualification of the Province as a "retail" customer) are devoid of evidence capable of undermining the value of simple presumption that the … Supreme Court … recognises to the formal declaration pursuant to Article 31, paragraph 2, of Consob Regulation no. 11522/1998;" and
(2) "… no evidence has been produced of the alleged knowledge or awareness of the aforesaid deficiency on the part of the Banks: therefore, the legitimate expectation of Deutsche Bank and Dexia Crediop that they were in the presence of a qualified investor, which arose with the receipt of the formal declaration issued by the Director of the Provincial Financial Services (which, as per the consolidated principle of the Supreme Court … "is valid to exempt the intermediary from the obligation to carry out further verifications on its behalf in this regard")."
(1) First, and as already addressed, the declaration was approved by the Region in Resolution 8225, which pre-dated the Transaction and appended the Master Agreement containing the Schedule containing the written declaration to Dexia. Resolution 8225 was in writing, signed by Mr Pasquini as the representative of Emilia Romagna, and incorporated by reference the terms of the Master Agreement and Schedule as "an integral and substantial part thereof". The professional investor declaration was thus "expressly declared in writing by [Emilia Romagna's] legal representative" on 18 June 2004, which was prior to the Transaction being entered into on 17 September 2004.
(2) Secondly, and in any event, I am satisfied that there is no requirement that the professional investor declaration be made before the execution of the transaction. In this regard, the Italian Supreme Court stated in decision 24654/2022 that the "provision does not require that the written declaration in question be drawn up prior to the execution of the contract" (see also Rimini at [323]).
G.4.1.2 Article 41
G.4.1.3 Decree 389 and the 2004 MEF Circular
(1) An "interest rate swap between two parties taking the commitment to regularly exchange interest flows connected to major financial market parameters according to the procedures, timing and conditions stated in the contract"; and
(2) "The acquisition of an interest rate "collar" whereby the buyer is guaranteed an interest rate level payable, varying between pre-established minimum and maximum levels".
(1) First, the Speculation Ground, which is based in part on Decree 389 and which I have already rejected in Section G.2.1, and
(2) Second, the alleged imbalance between the cap and floor, which I have also rejected (at paragraph 109(5) above).
G.4.1.4 Article 21 of TUF and Article 26 of the Consob Regulation
"a) conduct themselves with diligence, fairness and transparency, in the interest of their clients and the integrity of the markets;
(b) acquire the necessary information from clients and operate in such a way that they are always adequately informed;
(c) organise itself in such a way as to minimise the risk of conflicts of interest and, in conflict situations, act in such a way as to ensure, in any case, transparency and fair treatment of clients;
(d) have adequate resources and procedures, including internal control procedures, to ensure the efficient performance of services;
(e) conduct independent, sound and prudent management and take appropriate measures to safeguard the rights of customers over the assets entrusted to them."
"a) act independently and consistently with the general principles and rules of the Consolidated Law;
b) comply with the operating rules of the markets in which they operate;
c) refrain from any conduct that might benefit one investor to the detriment of another;
d) promptly execute the instructions given to them by investors;
e) acquire knowledge of the financial instruments, services and products other than investment services, whether their own or those of third parties, which they offer, appropriate to the type of service to be provided;
f) operate with a view to keeping costs to investors low and obtaining the best possible result from each investment service, also in relation to the level of risk chosen by the investor."
(1) provide Emilia Romagna with certain information prior to its entry into the Dexia Transaction, including information about the negative initial MTM, alleged "implicit costs" and risks of the derivative, and a "probabilistic representation of the expected movement" of Euribor;
(2) pursue the best trading conditions for the Region in breach of the best execution rule;
(3) communicate to the Region that the Transaction should have been authorised by its Regional Council rather than its Regional Board; and
(4) make an upfront payment to cancel out the initial negative MTM of the Transaction.
(1) First, at the time of the Transaction, on 17 September 2004, Article 21 of TUF did not require or recommend that a financial intermediary disclose to the customer the initial MTM, probabilistic scenarios and implicit costs of a derivative transaction (see Rimini at [188]-[193]). The first suggestion of any such requirement in the Italian regulatory landscape was the non-binding recommendation in Communication 9019104, which was issued on 2 March 2009 with prospective effect in connection with the introduction of MifiD I (which post-dated the Transaction) (see Rimini at [188(ii)]). As Professor Rimini explains (at [190]), it is not tenable to argue that a financial intermediary will have fallen below the standard required by Article 21 of TUF "by not disclosing the mark-to-market, probabilistic scenarios and implicit costs at the time of the Transaction, in the absence of regulatory provisions imposing a duty on financial intermediaries to disclose such information, thus breaching its information and transparency duties". I note that this was also the conclusion reached by the Italian Council of State in decision 5962/2012.
(2) Secondly, Communication 9019104 also applies only to retail customers, not professional investors (see Rimini at [192]).
(3) Thirdly, in Professor Rimini's view, Dexia would have complied with its obligations under Article 21 of TUF so long as it had:
(A) properly informed Emilia Romagna about the terms of the Transaction;
(B) diligently proposed a transaction which is consistent with the customer's needs and its level of risk appetite; and
(C) set out the risks of the transaction in light of the degree of financial sophistication of Emilia Romagna and the factual circumstances.
G.4.1.5 Article 23 of TUF
G.4.1.6 Article 1337 of the ICC
H. THE INDEMNITY AND DAMAGES DECLARATIONS
(1) Emilia Romagna has commenced the Italian Proceedings in breach of Clause 13(b) of the Master Agreement, and so Dexia is entitled to damages in respect of the loss and damage incurred as a result, including the legal fees Dexia has incurred in Italy and England (Declaration (24)); and
(2) Dexia is entitled to be indemnified by Emilia Romagna pursuant to Clause 11 of the Master Agreement in respect of all loss and damage arising out of its breaches of the Transaction Documents, again including the legal fees incurred in Italy and England (Declaration (25)).
"(24) The Italian Litigation is within the definition of "Proceedings" in clause 13(b) of the ISDA Master Agreement, and the Italian Claim was commenced by the Defendant against the Claimant in breach of the Transaction Documents and the Claimant is entitled to damages in respect of all loss and damage incurred by the Claimant arising out of or as a result of the commencement of the Italian Proceedings, including but not limited to legal fees incurred in respect of the Italian Proceedings and the present proceedings."
