An Italian appeals court (Corte di Cassazione) has agreed with the first instance decision last year of the Italian Court of Accounts (Corte dei conti) in concluding,
- The court had no jurisdiction over a third-party investment bank when entering into derivatives transactions with the Treasury department of the Ministry of Finance of the Republic of Italy in its capacity as manager of the public debt.
- The court would not second guess the decision of public employees of the Ministry of Finance to enter into derivatives transactions with investment banks on behalf of the Republic of Italy unless the decisions were clearly irrational or illegal.
Interestingly, in coming to its well-reasoned judgment, the court gave very little weight to the representations as to capacity and legality given by the Republic of Italy in the ISDA Master Agreement between the parties. The ISDA in this case was governed by Italian law so it remains to be seen whether different significance would be attributed to such representations if the court had to consider an English law governed agreement.
We await to see if the case is appealed to Italy’s Supreme Court.