Intesa sanpaolo s.p.a. v Regione Piemonte (Defendant/Applicant)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Eder: |
| Judgment Date | 16 July 2013 |
| Neutral Citation | [2013] EWHC 1994 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 16 July 2013 |
Case Nos: 2011 Folio 956; 2013 Folio 260
Case Nos: 2011 Folio 957; 2013 Folio 194
[2013] EWHC 1994 (Comm)
Mr Justice Eder
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Sonia Tolaney QC (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Claimants
Catherine Newman QC and Alec McCluskey (instructed by Withers LLP) for the Defendant
Hearing date: 5 July 2013
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
These proceedings concern various claims brought by Intesa Sanpaolo S.p.A. ("Intesa") (previously known as Banca Infrastrutture, Innovazione e Sviluppo S.p.A. ("BIIS")) and Dexia Crediop S.p.A ("Dexia") (together, the "Banks") against the defendant, Regione Piemonte ("Piedmont"), in relation to certain derivative transactions entered into on 16 November 2006 between Intesa and Dexia (two derivative transactions and one derivative transaction respectively) and Piedmont (the "Transactions") in connection with Piedmont's issuance of two bonds.
In very broad terms, the purposes of the Transactions were to manage the interest rate risk to which Piedmont is exposed under the bonds issued by Piedmont and to create an amortisation fund out of which Piedmont would repay the bonds upon their respective due dates in 2013 and 2036.
The Transactions were entered into by Piedmont pursuant to Resolution 136–3655 of the Piedmont Regional Council dated 2 August 2006; and were performed by both sides without incident until 2011.
However, it appears that sometime in 2010, the Italian Corte dei Conti (a body with oversight over Piedmont's financial affairs) produced a report calling for further investigation of the Transactions and their terms. This resulted in the production of a report in 2011 obtained by Piedmont from an Italian lawyer, Avvocato Tommasso Iaquinta with, it is said, the assistance of a financial expert which was, as I understand, subsequently provided to the Banks. In particular, that report analysed the Transactions and identified what Ms Newman QC described as "very substantial secret profits" which the Banks had "generated" from the Transactions and which she submitted amounted to "disgraceful conduct" on the part of the Banks. In particular, as summarised by Ms Newman QC in her skeleton, Avv Iaquinta's principal conclusions were as follows:
" (1) The Derivatives do not create a "containment of the costs of the debt" incurred by [Piedmont] in issuing the Bonds, contrary to requirements of Italian Law. Instead, they force [Piedmont] to pay out sums on account of its liabilities under the Bonds which are higher than those actually payable under the Bonds.
(2) The amortising swaps had the effect of shifting [Piedmont's] payment commitments into the future (because the payments due under the amortising swaps increase greatly as time goes by), contrary to requirements of Italian Law.
(3) The interest rate floors had a greater notional cost to [Piedmont] than the value of the interest rate caps (albeit that these values were not disclosed to [Piedmont] by the Banks or approved by Piedmont at any time), meaning that the interest rate collars were not "par" instruments, contrary to requirements of Italian Law.
(4) The notional cost to [Piedmont] of the interest rate floors was in excess of market rates at the time of execution of the Derivatives, whereas the notional premium being received by [Piedmont] through entering into the interest rate caps was below market rates at the time.
(5) The interest rate swaps had the effect in relation to the smaller Bond (for €56 million) of converting a liability to pay a fixed interest rate into a liability to pay a floating rate, such that they did not have the effect of "containing the exposure of the organisation to financial risks resulting from a rise in interest rates and therefore with the objective of containing the cost of the loan", again contrary to requirements of Italian Law.
(6) The credit default swaps, which amount to the sale by [Piedmont] of insurance against the Italian state defaulting on its debts, are not instruments which [Piedmont] had capacity under Italian Law to enter into, and exposed [Piedmont] to a considerable financial risk.
(7) Analysed as a whole, the Derivatives had hidden costs to [Piedmont] of €54,382,796 (and consequential hidden profits to Cs in the same amount), which violated various provisions of Italian Law."
In about 2011, reports began to appear in the Italian press that Piedmont was considering whether to take action against the Banks (and other banks) in relation to the Transactions.