I. CONCLUSION
In the first column, the relevant declaration sought by Dexia is set out, together with footnotes to the wording in the Transaction Documents that is the source for the declaration. In the second column, the text common to all three precedent orders is shown in black, with any material differences between the Busto, Pesaro and Catanzaro judgments shown in blue, red and green respectively.
Dexia (as amended) |
Previous cases |
(1) The Defendant (a) has, and at all material times had, the power (a) to execute the Transaction Documents and any other documentation relating to the Transaction Documents (b) to deliver the Transaction Documents and any other documentation relating to the Transaction Documents that it was required by the Transaction Documents to deliver, and (c) to perform its obligations under the Transaction Documents; (b) has taken all necessary action and made all necessary determinations and findings to authorise such execution, delivery and performance as referred to in sub-paragraph 1(a) above; [1] and/or |
[(2)] [(2)] [(8)] The Defendant has, and at all material times had, the power to execute and deliver the Transaction Documents and to perform its obligations under the Transaction Documents and it has, and had at all material times, taken all necessary action and made all necessary determinations and findings to authorise such execution, delivery and performance. |
(2) The execution and delivery of the Transaction Documents, and the performance by the Defendant of its obligations under the Transaction Documents does not, and did not at any material time, violate or conflict with any law applicable to the Defendant, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; [2] and/or |
(3) The [Defendant's] execution and delivery of and the [Defendant's] performance of its obligations under the Transaction Documents [by the Defendant] does not, and did not at any material time, violate or conflict with any law applicable to the Defendant[, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets] [any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets]
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(3) All governmental and other consents that are, or were, required to have been obtained by the Defendant with respect to the Transaction Documents have been obtained and are, or were at all material times, in full force and effect, and all conditions of any such consents are being, or have been, complied with; [3] and/or |
(4) All governmental and other consents that were to have been obtained by the Defendant with respect to the Transaction Documents have been obtained and are, or were at all material times, in full force and effect and all conditions of any such consents have been complied with.
(10) All governmental and other consents that were or are required to have been obtained by the Defendant with respect to the Transaction Documents have been obtained and, at all material times, any such consents have been in full force and effect and all conditions of any such consents have been complied with. |
(4) The Defendant's obligations under the Transaction Documents |
(1) The Defendant's obligations under the Transaction Documents constitute, and at all material times constituted, its legal, valid and binding obligations enforceable in accordance with their terms.
(1) The Defendant's obligations under the Transaction Documents constituted and, in the case of the Cash Flow Swap, constitute, its legal, valid and binding obligations enforceable in accordance with their terms.
(7) The obligations of the Defendant under the Transaction Documents constitute its legal, valid and binding obligations enforceable in accordance with their terms. |
(6) All applicable information that was furnished in writing by or on behalf of the Defendant for the purposes of the Dexia Transaction or the Transaction Documents (and, in particular, the information identified as such in Part 3(b) of the Schedule to the ISDA Master Agreement) was at the date of that information true, accurate and complete in every material respect [5] |
(5) All applicable information that was furnished in writing by or on behalf of the Defendant to the Claimant and was identified for the purpose of Section 3(d) of the Master Agreement, namely (a) "Certificate or other documents evidencing the authority of the party entering into this Agreement or a Confirmation, as the case may be, together with the relevant specimen signatures", (b) "Duly certified copies of the relevant resolutions of the Provincial Board (Giunta Provinciale) and of the Provincial Council (Consiglio Provinciale) authorising this Agreement and each Transaction entered into hereunder" and (c) "Duly certified copy of Provincial Board's Resolution ratifying the execution of this Agreement" was, as of the date of the information, true, accurate and complete in every material respect. |
(9) The Defendant entered into the Transaction Documents and the Dexia Transaction not for speculative purposes but solely for the purpose of hedging interest rate risk and managing its liabilities arising from a loan as permitted by law, and the Dexia Transaction was carried out on underlying amounts that were actually due from the Defendant at the date of the Dexia Transaction, and the Defendant undertook to maintain for the duration of the Dexia Transaction an underlying indebtedness that financially matches the Dexia Transaction with particular regard to the duration and type of interest rate; [6] and/or
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(7) The Transactions were entered into by the Defendant solely for the purposes of hedging interest rate risk and for managing its liabilities resulting from bond issues, loans and other forms or recourse to the financial markets permitted by law and not for speculative purposes.
(8) The Transactions were carried out in respect of underlying amounts that were, or are, actually due from the Defendant.
(12) The Transactions were entered into by the Defendant for the purposes of managing its borrowings or investments and not for the purposes of speculation.
(16) The Transaction was entered into by the Defendant for purposes of managing its borrowings and not for purposes of speculation. |
(10) In entering into the Transaction Documents and the Dexia Transaction, and on each date (if applicable) that the Dexia Transaction was amended, extended or otherwise modified, the Defendant:
(a) was acting for its own account and made its own independent decisions to enter into each of them and as to whether the Transaction Documents and the Dexia Transaction were appropriate or proper for the Defendant based on its own judgement and upon advice from such advisers as it deemed necessary; [7]
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[(5)] [(11)] [By Section 3(i) of the Master Agreement (as added by Part 5, paragraph 5(vi) of the Schedule), t][T]he Defendant [represented] [made a representation] to the Claimant [in the Transaction Documents] that in entering into the Transactions, the Defendant was acting for its own account and had made its own independent decisions to enter into the Transactions and as to whether the Transactions were appropriate or proper for it based upon its own judgement and upon advice from such advisers as it had deemed necessary.
(12) In entering into the Transaction, the Defendant was acting for its own account and had made its own independent decisions to enter into the Transaction and as to whether the Transaction was appropriate or proper for it based upon its own judgement and upon advice from such advisers as it had deemed necessary. |
... (b) did not rely on any communication (written or oral) of the Claimant as investment advice or as a recommendation to enter into the Transaction Documents and the Dexia Transaction, it being understood that (i) information and explanations related to the terms and conditions of the Transaction Documents and the Dexia Transaction would not be considered to be investment advice or a recommendation to enter into the Transaction Documents and the Dexia Transaction, and (ii) no communication (written or oral) received from the Claimant would be deemed to be an assurance or guarantee as to the expected results of the Dexia Transactions; [8] and/or |
(9) The execution of the Transactions did not constitute an assurance or guarantee of financial results.
