Dexia v Comune di Torino: how hindsight and low interest rates became the basis for a €133m derivatives claim

Turin took out insurance against rising interest rates and the rates fell instead. That is the nub of Dexia SA v Comune di Torino [2026] EWHC 1401 (Comm), a case which joins a lengthy line of English court decisions rejecting Italian municipalities' attempts to use Italian law arguments to escape obligations under derivatives governed by English law and exclusive English jurisdiction.

The background is straightforward in outline even if the legal architecture is complex. Between 2001 and 2006, Turin entered into a series of interest rate swap agreements with Crediop (now part of Dexia) in order to hedge the interest rate risk on municipal bonds worth over €400 million issued to fund infrastructure for the 2006 Winter Olympics. The effect was to substitute the variable interest rate on those bonds for a fixed or semi-fixed rate, reducing Turin's exposure to rate increases. Turin used an independent financial advisor, ran a competitive tender process and obtained formal approval from its Municipal Council before proceeding.

Then the global financial crisis happened. Six-month EURIBOR, against which Turin's original bond obligations were benchmarked, fell below 2% in early 2009 and remained below 1% for most of the following decade. It turned negative from 2015 until 2022. The swap arrangements that had been designed to protect Turin from rising rates instead locked it into paying substantially more than it would have paid without them.

In June 2024, Turin filed proceedings in the Italian courts seeking approximately €133 million, representing the net payments it had made under the 2006 transactions. Dexia responded by seeking declaratory relief in the English courts, as the agreed exclusive forum. Mr Justice Andrew Baker, following a two-day trial at which Turin did not appear, granted most of those declarations.

The decision is significant on several levels. On the substantive law, the judge found that none of Turin's proposed Italian law objections had any merit. The transactions were not speculative: they were straightforward hedges of existing indebtedness with perfect financial and technical correlation between the swap terms and the underlying bonds. They did not create impermissible indebtedness: they left Turin's capital repayment obligations entirely unchanged. They were properly authorised at every stage. Crediop did not owe advisory duties to Turin, which had its own independent advisors throughout. The disclosure obligations alleged by Turin, including a supposed requirement to disclose initial mark-to-market values and "probabilistic scenarios" about future rate movements, did not exist under Italian law at the time and were time-barred in any event.

Two recent Italian Supreme Court decisions, handed down in February 2026 just before the trial, provided helpful confirmation that Cattolica, the 2020 Italian Supreme Court decision that has driven much of this litigation, does not impose a blanket disclosure obligation across all derivatives. The Cattolica analysis applied to standalone bets on interest rate movements; it was never designed to reach plain vanilla hedging contracts tied precisely to real existing debt.

What is perhaps most striking about this judgement is the detailed factual picture it presents of Turin's own conduct. The municipality ran an open tender. It received competing offers. It had Lazard as its independent expert. Its own Municipal Board resolutions repeatedly confirmed that the transactions carried no speculative intent and complied with applicable law. Its annual financial statements for over two decades recorded the swap obligations without qualification. Its expert analysis showed it had actually received better terms than any alternative available in the market at the time, saving it more than €18 million compared to standard fixed-rate hedges across the 2001 and 2003 transactions combined.

The case also adds to the well-established principle that an English jurisdiction clause in an ISDA Master Agreement is enforceable and that commencing proceedings elsewhere is a breach of contract for which an indemnity is available. Turin's refusal to engage with the English proceedings and its letter challenging the court's authority changed nothing; Andrew Baker J proceeded in Turin's absence after finding that non-participation was a deliberate and fully informed tactical choice.

The larger story here is that Italian municipalities have been testing these arguments in English courts for well over a decade. The English courts have rejected them consistently. Whether that record persuades them to stop is, of course, another matter.