Clifford Chance
The Italian Council of State rules on local authorities' powers to annul derivative contracts
13 September 2011
In a case concerning derivative transactions entered into between the Italian
Province of Pisa and certain credit institutions, the Council of State (Italy's
highest ranking court for administrative litigation - decision no. 05032/2011 filed
on 7 September 2011) ruled that Italian administrative courts have jurisdiction
over the legitimacy of the administrative annulment by a local authority of its
own decision to enter into derivative contracts, and over the consequences of
such annulment on the validity of the relevant contracts.
According to the Council of State, the jurisdiction of the Italian (administrative)
courts must be upheld notwithstanding the jurisdiction clause in the ISDA
Master Agreement governing the transactions and prior legal proceedings on
the same transactions pending before the courts of the jurisdiction stipulated in
the agreement.
The Council of State further ruled that a local authority may, subject to certain
conditions, unilaterally revoke its decision to enter into a derivative transaction if
any irregularities are found to have affected the administrative process resulting
in the decision; where the decision to enter into a derivative transaction has
been lawfully revoked, then the transaction must be deemed (retroactively)
unenforceable.