[(6)] [(12)] [By Section 3(i) of the Master Agreement (as added by Part 5, paragraph 5(vi) of the Schedule), t][T]he Defendant [represented] [made a representation] to the Claimant [in the Transaction Documents] that in entering into the Transactions, the Defendant did not rely on any communication (written or oral) of the Claimant as investment advice or as a recommendation to enter into the Transactions, it being understood that (a) information and explanations related to the terms and conditions of the Transactions would not be considered to be investment advice or a recommendation to enter into the Transactions, and (b) no communication (written or oral) received from the Claimant would be deemed to be an assurance or guarantee as to the expected results of the Transactions.
(13) In entering into the Transaction, the Defendant did not rely on any communication (written or oral) of the Claimant/Dresdner Bank AG (Dresdner) as investment advice or as a recommendation to enter into the Transaction, it being understood that (i) information and explanations related to the terms and conditions of the Transaction would not be considered to be investment advice or a recommendation to enter into the Transaction, and (ii) no communication (written or oral) received from the Claimant/Dresdner would be deemed to be an assurance or guarantee as to the expected results of the Transaction. |
(11) Prior to entering into the Transaction Documents and the Dexia Transaction: (a) the Defendant received from the Claimant the Document on General Risks involved in the Investments in Financial Instruments ("Documento sui Rischi Generali degli Investimenti in Strumenti Finanziari") as established by CONSOB decree n. 11522, attachment no. 3 (Regolamento CONSOB n. 11522 del 1 luglio 1998); (b) the Claimant requested, and the Defendant provided, information regarding its experience in the investment in financial instruments, its financial data, investment objectives, and its risk propensity; [9] and/or |
This declaration was not sought in Busto, Pesaro or Catanzaro but as explained in footnote 9 there is a specific bespoke declaration to this effect in the Master Agreement in these terms. |
(13) The Transaction Documents and the Dexia Transaction: (a) were entered into by the Defendant in conformity with the provisions of the Decree n. 389 of 1 December 2003 issued by the Treasury Department of the Ministry of Economy and Finance and the Ministry of Interior and published in the Official Gazette n. 28 of 4 February 2004 (the "Decree"); and (ii) in compliance with Article 3, paragraph 4 of the Decree, were entered into by the Defendant with the intention of gradually tending towards ensuring that the nominal amount of the Dexia Transaction would not exceed 25% of the totality of the derivative transactions entered into by the Defendant; [10] and/or
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This declaration was not sought in Busto, Pesaro or Catanzaro but as explained in footnote 10 there is a specific bespoke declaration to this effect in the Master Agreement in these terms. |
(14) When entering into the Transaction Documents and the Dexia Transaction:, (a) the Defendant had specific expertise and experience in transactions having as an object financial investments and was thereby a professional investor pursuant to art. 31 of the Regulation n. 11522 of 1 July 1998, brought in by CONSOB ("Commissione Nazionale per le Societa e la Borsa") in Italy; and/or (b) Article 30 of TUF and Articles 27, 28, 29, 30 and 32 of CONSOB Regulation n. 11522/1998 did not apply to the Defendant; [11] and/or
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(9) Prior to and when entering into the Transactions, the Defendant had a specific expertise and experience in transactions having as an object financial investments and thereby it is and was at all material times a professional investor (operatore qualificato) pursuant to Article 31 of Regulation no.11522 of 1 July 1998 issued by Consob.
(20) Prior to and when entering into the Transaction, the Defendant had specific expertise and experience in transactions having as an object financial investments and therefore was at all material times a professional investor (operatore qualificato) pursuant to Article 31 of Italian Regulation number 11522 of 1 July 1998 issued by CONSOB by virtue of the specific declaration delivered to the Claimant/Dresdner when entering into the Transaction. |
(15) The Defendant has, and at all material times had, complied in all material respects with all applicable laws and orders to which it may be, or was, subject if failure so to comply would have materially impaired its ability to perform its obligations under the Transaction Documents; [12] and/or |
Cockerill J declined to make this declaration in Busto for the reasons at [19]-[21] {AB/3.1/5} and in Catanzaro for the reasons at [114(i)] {AB/7/28-29}. In the event that the Court grants declaration (16) below, Dexia does not press this declaration.
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(16) In resolving to enter into the Transaction Documents and the Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable: (a) Article 119(6) of the Constitution of Italy, as the Dexia Transaction does not fall within the definition of 'indebtedness' as set out in Article 3 of Law n. 350/2003. (b) Law n. 448 of 28 December 2001 (Finance Act 2002) and in particular, Article 41 thereof, as amended by Article 2(1-bis) of the Legislative Decree n. 13 February 2002, converted with amendments by the Law No 75 of 24 April 2002 (La Legge 28 Dicembre 2001, n.448 (Legge Finanziaria 2002) ed in particolare l'art.41 come modificato dall'art.2 comma 1-bis del D.L. 22 Febbraio 2002 n.13 convertito con modificazioni dalla Legge 24 Aprile 2002, n.75); (c) Decree 1 December 2003 n. 389 of the Ministry of Economy and Finance as published on the Official Gazette n. 28 of 4 February 2004 on the "Regulation concerning access to the capital market for provinces, municipalities, metropolitan cities mountain communities and islands communities as well as consortia of territorial entities and Regions, pursuant to Article 41, paragraph 1 of Law n.448 of 28 December 2001" and in particular Article 3 thereof (Il decreto 1 dicembre 2003, n. 389 del Ministero dell'Economia e delle Finanze pubblicato sulla G.U. n.145 del 4 febbraio 2004 avente ad oggetto "Regolamento concernente l'accesso al mercato dei capitali da parte delle Province, dei Comuni, delle Città Metropolitane, delle Comunità Montane e delle Comunità Isolane, nonché dei Consorzi tra Enti Territoriali e delle Regioni, ai sensi dell'articolo 41, comma 1, della legge 28 dicembre 2001, n.448" ed in particolare l'art.3); (d) The Circular of the Ministry of Economy and Finance of 27 May 2004 published on the Official Gazette n. 128 of 3 June 2004 (la Circolare del Ministero dell'Economia e delle Finanze del 27 maggio 2004 pubblicata sulla Gazzetta Ufficiale n. 128 del 3 giugno 2004); (e) The L.R. n. 22 of 3 July 1998 on the "Renegotiation of Mortgages" (La L.R. n. 22 del 3 luglio 1998 concernente la "Rinegoziazione Mutui"); (f) The L.R. n. 40/01 "Accounting Regulations of the Emilia-Romagna Region. Repeal of Regional Law n.31 of 6 July 1977 and Regional Law n.4 of 27 May 1972" (L.R. n.40/01 "Ordinamento Contabile della Regione Emilia-Romagna. Abrogazione della L.R. 6 luglio 1977 n.31 e 27 maggio 1972 n.4"); (g) Articles 21 and 23 of TUF and Article 26 of CONSOB Regulation n. 11522/1998; and (i) Article 1337 of the Civil Code; and/or [13] |
(6) Save to the extent provided at paragraph 5 of this Order, the Transactions were entered into in conformity with (a) Article 119(6) of the Italian Constitution; (b) Article 41 of Law no. 448/2001; (c) Article 3 of Decree no. 389 of 1 December 2003 issued by the Treasury Department of the Ministry of Economy and Finance and published in the Official Gazette no. 28 of 4 February 2004; (d) Circular of the Ministry of Economy and Finance of 27 May 2004; (e) Article 42 of the Local Entities Act (Testo Unico Enti Locali), and (f) Article 30(15) of Law no.289/2002.