On 10 August 2011, the Banks each commenced proceedings in this court seeking declaratory relief in respect of the Transactions, in Claim No: 2011 Folio 956 (the "Intesa Declaratory Action") and Claim No: 2011 Folio 957 (the "Dexia Declaratory Action") (together, the "Declaratory Actions"). In each claim, the relevant Bank sought declarations regarding, in summary, the validity of the relevant Transactions and the legal nature of its relationship with Piedmont. It is common ground that these claims were properly brought in England because, by the parties' express choice, the Transactions are governed by English law and disputes relating to them are to be submitted to the jurisdiction of the English Court. It is also common ground that the proceedings were duly served on Piedmont at its offices in Turin on 30 January 2012.
Meanwhile, on 23 January 2012, the Piedmont Regional Council promulgated inter alia Resolution 24–3305 which, in effect, purportedly cancelled its earlier Resolution 135–3655 and authorised the implementation of that Resolution 24–3305.
Piedmont did not file any acknowledgement of service in or otherwise engage with the Declaratory Actions. As now confirmed in the witness statement recently served by Piedmont from its current Head of Finance, Dott. Sergio Rolando, this was the result of a deliberate decision taken by Piedmont. As he states: "… the Regione took the view that it was inappropriate to engage with litigation in England". Instead, pursuant to a process under Italian Law known as autotutela (self redress) and in accordance with the recommendations of Avv Iaquinta, Piedmont commenced its own proceedings in Italy (the "self-help proceedings"). As described by Ms Newman in her skeleton, this process was effectively a means of declaring the Transactions void without the need to obtain a declaration from the courts to that effect although the precise nature of such process was a matter of some debate before me. In any event, the Banks' position was that by exercising this purported power of self-redress, Piedmont had acted in violation of Italian law; and the Banks themselves then filed proceedings with the Turin Administrative Court challenging inter alia the validity of Piedmont's purported exercise of the self-help process.
Meanwhile, in England, the Banks each applied for default judgment in the Declaratory Actions. In support of such applications, the Banks relied upon the evidence of Mr Kelly, a solicitor and partner in the firm of Cleary Gottlieb Steen & Hamilton LLP, who acts on behalf of the Banks. In accordance with the CPR, those applications were made without notice to Piedmont; and in the event, Piedmont did not appear and was not represented on the hearing of those applications which came before Cooke J. in July 2012.
In the course of the present hearing, Ms Newman has advanced certain criticisms against the Banks (although not, I should say, against Ms Tolaney QC) on the basis, as she submitted, that adequate attention was not drawn to the court concerning arguments which were available to Piedmont in particular with regard to Piedmont's capacity to enter into the Transactions, whether the Banks owed Piedmont a "fiduciary duty", the existence of a prior "advisory relationship" and the alleged "secret profits" made by the Banks out of the Transactions. I accept that certain of the specific points now sought to be raised by Ms Newman were not specifically drawn to the attention of the court at the original hearing of the applications for default judgment. However, I do not consider that this constituted any relevant "non-disclosure". On the contrary, it is important to note that in the witness statement from Mr Kelly, which was submitted on behalf of the Banks for the purpose of that original hearing, he referred specifically to inter alia Resolution 24–3305. In particular, at paragraphs 70.7 to 73 of his witness statement, Mr Kelly stated as follows:
" 70.7 However, on 23 January 2012, Piedmont passed Resolution No 3 (pages 407 to 473, and pages 474 to 548 in English translation, of JPKK-1) and Resolution No 24–3305 (pages 549 to 550, and pages 551 to 552 in English translation, of JPKK-1) (the "Self Help Resolutions") resolving that the resolutions whereby it had approved its entry into the Transactions (among other things) were null and void. The power of Italian municipalities to declare resolutions null and void is known as a "power of self-help").
70.8 Specifically, Piedmont purported to declare null and void:
(a) Piedmont's Council Resolution No 135–3655;
(b) Resolution No 61 of the Director of Piedmont's Budget and Finance Department relating to the 2036 Transaction with BIIS;
(c) Resolution No 72 of the Director of Piedmont's Budget and Finance Department relating to the 2036...
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