Otc derivatives, this time an English ruling is recognised in Italy

English judgments on derivatives must be recognised in Italy, unless they are manifestly contrary to international public order. The Court of Milan, with its judgement of 7 January (Judge Carmela Gallina), thus rejected the appeal of the Province of Brescia, recognising in our country the decisions of the English judges with which Deutsche Bank (assisted by the lawyer Massimiliano Danusso of BonelliErede) won the dispute over the swaps stipulated by the Lombardy entity.

In November 2024, the English High Court upheld the claims of Deutsche Bank and Dexia against the Province of Brescia, which had entered into two swaps in 2006 and then attempted to challenge them in Italy after the Unified Sections' ruling no. 8770/2020 that, due to the failure to indicate the probabilistic scenarios, had declared the derivatives entered into by the Municipality of Cattolica null and void (see also "Plus24" of 25 January 2025).

Judge Hildyard ruled that the derivatives, governed by English law with an exclusive Isda, clause, were valid and binding and that Brescia had no lack of capacity or authorisation to enter into them. The Province, which did not appear at the English trial after losing on the jurisdictional exceptions, was ordered to pay the banks substantial legal costs (almost 1 million).

Having exhausted the dispute before the English courts, the Province of Brescia then appealed to the Court of Milan to prevent its recognition in Italy. The request was based on Article 45 of EU Regulation 1215/2012 (applicable because the litigation had started before Brexit, i.e. the UK's 2020 exit from the EU after the 2016 referendum), which allows a foreign judgment to be denied effect if manifestly contrary to international public policy. According to the body, the English decisions would have violated fundamental principles on Italian public accounting, limits on the use of derivatives by local authorities, transparency of financial contracts and the right of defence.

The heart of the Milan court's decision lies in the distinction between domestic public order and international public order. The latter, the judge clarified, does not coincide with the set of fundamental rules of the Italian legal system, not even when they have constitutional status. International public policy concerns only those essential and universal principles that protect the inviolable rights of persons and are common to the various legal orders. The Italian court's review must therefore remain confined to this perimeter, without trespassing on an assessment of the merits of the foreign decision.