(19) The Transaction was entered into in conformity with, to the extent they are applicable to the Transaction, (i) Article 119(6) of the Italian Constitution; (ii) Article 41 of Italian Law number 448 of 2001; (iii) Article 3 of Italian Ministerial Decree number 389 of 2003 (including as interpreted by the Circular dated 27 May 2004 issued by the Italian Ministry of Economy and Finance); (iv) Article 30(15) of Italian Law number 289 of 2002; and (v) Article 1(736) of Italian Law number 296 of 2006 (including as interpreted by the Circular dated 31 January 2007 issued by the Italian Ministry of Economy and Finance).
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(17) The Transaction Documents constitute the entire agreement and understanding of the Parties with respect to their subject matter and supersede all oral communication and prior writings with respect thereto; [14] and/or |
[(4)] [(10)] The Transaction Documents constituted [and constitute] the entire agreement and understanding of the parties with respect to their subject matter and supersede all oral communication and prior writings with respect thereto.
(11) The Transaction Documents constitute the entire agreement and understanding of the parties with respect to their subject matter and supersede all oral communication and prior writings with respect thereto. |
(18) When entering into the Dexia Transaction, the Defendant: (a) was capable of assessing the merits of and evaluating and understanding (on its own behalf or through independent professional advice), and understood, assessed and accepted, the terms, conditions and risks associated with the Dexia Transaction; and/or (b) was capable of assuming, and assumed, the financial and other risks of the Dexia Transaction; and/or (c) acknowledged that the execution of the Dexia Transaction did not constitute an assurance or guarantee of financial performance; [15] and/or
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[(7)] [(13)] [By Part 5, paragraph (4), (a) of the Schedule, t][T]he Defendant [represented] [made a representation] to the Claimant [in the Transaction Documents] that prior to and when entering into the Transactions, the Defendant was capable of assessing the merits of [and evaluating and] understanding (on its own behalf or through independent professional advice), and understood and accepted, the terms, conditions and risks of the Transactions and the Defendant was capable of assuming and assumed the [financial and other] risks of the Transactions.
(8) When entering into the Transactions, the Defendant was able to make and did in fact make an informed assessment of the risk of the Transactions and had the information required to enable it to carry out that assessment.
(14) Prior to and when entering into the Transaction, the Defendant was capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understood and accepted, the terms, conditions and risks, of the Transaction, and the Defendant was capable of assuming and assumed the risks of the Transaction. |
(19) The Claimant was not acting as a fiduciary for, or advisor to, the Defendant in respect of the Dexia Transaction; [16] and/or |
(14) By Part 5, paragraph (4)(b) of the Schedule, the Defendant represented to the Claimant that the Claimant did not act as fiduciary for or advisor to the Defendant in respect of the Transactions.
(10) The Claimant and the Defendant made representations to each other in the Transaction Documents (under the heading 'Status of Parties') that the other party was not acting as a fiduciary for or an advisor to it in respect of the Transactions.
(15) The Claimant/Dresdner did not act as fiduciary for or adviser to the Defendant in respect of the Transaction. |
(20) When entering into the Dexia Transaction, the Defendant was able to make and did in fact make an informed assessment of the risk of the Dexia Transaction and had the information required (whether under English or Italian law) to enable it to carry out that assessment; [17] and/or |
[(7)] [(13)] [By Part 5, paragraph (4), (a) of the Schedule, t][T]he Defendant [represented] [made a representation] to the Claimant [in the Transaction Documents] that prior to and when entering into the Transactions, the Defendant was capable of assessing the merits of [and evaluating and] understanding (on its own behalf or through independent professional advice), and understood and accepted, the terms, conditions and risks of the Transactions and the Defendant was capable of assuming and assumed the [financial and other] risks of the Transactions.
(8) When entering into the Transactions, the Defendant was able to make and did in fact make an informed assessment of the risk of the Transactions and had the information required to enable it to carry out that assessment.
(14) Prior to and when entering into the Transaction, the Defendant was capable of assessing the merits of and understanding (on its own behalf or through independent professional advice), and understood and accepted, the terms, conditions and risks, of the Transaction, and the Defendant was capable of assuming and assumed the risks of the Transaction. |
(22) By reason of sub-paragraphs 47(1) to (20) above, and in any event, the Claimant has to date complied with and/or discharged each and all of its relevant obligations arising out of or in connection with the Dexia Transaction (including any obligations arising prior to the execution or approval by the Defendant of the Transaction Documents, as a result of pre-contractual negotiations between the Claimant and the Defendant or otherwise, and any obligations arising after the execution or approval by the Defendant of the Dexia Transaction and/or the Transaction Documents, including any relevant obligations arising in connection with the Civil Code, Italian Legislative Decree n. 58/1998, Regulation n. 11522/1998 issued by CONSOB, or any other applicable Italian law), and the Claimant is not liable in respect of any claim under any system of law or regulation, whether by reference to the Dexia Transaction or otherwise in contract tort/delict, statute or otherwise, and including but not limited to claims for breach of duty of care (including without limitation a duty to advise), breach of contract, breach of fiduciary or other duty including any duty of good faith, non-disclosure, omission, misrepresentation (whether innocent negligent or fraudulent) or breach of statutory or regulatory obligations arising out of or in connection with the Dexia Transaction and/or the Transaction Documents (including but not limited to its suitability, pricing, notional amount, terms, execution, approval, and/or the circumstances of entry into them) |
Cockerill J declined to make this declaration in Busto for the reasons at [52]-[59] {AB/3.1/10-12} . See also Catanzaro at [115] {AB/7/29}. In the event that the Court grants declaration (16) above, Dexia does not press this declaration.
