It is indeed a triumph for Italian public authorities....but it is unlikely to be the end of the derivatives litigation saga involving those authorities.
Subject to reading the full judgment (which is not yet available) it would appear that Comune di Prato's success at first instance was on a sole technical point, namely a finding by the trial judge, Mr Justice Walker, that Dexia had breached Art 30 of the Testo Unico della Finanza (TUF) regarding a mandatory cooling off period of 7 days where a financial instrument is offered by a financial insititution outside its registered office or business premises. It will also be very interesting to read the Judge's findings on the issues of hidden costs, capacity and contractual estoppel.
Although this judgment bodes well for Italian municipal authorities in similar cases in the pipeline (such as Dexia v Comune di Ferrara) which rely on Art 30 TUF, an appeal to the Court of Appeal is (very) likely. Therefore, the significant boost the judgment has given to Prato and other public authorities could be shortlived.
Further developments will no doubt be followed closely by Italian public authorities and the leading financial insititutions: will there be an appeal ? Or a settlement in the meantime (it appears that an increasing number of these cases are settling, as also the banks feel the financial pressure, including the very substantial costs of litigation)?
The city of Prato won a lawsuit against a Dexia SA unit over an interest-rate swap, becoming the first Italian municipality to overturn a disputed hedging deal at a London court. Tuscany’s second largest city beat the bailed out Franco-Belgian bank’s Italian unit on a technical point. Dexia Crediop should have notified Prato that it had a week-long cooling off period when it could cancel the six swap contracts, Judge Paul Walker said in a written decision Thursday. As a result the swaps agreed between 2002 and 2009 are “null and void,” he said. Dexia, which was seeking about 6.5 million euros ($7.3 million) owed under the contracts, said it would appeal. “It doesn’t make sense,” said Dexia spokeswoman Caroline Junius. Italian rules about seven-day cooling off periods were “meant to protect consumers,” she said.