Regione Piemonte v Dexia Crediop Spa
| Jurisdiction | England & Wales |
| Judge | Lord Justice Christopher Clarke,Lord Justice Lewison,Lord Justice Jackson |
| Judgment Date | 09 October 2014 |
| Neutral Citation | [2014] EWCA Civ 1298 |
| Docket Number | Case No: A3/2013/2580 |
| Court | Court of Appeal (Civil Division) |
| Date | 09 October 2014 |
[2014] EWCA Civ 1298
Lord Justice Jackson
Lord Justice Lewison
and
Lord Justice Christopher Clarke
Case No: A3/2013/2580
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT QUEENS BENCH
COMMERCIAL COURT
Mr Justice Eder
Royal Courts of Justice
Strand, London, WC2A 2LL
Catherine Newman QC and Alec McCluskey (instructed by Withers LLP) for the Appellant
Sonia Tolaney QC and James MacDonald (instructed by Cleary Gottlieb & Hamilton LLP) for the Respondent
Hearing dates: 21 st and 22 nd May 2014
Additional Written Submissions: 16 th and 23 rd July 2014
The issue
On 16 November 2006 Regione Piemonte, the Italian Regional Authority (hereafter "Piedmont"), entered into certain derivative transactions (the "Transactions"), in connection with the issue by it of two bonds. Two of the Transactions were with Intesa Sanpaolo S.p.A ("Intesa") (previously named Banca Infrastrutture, Innovazione e Sviluppo S.p.A ("BIIS")) and one was with Dexia Crediop S.p.A ("Dexia") (together "the Banks"). The agreements for the Transactions provided that they were to be governed by English law and each party irrevocably submitted to the jurisdiction of the English Courts.
In August 2011 the Banks brought two separate actions seeking declarations as to the validity of the Transactions ("the Declaratory Actions"). The proceedings were served on Piedmont. Piedmont did not file any Acknowledgment of Service. On 24 July 2012 Cooke J made the declarations sought ("the Cooke judgment"). In February 2013 the Banks brought new actions claiming substantial sums said to be due under the Transactions and sought summary judgment. Shortly before the hearing Piedmont applied to set aside the Cooke judgment. In July 2013 Eder J declined to do so and gave monetary judgments in favour of the Banks. The question in this appeal is whether he was in error in so doing.
The history
By a contract dated 24 October 2005 Piedmont entrusted Merrill Lynch International ("ML") and Dexia with the role of assisting it in order to obtain credit ratings from one or more specialist agencies. By clause 6 of the agreement neither of them was to receive payment and they were to bear the cost " relating to the issue of the initial issuer rating by specialist agencies chosen by the Region at its own discretion, which may not be challenged".
On 14 November 2005 the Banks and ML submitted a joint proposal " for the provision of the services of financial transactions Arranger". This was their bid to provide Piedmont with their services (which they were to provide for free) in relation to the preparation of Euro Medium Term Notes Programmes. Thereafter they made various presentations of proposed strategies in respect of the Bond Issue: e.g. an extensive paper on 11 January 2006 putting forward a financing strategy and the reasons for it. This ended with a disclaimer that the Banks were acting as counterparties and not advisers or trustees (although the body of the paper said that the banks participated in the placement by supporting Piedmont and not as counterparties). These disclaimers were repeated on at least two other occasions. In the course of 2006 the Banks gave advice about the Bond and other aspects of the proposed Programme including the derivatives.
On 2 August 2006, by Resolution 135–3655 the Giunta, i.e. the ruling council of Piedmont, authorised the preparation of the Euro Medium Term Note Programme for a maximum amount of € 2 billion and appointed the Banks and ML as joint arrangers. The Resolution recorded that it was appropriate to approve the signing by Piedmont of framework agreements—ISDA Master Agreements with Dexia and ML and Intesa " for the conclusion of derivative operations for the purposes of managing the interest rate risk and any other risks linked to the funding operation as well as for the purposes [of] recreating the effect of repayment".