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(24) The Italian Litigation is within the definition of "Proceedings" in clause 13(b) of the ISDA Master Agreement and the Italian Claim was commenced by the Defendant against the Claimant in breach of the Transaction Documents; [18] |
This declaration was not sought in Busto, Pesaro or Catanzaro but reflects clause 13(b) of the Master Agreement. |
(25) The Claimant is entitled to an indemnity from the Defendant, payable on demand, and/or damages in respect of all loss or damage incurred by the Claimant arising out of, or in respect of any claim by the Defendant brought in breach of the Transaction Documents (including, but not limited to, the claims advanced in the Italian Claim) and in respect of all reasonable out of pocket expenses, including legal fees and Stamp Tax, incurred in the enforcement and protection of the Claimant's rights under the Transaction Documents, including but not limited to costs of collection. [19] |
This declaration was not sought in Busto, Pesaro or Catanzaro but reflects clause 11 of the Master Agreement. |
Relevant Italian Law |
Declaration sought by Dexia [20] |
References to Italian Law Report {B/2} |
References to cases cited in CEA Notice {B/4} |
Equivalent Declaration in Busto / Pesaro / Catanzaro |
Article 119(6) of the Italian Constitution {F/3T/3-4}, which permits Italian regions and local authorities to "resort to indebtedness only as a means of funding investments".
The definition of indebtedness for the purposes of this law is in Article 3(17) of Law No. 350/2003 {F/15T}.
The consequences of a breach of Article 119(6) are prescribed by Article 30(15) of Law No. 289/2002 {F/14T}.
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Declaration 16(a) {A/3/24}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable: (a) Article 119(6) of the Constitution of Italy, as the Dexia Transaction does not fall within the definition of 'indebtedness' as set out in Article 3 of Law n. 350/2003." |
§§103-122 {B/2/27-35}
As regards the argument that the Transaction breached Article 119(6) because it was speculative, see §§243-260 {B/2/89-98}.
As regards the argument that Transaction involved indebtedness, see §§261-267 {B/2/98-100}. |
Venice [196]-[197] [205]-[213] [222]-[267] {AB/REF/59-60} {AB/REF/63-67} {AB/REF/69-86}
Venice CA [159]-[166] [170]-[174] {AB/REF/47-51}
Busto [173]-[265] [275]-[280] [305]-[306] [325]-[342] {AB/REF/44-60, 62-63, 66-67, 70-73}
Pesaro [89]-[97] {AB/REF/27-29}
Catanzaro [76] [80]-[96] {AB/REF/18-23} |
Pesaro: "... the Transactions were entered into in conformity with (a) Article 119(6) of the Italian Constitution..."
Catanzaro: "The Transaction was entered into in conformity with, to the extent they are applicable to the Transaction, (i) Article 119(6) of the Italian Constitution; ..." |
Article 41 of Law no. 448/2001 {F/13T}, i.e. the so-called requirement of "economic convenience" for Italian local authorities incurring new indebtedness.
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Declaration 16(b) {A/3/24}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:... (b) Law n. 448 of 28 December 2001 (Finance Act 2002) and in particular, Article 41 thereof" |
§123-130 {B/2/35-38}
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Busto [307]-[316] {AB/REF/67-69}
Prato [163]-[181] (Walker J) {AB/REF/34-40} and [68]-[118] (Court of Appeal) {AB/REF/14-23}
Pesaro [102]-[118] {AB/REF/30-37}
Catanzaro [76] [105] {AB/REF} |
Pesaro: "... the Transactions were entered into in conformity with ... (b) Article 41 of Law no. 448/2001..."
Catanzaro: "The Transaction was entered into in conformity with, to the extent they are applicable to the Transaction, ... (ii) Article 41 of Italian Law number 448 of 2001; ..." |
Decree 389/2003 {F/16T} and the Explanatory Circular of the Ministry of Economy and Finance of 27 May 2004 {F/17T}, which sets out the derivative transactions into which local authorities are permitted to enter. This applies to Italian regions unless there is a relevant regional law. |
Declaration 16(c)-(d) {A/3/24-25}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:... (c) Decree 1 December 2003 n. 389 of the Ministry of Economy and Finance as published on the Official Gazette n. 28 of 4 February 2004 ... and in particular Article 3 thereof; (d) The Circular of the Ministry of Economy and Finance of 27 May 2004" |
§§131-147 {B/2/38-44} |
Venice [343]-[350] {AB/REF/112-114}
Busto [307]- [316] {AB/REF/67-69}
Prato [183]-[190] (Walker J) {AB/REF/40-42}
Pesaro [102]-[118] {AB/REF/30-37}
Catanzaro [76], [104] {AB/REF}
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Pesaro: "... the Transactions were entered into in conformity with ... (c) Article 3 of Decree no. 389 of 1 December 2003 issued by the Treasury Department of the Ministry of Economy and Finance and published in the Official Gazette no. 28 of 4 February 2004; (d) Circular of the Ministry of Economy and Finance of 27 May 2004..." subject to the caveat as to Article 3(2)(d) for the reasons given in the judgment at [115]-[116] {AB/4/36-37} (which has been overtaken by Venice CA)
Catanzaro: "The Transaction was entered into in conformity with, to the extent they are applicable to the Transaction, ... (iii) Article 3 of Italian Ministerial Decree number 389 of 2003 (including as interpreted by the Circular dated 27 May 2004 issued by the Italian Ministry of Economy and Finance); ..." |
Regional Law no. 22 of 3 July 1998 {F/8T}, which authorises the Region to enter into a wide range of derivatives. |
Declaration 16(e) {A/3/25}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:... (e) The L.R. n. 22 of 3 July 1998 on the "Renegotiation of Mortgages" |
§§93-99, 303-310 {B/2/24-25} {B/2/119-121} |
This point has not been considered in previous English cases because Emilia Romagna is an Italian Region with its own Regional laws. |
This relief has not been sought in previous English cases. |
Regional Law no. 40/01 {F/12T}, which authorises the Region to enter into a wide range of derivatives. |
Declaration 16(f) {A/3/25}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:... (f) The L.R. n. 40/01 "Accounting Regulations of the Emilia-Romagna Region. Repeal of Regional Law n.31 of 6 July 1977 and Regional Law n.4 of 27 May 1972" |
§§100-102, 303-310 {B/2/25-27} {B/2/119-121} |
This point has not been considered in previous English cases because Emilia Romagna is an Italian Region with its own Regional laws. |
This relief has not been sought in previous English cases. |
Article 21 of TUF {F/7T/1} and Article 26 of the Consob Regulations {F/6T/1}, which set out the duties a financial intermediary shall comply with when providing financial services.
