Dexia Secures Win in Derivatives Litigation in Court of Milan and Lombardy Court of Auditors

Cleary Gottlieb represented Dexia S.A. (Dexia; formly Dexia Crediop S.p.A.) in a ruling published on July 26, 2024, in which the Civil Court of Milan rejected in full the claims for damages of more than €75 million that the Metropolitan City of Milan (formerly the Province) had brought against Dexia and two other intermediaries in connection with a number of derivative contracts entered into between 2002 and 2005.

According to the City of Milan, these contracts were inadequate to hedge it against the risk of fluctuations in interest rates relating to its underlying indebtedness, and Dexia allegedly induced it to enter into them in violation of various contractual and legal obligations allegedly arising from an earlier rating advisory contract (i.e., of a contract that was aimed at getting a positive rating from rating agencies).

Dismissing the City of Milan’s claims, the Tribunal found decisive the lack of a causal link between “the allegedly negligent conduct and the damage complained of,” considering the market situation at the time and the “willingness of the same [entity] to provide for the management of its indebtedness by putting in place the complex financial transactions for which it had found it necessary to obtain a rating.” The Tribunal also found that the City of Milan’s claims were time barred, thereby upholding the time limitation plea raised by Dexia on the assumption that, at least since 2004, “the provincial administration, according to ordinary diligence standards, could have perceived whether the omissions and misleading information that it alleges marked the banks’ actions could be considered a source of prejudice in relation to the interests pursued by the Province.”

The ruling is part of a complex strand of litigation between intermediaries and local authorities over derivatives transactions, which has developed in Italy and England, and follows another decision in which, about three months ago, the Lombardy Court of Auditors rejected claims for damages brought by the public prosecutor’s office against Dexia and other defendants in connection with the same derivative contracts.