Commercial Court applies "utility" approach to declarations in Italian local authority swaps case (Deutsche Bank v Comune Di Busto Arsizio)

Following on from a decision that an Italian local authority did not lack capacity to enter into a mirror swap and interest rate swap concluded with Deutsche Bank AG London (the Bank), the Commercial Court granted some of the declarations the Bank sought, which mostly tracked express contractual representations or terms of the transactions. The court also refused permission to appeal sought by the local authority, a stay of proceedings sought by the Bank and ordered the local authority to pay all costs (Deutsche Bank AG London v Comune Di Busto Arsizio). ¹

The decision shows an inherently pragmatic approach to the granting of declarations by the court which is broadly based on utility and the approach taken in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA² . It reaffirms that parties will need to have good reasons when applying to the court for declaratory relief, and shows that the court will not shy away from a detailed analysis as to whether the relief should be granted. 

Background

The Commercial Court had decided in October 2021 that Comune Di Busto Arsizio (Busto), the Italian local authority, did not lack capacity to enter into a mirror swap and interest rate swap that it had concluded with the Bank. For further detail on this decision, see our commentary here. 

This judgment was the consequentials judgment to that decision. The issues that arose for Mrs Justice Cockerill to decide were:

• what declarations should be made in favour of the Bank, 
• whether there should be a stay,
• costs, and
• whether Busto should be granted permission to appeal. 

The declarations – applying the utility approach 

The declarations sought by the Bank mostly tracked the wording of express contractual representations made or terms of the transactions in question. The court emphasised that the grant of declaration is a discretionary remedy, and even though a claimant may have proved their case, they still need to persuade the court to make a declaratory judgment. 

The court applied the approach to declarations summarised in BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA³,  (also decided by Cockerill J). Broadly, this focuses on utility, rejects negative declarations where they serve no purpose, has a prime purpose to do justice in the particular case, considers whether declaratory relief is the most effective way of resolving the issues, rejects purely hypothetical questions, focuses on a real and present dispute regarding a legal right and concrete facts, and will be alert to the dangers of something that is not utile and which may create confusion. The court proceeded to make declarations on the basis that they reflected issues in dispute between the parties on which it had explicitly or implicitly made decisions, with an eye to the utility of the declarations.

The court granted declarations relating to seven of the 14 sought, which related to statements on obligations under the transaction being legal, valid and binding; having the power to execute, deliver and perform the obligations; execution, delivery and performance not violating any law applicable to Busto; the agreement being the entire agreement; Busto being a professional investor; a statement relating to the calculation of the cash flow swap, and the transactions not being for the purposes of speculation. 

The court did not accept that a declaration should be made for representations relating to Busto acting independently, not relying on the bank's advice and being capable of assuming the risks of the transaction. This was because granting a declaration which added nothing to the terms of the agreement might lead another court to wrongly think that the declaration did add something to the agreement. However, the court would have been prepared to make a declaration to reflect the fact that the representations were made, which might be of use to an Italian court, or otherwise a declaration that tracked the earlier findings, for example as to understanding of the transactions.

The court also did not make a declaration for the representation that the bank did not act as a fiduciary or adviser to Busto, as this was potentially misleading as the bank on its own pleaded case acted as an adviser. Further, there appeared to be no useful purpose of such a declaration. However, the court would have been prepared to make a declaration that these representations existed, which may be of utility. 

The court also rejected a declaration relating to the bank's compliance of obligations in relation to the transactions and exclusion of liability, holding that it was not reflective of the dispute and the relevant allegations were not pursued in the litigation. It was also not clear what utility there would be, as it was precautionary against an as yet undefined dispute in Italy. However, the court indicated that it would have accepted a more circumscribed declaration essentially reflecting the Banks compliance with the terms of the transactions.

Further, the court fully rejected a declaration for the representation that Busto had complied with applicable laws, as there had been no allegation of breach or dispute about this, the utility of the declaration was unclear, and it had the potential to go wider than the matters in issue between the parties. It also fully rejected a declaration for the representation that the transactions were entered into in conformity with a certain Italian decree, as the matter had not been pleaded, but the court's conclusion on the point was in the judgment to which the Bank could always refer.

Costs

While Busto accepted that the Bank was the overall winner, it argued that the bank should only recover 75% of its costs. However, the court decided that the Bank had won on the central issue at trial which took the overwhelming majority of the parties' time and costs as well as other issues that were the most important issues in the case. Busto was therefore ordered to pay the Bank's costs. 

No stay where the court is functus officio

The Bank argued that it should have liberty to apply for further relief in the proceedings (rather than commencing new ones) if Busto failed to pay any sums due under the cash flow swap in the future. The court found that it was functus officio once the issues in the case were determined, and that the proceedings could not be kept alive where no element of the claim remained live. It was also unclear if the court had jurisdiction for such an order at all. 

No permission to appeal where case turned on factual issues and no conflict with Cattolica

The court did not consider that Busto had a real prospect of success on appeal under CPR 52.6(1), noting that the court's conclusions on Italian law were conclusions on factual issues informed by expert evidence, which an appeal court would be cautious to disturb. It also noted that Busto's case would still fail unless it succeeded on further factual findings. It also rejected the argument that the Court had differed from the Italian Supreme Court in Cattolica, so that a challenge that it was not open to the court to differ would fail. The court finally rejected an argument that the same issues arise in other Italian local authority cases so that an appeal would resolve the other cases. 

1. [2022] EWHC 219 (Comm)
2. BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2020] EWHC 2436 (Comm)
3. BNP Paribas SA v Trattamento Rifiuti Metropolitani SPA [2020] EWHC 2436 (Comm)