|
Declaration 16(g) {A/3/25}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:... (g) Articles 21 and 23 of TUF and Article 26 of CONSOB Regulation n. 11522/1998;" |
§§148-162, 188-215 {B/2/45-50} {B/2/60-82} |
This point has not been considered in previous English cases. |
This relief has not been sought in previous English cases. |
Article 23 of TUF {F/7T/1-2}, which requires that contracts relating to the provision of financial services (such as the Master Agreement) are in written form and provided to the customer |
Declaration 16(g) {A/3/25}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:... (g) Articles 21 and 23 of TUF and Article 26 of CONSOB Regulation n. 11522/1998;" |
§§268-272, 277-290 {B/2/100-102} {B/2/105-111} |
This point has not been considered in previous English cases. |
This relief has not been sought in previous English cases. |
Article 1337 of the Italian Civil Code {F/2T/1}, which requires that negotiations for, and the preparation of, a contract shall be carried out in good faith |
Declaration 16(i) {A/3/25}: "In resolving to enter into the Transaction Documents and the Dexia Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:... (i) Article 1337 of the Civil Code;" |
§216-230 {B/2/82-86} |
This point has not been considered in previous English cases. |
This relief has not been sought in previous English cases. |
Article 31 of the Consob Regulations {F/6T/3}, which provides that certain Consob regulations will not apply to professional investors. |
Declaration 14 {A/2/23-24}: "When entering into the Transaction Documents and the Dexia Transaction: (a) the Defendant had specific expertise and experience in transactions having as an object financial investments and was thereby a professional investor pursuant to art. 31 of the Regulation n. 11522 of 1 July 1998, brought in by CONSOB ("Commissione Nazionale per le Societa e la Borsa") in Italy; and/or (b) Article 30 of TUF and Articles 27, 28, 29, 30 and 32 of CONSOB Regulation n. 11522/1998 did not apply to the Defendant;" |
§§174-175, 275-276, 294-295, 311-323 {B/2/55} {B/2/104} {B/2/113-114} {B/2/121-127} |
Dexia does not rely on any findings of Italian law in previous English cases but notes that a declaration in respect of Article 31 of the Consob Regulations was made in Busto (Consequentials) [42]-[44] {AB/REF/9} and in Catanzaro {AB/REF}. |
Busto: "Prior to and when entering into the Transactions, the Defendant had a specific expertise and experience in transactions having as an object financial investments and thereby it is and was at all material times a professional investor (operatore qualificato) pursuant to Article 31 of Regulation no.11522 of 1 July 1998 issued by Consob."
Catanzaro: "Prior to and when entering into the Transaction, the Defendant had specific expertise and experience in transactions having as an object financial investments and therefore was at all material times a professional investor (operatore qualificato) pursuant to Article 31 of Italian Regulation number 11522 of 1 July 1998 issued by CONSOB by virtue of the specific declaration delivered to the Claimant... when entering into the Transaction" |
(1) The Defendant
(a) has, and at all material times had, the power (a) to execute the Transaction Documents and any other documentation relating to the Transaction Documents (b) to deliver the Transaction Documents and any other documentation relating to the Transaction Documents that it was required by the Transaction Documents to deliver, and (c) to perform its obligations under the Transaction Documents;
(b) has taken all necessary action and made all necessary determinations and findings to authorise such execution, delivery and performance as referred to in sub-paragraph 1(a) above; and
(2) The execution and delivery of the Transaction Documents, and the performance by the Defendant of its obligations under the Transaction Documents does not, and did not at any material time, violate or conflict with any law applicable to the Defendant, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; and
(3) All governmental and other consents that are, or were, required to have been obtained by the Defendant with respect to the Transaction Documents have been obtained and are, or were at all material times, in full force and effect, and all conditions of any such consents are being, or have been, complied with; and
(4) The Defendant's obligations under the Transaction Documents constitute, and at all material times constituted, its legal, valid and binding obligations enforceable in accordance with their respective terms; and
(6) All applicable information that was furnished in writing by or on behalf of the Defendant for the purposes of the Dexia Transaction or the Transaction Documents (and, in particular, the information identified as such in Part 3(b) of the Schedule to the ISDA Master Agreement) was at the date of that information true, accurate and complete in every material respect; and
(9) The Defendant entered into the Transaction Documents and the Dexia Transaction not for speculative purposes but solely for the purpose of hedging interest rate risk and managing its liabilities arising from a loan as permitted by law, and the Dexia Transaction was carried out on underlying amounts that were actually due from the Defendant at the date of the Dexia Transaction, and the Defendant undertook to maintain for the duration of the Dexia Transaction an underlying indebtedness that financially matches the Dexia Transaction with particular regard to the duration and type of interest rate; and
(10) In entering into the Transaction Documents and the Dexia Transaction, and on each date (if applicable) that the Dexia Transaction was amended, extended or otherwise modified, the Defendant:
(a) was acting for its own account and made its own independent decisions to enter into each of them and as to whether the Transaction Documents and the Dexia Transaction were appropriate or proper for the Defendant based on its own judgement and upon advice from such advisers as it deemed necessary;
(b) did not rely on any communication (written or oral) of the Claimant as investment advice or as a recommendation to enter into the Transaction Documents and the Dexia Transaction, it being understood that (i) information and explanations related to the terms and conditions of the Transaction Documents and the Dexia Transaction would not be considered to be investment advice or a recommendation to enter into the Transaction Documents and the Dexia Transaction, and (ii) no communication (written or oral) received from the Claimant would be deemed to be an assurance or guarantee as to the expected results of the Dexia Transactions; and
(11) Prior to entering into the Transaction Documents and the Dexia Transaction:
(a) the Defendant received from the Claimant the Document on General Risks involved in the Investments in Financial Instruments ("Documento sui Rischi Generali degli Investimenti in Strumenti Finanziari") as established by CONSOB decree n. 11522, attachment no. 3 (Regolamento CONSOB n. 11522 del 1 luglio 1998);
(b) the Claimant requested, and the Defendant provided, information regarding its experience in the investment in financial instruments, its financial data, investment objectives, and its risk propensity; and
(13) The Transaction Documents and the Dexia Transaction: (a) were entered into by the Defendant in conformity with the provisions of the Decree n. 389 of 1 December 2003 issued by the Treasury Department of the Ministry of Economy and Finance and the Ministry of Interior and published in the Official Gazette n. 28 of 4 February 2004 (the "Decree"); and (ii) in compliance with Article 3, paragraph 4 of the Decree, were entered into by the Defendant with the intention of gradually tending towards ensuring that the nominal amount of the Dexia Transaction would not exceed 25% of the totality of the derivative transactions entered into by the Defendant; and
(14) When entering into the Transaction Documents and the Dexia Transaction:
(a) the Defendant had specific expertise and experience in transactions having as an object financial investments and was thereby a professional investor pursuant to art. 31 of the Regulation n. 11522 of 1 July 1998, brought in by CONSOB ("Commissione Nazionale per le Societa e la Borsa") in Italy; and
(b) Article 30 of TUF and Articles 27, 28, 29, 30 and 32 of CONSOB Regulation n. 11522/1998 did not apply to the Defendant; and
(16) In resolving to enter into the Transaction Documents and the Transaction, and in entering into them, the Defendant complied with the following laws to the extent applicable:
(a) Article 119(6) of the Constitution of Italy, as the Dexia Transaction does not fall within the definition of 'indebtedness' as set out in Article 3 of Law n. 350/2003.