The Resolution authorised or decided inter alia the following:
" 12 …
Repayment method: repayment, according to a repayment plan or, if appropriate, in a single instalment on final maturity. In the case of repayment in a single instalment on final maturity, a derivative operation will be activated in accordance with the provisions of article 41 of law 448/2001 and ministerial decree 389/2003, which allows the Region to recreate a repayment effect through the stipulation of a repayment swap, providing for the setting up of adequate guarantees in favour of the Region;
Other operations in derivatives: any interest rate swap operations for the management of risk arising from interest rate trends or other operations that are appropriate for the management of risks related to the funding operation;
14) to stress that these issues must be in line with the parameters and requirements of national and regional laws, and with reference to the latter, in particular to the provisions of the Regional Financial Law for the year 2006 and article 41, paragraph 2 of law 448/2001;
19) To Appoint [The Banks And Ml] As Joint Lead Managers And Joint Bookrunners For The Bond Issue;
21) to identify as counterparties for any derivative operation [the Banks and ML (or companies belonging to the ML group)], banks of proven national and international standing with adequate credit worthiness and a rating higher than single "A", at the conditions and according to the terms which will be agreed from time to time between [Piedmont and the Banks and ML]
28) to award a mandate to the Manager of the Finance Department for these purposes, attributing to him the broadest powers… (d) to negotiate and sign the "ISDA Master Agreement" contracts, and to negotiate and complete, within the framework of this contract, the derivative operations examined in the resolution, which might be appropriate to the bond issue."
The Euro Medium Term Note Programme
This programme provided for the issue of Notes in an aggregate amount of over € 2 billion. I gratefully adopt the judge's description of the Transactions derived from the Banks' skeleton argument:
" 20 … Piedmont issued two bonds viz (i) the first in the amount €1.8 billion repayable in a single "bullet" payment in 2036 (the "2036 Bond"); and (ii) the second in the amount of €56 million repayable in a single "bullet" payment in 2013 (the "2013 Bond"). Also on 16 November 2006, the Banks and Piedmont entered into the Transactions viz (i) Dexia and Intesa each (respectively) entered into a derivative transaction in connection with the 2036 Bond (each a "2036 Transaction" and together the "2036 Transactions"); and (ii) Intesa also entered into a derivative transaction in connection with the 2013 Bond (the "2013 Transaction"). Dexia and Piedmont did not enter into any derivative transaction in connection with the 2013 Bond.
21 Each of the Transactions was concluded in the standard ISDA form. Accordingly, their terms are contained in the following documents (together, the "Transaction Documents"):
i) As regards the Dexia 2036 Transaction: an ISDA Master Agreement dated as of 16 November 2006 and a Schedule thereto; the 2000 ISDA Definitions and the 2003 ISDA Credit Derivatives Definitions (as supplemented by the May 2003 Supplement); and a confirmation dated 2 May 2007 (the "Dexia 2036 Transaction Documents").
ii) As regards the Intesa 2036 Transaction: an ISDA Master Agreement dated as of 16 November 2006 and a Schedule thereto; the 2000 ISDA Definitions and the 2003 ISDA Credit Derivatives Definitions (as supplemented by the May 2003 Supplement); and a confirmation dated 26 March 2007 (the "BIIS 2036 Transaction Documents").
iii) As regards the 2013 Transaction: an ISDA Master Agreement and a Schedule thereto; the 2000 ISDA Definitions and the 2003 ISDA Credit Derivatives Definitions (as supplemented by the May 2003 Supplement); and a confirmation dated 2 May 2007 (the "2013 Transaction Documents").
22 The Transaction Documents contain clauses pursuant to which the parties expressly agreed that English law would govern each of the Transactions and that the English Court would have exclusive 1 jurisdiction over disputes relating to each of the Transactions.
23 Each of the Transactions has three components, which can be described as the Interest Rate Component, the Amortisation Component, and the Investment Component.
24 First, the Interest Rate Component is in respect of each of the Transactions an interest rate derivative under which:
i) In respect of the 2036 Transactions, Dexia and Intesa respectively exchange with Piedmont floating rate payments calculated by reference to EURIBOR on 27 May and 27 November each year until 2036. The floating rate payments to be made by Dexia and Intesa are equal to a total of two-thirds (one-third for each of Dexia and Intesa respectively) of the semi-annual interest coupons payable by Piedmont on the 2036 Bond, whereas the floating rate payments to be made by Piedmont are subject to a 'cap' above which they cannot rise and a 'floor' below which they cannot fall (the cap and the floor together constituting a 'collar') 2.
ii) In respect of the 2013 Transaction, Intesa and Piedmont exchange fixed and floating rate payments calculated by reference to EURIBOR yearly until 2013. Intesa pays to Piedmont an amount calculated by applying a fixed rate of 4.094% to a notional amount of €28 million—equal to half of the amount of the coupon payable by Piedmont to bondholders on the 2013 Bond. In return, the floating rate payments to be made by Piedmont are subject to a 'cap' above which they cannot rise and a 'floor' below which they cannot fall (the cap and the floor together constituting a 'collar').
iii) Accordingly, the effect of the Interest Rate Component in respect of each Transaction...
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