Controversial ruling jeopardises Italian derivatives

Author: Gemma Varriale | Published: 28 Sep 2011

A recent Italian ruling looks set to deter banks from contracting with Italian local authorities.

The ruling, handed down on September 7, allows Italian authorities to autonomously annul a contract if any irregularities are found to have affected the administrative process resulting in the decision.

According to Fabio Guastadisegni, head of the litigation department at Clifford Chance in Italy, "this important ruling means the municipality can stop the payment and the rights of the bank as counterparty are disregarded."

The onus is then on the bank to start proceedings to enforce the validity of the derivative transaction.

An unusual precedent

The precedent is contrary to the application of the Isda master agreement.

The litigation centres on...