(b) Law n. 448 of 28 December 2001 (Finance Act 2002) and in particular, Article 41 thereof, as amended by Article 2(1-bis) of the Legislative Decree n. 13 February 2002, converted with amendments by the Law No 75 of 24 April 2002 (La Legge 28 Dicembre 2001, n.448 (Legge Finanziaria 2002) ed in particolare l'art.41 come
modificato dall'art.2 comma 1-bis del D.L. 22 Febbraio 2002 n.13 convertito con modificazioni dalla Legge 24 Aprile 2002, n.75);
(c) Decree 1 December 2003 n. 389 of the Ministry of Economy and Finance as published on the Official Gazette n. 28 of 4 February 2004 on the "Regulation concerning access to the capital market for provinces, municipalities, metropolitan cities mountain communities and islands communities as well as consortia of territorial entities and Regions, pursuant to Article 41, paragraph 1 of Law n.448 of 28 December 2001" and in particular Article 3 thereof (Il decreto 1 dicembre 2003, n. 389 del Ministero dell'Economia e delle Finanze pubblicato sulla G.U. n.145 del 4 febbraio 2004 avente ad oggetto "Regolamento concernente l'accesso al mercato dei capitali da parte delle Province, dei Comuni, delle Città Metropolitane, delle Comunità Montane e delle Comunità Isolane, nonché dei Consorzi tra Enti Territoriali e delle Regioni, ai sensi dell'articolo 41, comma 1, della legge 28 dicembre 2001, n.448" ed in particolare l'art.3);
(d) The Circular of the Ministry of Economy and Finance of 27 May 2004 published on the Official Gazette n. 128 of 3 June 2004 (la Circolare del Ministero dell'Economia e delle Finanze del 27 maggio 2004 pubblicata sulla Gazzetta Ufficiale n. 128 del 3 giugno 2004);
(e) The L.R. n. 22 of 3 July 1998 on the "Renegotiation of Mortgages" (La L.R. n. 22 del 3 luglio 1998 concernente la "Rinegoziazione Mutui");
(f) The L.R. n. 40/01 "Accounting Regulations of the Emilia-Romagna Region. Repeal of Regional Law n.31 of 6 July 1977 and Regional Law n.4 of 27 May 1972" (L.R. n.40/01 "Ordinamento Contabile della Regione Emilia-Romagna. Abrogazione della L.R. 6 luglio 1977 n.31 e 27 maggio 1972 n.4");
(g) Articles 21 and 23 of TUF and Article 26 of CONSOB Regulation n. 11522/1998; and
(i) Article 1337 of the Civil Code; and
(17) The Transaction Documents constitute the entire agreement and understanding of the Parties with respect to their subject matter and supersede all oral communication and prior writings with respect thereto; and
(18) When entering into the Dexia Transaction, the Defendant:
(a) was capable of assessing the merits of and evaluating and understanding (on its own behalf or through independent professional advice), and understood, assessed and accepted, the terms, conditions and risks associated with the Dexia Transaction; and/or
(b) was capable of assuming, and assumed, the financial and other risks of the Dexia Transaction; and/or
(c) acknowledged that the execution of the Dexia Transaction did not constitute an assurance or guarantee of financial performance; and
(19) The Claimant was not acting as a fiduciary for, or advisor to, the Defendant in respect of the Dexia Transaction; and
(20) When entering into the Dexia Transaction, the Defendant was able to make and did in fact make an informed assessment of the risk of the Dexia Transaction and had the information required (whether under English or Italian law) to enable it to carry out that assessment; and
(24) The Italian Litigation is within the definition of "Proceedings" in clause 13(b) of the ISDA Master Agreement, the Italian Claim was commenced by the Defendant against the Claimant in breach of the Transaction Documents and the Claimant is entitled to damages in respect of all loss and damage incurred by the Claimant arising out of or as a result of the commencement of the Italian Proceedings, including but not limited to legal fees incurred in respect of the Italian Proceedings and the present proceedings; and
(25) The Claimant is entitled to an indemnity from the Defendant, payable on demand, and/or damages in respect of all loss or damage incurred by the Claimant arising out of, or in respect of any claim by the Defendant brought in breach of the Transaction Documents (including, but not limited to, the claims advanced in the Italian Claim) and in respect of all reasonable out of pocket expenses, including legal fees and Stamp Tax, incurred in the enforcement and protection of the Claimant's rights under the Transaction Documents, including but not limited to costs of collection.
[1] Clause 3(a)(ii) Master Agreement as amended by the Schedule: Emilia Romagna represented to Dexia that "It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action and made all necessary determinations and findings to authorize such execution, delivery and performance" {C/2/26}.
[2] Clause 3(a)(iii) Master Agreement: Emilia Romagna represented to Dexia that "Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets" {C/2/3}.
[3] Clause 3(a)(iv) Master Agreement: Emilia Romagna represented to Dexia that "All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with" {C/2/3}.
[4] Clause 3(a)(v) Master Agreement: Emilia Romagna represented to Dexia that "Its obligations under this Agreement ... constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms..." {C/2/3}.
[5] Clause 3(d) Master Agreement: Emilia Romagna represented to Dexia that "All applicable information that is furnished in writing by or on behalf of [Emilia Romagna] to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect" {C/2/4}.
[6] Clause 3(g) Master Agreement as added by the Schedule: Emilia Romagna represented to Dexia that "This Agreement has been, and each Transaction hereunder will be (and, if applicable, has been), entered into for purposes of managing its borrowings or investments and not for purposes of speculation" {C/2/27}. In the Confirmation, Emilia Romagna further declared that "it has decided to enter into this IRS transaction not for speculative purposes but solely for the purpose of hedging the interest rate risk and managing its liabilities arising from bond issuances, passive loans and other forms of recourse to the financial markets as permitted by the law. In particular, this transaction is therefore carried out on underlying amounts that are actually due by the Region, which undertakes to maintain for the entire duration of the transaction an underling indebtedness with a high degree of financial correspondence towards the swap transaction with particular attention to the duration and type of rate" {C/1T/4}
[7] Clause 3(i) Master Agreement as added by the Schedule: Emilia Romagna represented to Dexia that "it is acting for its own account, and has made its own independent decisions to enter into [the Transactions] and as to whether this [Master] Agreement and [Transaction] is appropriate or proper for it based on its own judgment and upon advice from such advisors as it has deemed necessary." {C/2/27}.
[8] Clause 3(i) Master Agreement as added by the Schedule: Emilia Romagna represented to Dexia that "It is not relying on any communication (written or oral) of [Dexia] as investment advice or as a recommendation to enter into [the Transaction], it being understood that information and explanations related to the terms and conditions of [the Transaction] shall not be considered to be investment advice or a recommendation to enter into this [Master] Agreement or [the Transaction]. No communication (written or oral) received from [Dexia] shall be deemed to be an assurance or guarantee as to the expected results of [the Transaction]" {C/2/27}.
[9] Clause 3(i) Master Agreement as added by the Schedule: Emilia Romagna represented to Dexia that it "acknowledges: 1) to have received from [Dexia] the Document on General Risks involved in the Investment in Financial Instruments ("Documento sui Rischi Generali degli Investimenti in Strumenti Finanziari") as established by CONSOB decree n. 11522, attachment n°. 3 (Regolamento CONSOB n. 11522 del 1° luglio 1998); 2) That [Dexia] has requested [Emilia Romagna], and [Emilia Romagna] has provided, the information regarding its experience in the investment in financial instruments, its financial data, its investment objectives and its risk propensity" {C/2/27}.
[10] Clause 3(k) of the Master Agreement as added by the Schedule: Emilia Romagna represented to Dexia that "(i) it is entering into this [Master] Agreement and [the Transaction] in conformity with Decree no. 389 of 1st December 2003 issued by the Treasury Department of the Ministry of Economy and Finance and the Ministry of Interior and published in the Official Gazette no. 28 of 4th February 2004 (the "Decree") and that (ii) in compliance with Article 3, paragraph 4, of the Decree, [Emilia Romagna] shall gradually tend towards ensuring that this [Master] Agreement and [the Transaction] are entered into in a manner which ensures that the nominal amount of derivative transactions entered into by [Emilia Romagna] with [Dexia] will not exceed 25% of the totality of the derivative transactions entered into by [Emilia Romagna]" {C/2/28}. The Confirmation also contained a representation by Emilia Romagna that "The Region declares that this interest swap transaction is in accordance with Ministerial Decree no. 389 of 1 December 2003 and the subsequent explanatory Circular of 27 May 2004; in particular with reference to the underlying indebtedness, it is fully compliant with Article 3, paragraph 3 of the abovementioned Decree no. 389/2003; with reference to the 25% limit, it is also completely in line with Article 3, paragraph 4 of the abovementioned Decree no. 389 of 1 December 2003" {C/1T/4}.
[11] Clause 3(l) Master Agreement as added by the Schedule: Emilia Romagna represented to Dexia that "it has a specific expertise and experience in transactions having as an object financial investments and thereby it is a professional investor pursuant to art. 31 of the Regulation no.11522 of 1 July 1998, brought in by CONSOB ("Commissione Nazionale per le Società e la Borsa") in Italy" {C/2/28}. Part (b) follows expressly from the statutory exclusion of these articles of TUF and Consob Regulation in the case of a professional investor. See Written Opening at paragraph [115].
[12] Clause 4(c) Master Agreement: Emilia Romagna agreed that, so long as it has or may have any obligations under the Master Agreement, "It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party" {C/2/4}.
[13] As identified above, Emilia Romagna represented to Dexia in Clause 3(a) of the Master Agreement (as amended by the Schedule) that it had the power to execute, deliver and perform the Transaction Documents and that this did not violate or conflict with any law applicable to it, that it had obtained all governmental and other consents necessary and that its obligations under the Transaction Documents are legal, valid and binding {C/2/3} {C/2/26}. It also specifically declared that the Transactions complied with the Decree (see footnote 10 above). However, contrary to these agreements, representations and declarations, it has alleged breaches of the laws listed in the declaration in the Italian Proceedings.
[14] Clause 9(a) Master Agreement: Emilia Romagna agreed "This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto" {C/2/12}.
[15] Paragraph 4(a) of Part 5 of the Schedule: Emilia Romagna represented to Dexia that "It is capable of assessing the merits of and evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transactions. It is also capable of assuming, and assumes, the financial and other risks of that Transaction." {C/2/26}. Further, Section 3(i) Master Agreement as added by the Schedule: Emilia Romagna represented to Dexia that "No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of any Transaction hereunder" {C/2/27}. In the Confirmation, Emilia Romagna represented to Dexia that "the Region is able to understand, assess and accept the risks associated with this transaction, the execution of which does not constitute an assurance or guarantee of financial performance" {C/1T/4}.
[16] Paragraph 4(b) of Part 5 of the Schedule: Emilia Romagna represented to Dexia that it was "not acting as a fiduciary for or advisor to [Emilia Romagna] in respect of that Transaction" {C/2/26}.
[17] Paragraph 4(a) of Part 5 of the Schedule: Emilia Romagna represented to Dexia that "It is capable of assessing the merits of and evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the financial and other risks of that Transaction" {C/2/26}.
[18] Clause 13 Master Agreement provides that "With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably:- (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law ... and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party" {C/2/13}.
[19] Clause 11 Master Agreement provides that "A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees and Stamp Tax, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement... including but not limited to costs of collection" {C/2/12-13}.
[20] The number is to the relevant sub-paragraphs of paragraph 47 of the Re-Amended Particulars of Claim {A/3}.