“1. Interpretation … (b) Inconsistency. In the event of any inconsistency between the provisions of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provisions of any Confirmation and this Master Agreement, such Confirmation will prevail for the purpose of the relevant Transaction…. (c) Single Agreement. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this “Agreement”), and the parties would not otherwise enter into any Transactions … 3. Representations Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into and, in the case of the representations in Section 3(f), at all times until the termination of this Agreement) that:- (a) Basic Representations (i) Status. It is duly organised and validly existing under the laws of the jurisdiction of its organisation or incorporation and, if relevant under such laws, in good standing; (ii) Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorise such execution, delivery and performance; (iii) No Violation or Conflict. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; (iv) Consents. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) Obligations Binding. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganisation, insolvency, moratorium or similar laws affecting creditors’ rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)) … (d) Accuracy of Specified Information. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect … 9. Miscellaneous (a) Entire Agreement. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto … 13. Governing Law and Jurisdiction (a) Governing Law. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) Jurisdiction. With respect to any suit, action or proceedings relating to any dispute arising out of or in connection with this Agreement (“Proceedings”), each party irrevocably:- (i) submits to the jurisdiction of the English courts if this Agreement is expressed to be governed by English law or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such a party …” (i) submits to the jurisdiction of the English courts if this Agreement is expressed to be governed by English law or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such a party …”
“Relationship between Parties. Each party will be deemed to represent to the other party on the date on which it enters into a Transaction that (absent a written agreement between the parties that expressly imposes affirmative obligations to the contrary for that Transaction): (a) Evaluation and Understanding. It is capable of assessing the merits of and evaluating and understanding (on its own behalf or through independent professional advice), and understands and accepts, the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes, the financial and other risks of that Transaction. (b) Status of the Parties.The other party is not acting as a fiduciary for or an advisor to it in respect of that Transaction.”
“Powers. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action and made all necessary determinations and findings to authorize such execution, delivery and performance.”
“Non-speculation. This agreement has been, and each Transaction hereunder will be (and, if applicable, has been), entered into for purposes of managing its borrowings or investments and not for the purposes of speculation”
“No reliance. Each party represents to the other (which representation will be deemed to be repeated by each party on each date on which a Transaction is entered into or amended, extended or otherwise modified) that it is acting for its own account, and has made its own independent decisions to enter into this Agreement and any Transaction hereunder and as to whether this Agreement and any Transaction hereunder is appropriate or proper for it based on its own judgment and upon advice from such advisors as it has deemed necessary. It is not relying on any communication (written or oral) of the other party as investment advice or as a recommendation to enter into this Agreement or any Transaction hereunder, it being understood that information and explanations related to the terms and conditions of this Agreement and any Transaction hereunder shall not be considered investment advice or a recommendation to enter into this Agreement or any Transaction hereunder. No communication (written or oral) received from the other party shall be deemed to be an assurance or guarantee as to the expected results of any Transaction hereunder”
“… Market risk It should be noted that in this type of swap, in the period from December 31st, 2003 to June 30th, 2005 if 6-month Euribor recorded 10 Target Business Days prior to the End Date of each Rate Period (6-month Euribor set in arrears) becomes lower than or equal to 2.00%, the Authority shall pay an amount to the bank counterparty, which will be higher as the 6-month Euribor, recorded at 2 Target Business Days prior to the Start Date of each Rate Period (standard 6-month Euribor) will be lower than 1.85% … Therefore, entering into such a transaction does not completely mitigate the exposure to the interest rate that the Authority has in relation to the underlying bonds which are subject to this swap transaction … The Authority represents that it entered into this IRS transaction not for speculative purposes, but solely for the purpose of hedging interest rate risk and for the management of its own liabilities resulting from bond issues, bad loans and other forms of recourse to the financial market permitted by law …”
“provincia.pesarourbino@legalmail.it”
“126. The Banco Santander case went to the Court of Appeal [2016] 2 CLC 980;[2017] 1 WLR 1323 in which Mr Ali Malek QC (for the investors in that case) submitted that Blair J was wrong to hold that elements relevant to the situation could include factors of an international kind which did not point to another country. That argument was rejected. Etherton MR (with whom Sir Martin Moore-Bick and Longmore LJ agreed) said: ‘46. I accept the judge’s analysis, and Santander’s case, that article 3(3) is properly to be approached as a limited exception to the policy or principle or starting point of party autonomy and, as such, it is to be construed narrowly. … ‘46. I accept the judge’s analysis, and Santander’s case, that article 3(3) is properly to be approached as a limited exception to the policy or principle or starting point of party autonomy and, as such, it is to be construed narrowly. … 53. If it had been intended that “elements relevant to the situation” in article 3(3) should be confined to factors of a kind which connect the contract to a particular country for the purpose of identifying the proper law in the absence of an express choice, the drafter could have used the familiar and simple conflict of laws language of “close connection”, which one finds in article 4. The marked difference between the language of article 3(3) and of article 4(1) is striking and supports an interpretation of article 3(3) in accordance with the natural and ordinary meaning of its words. That striking difference is also apparent from other language versions of the Convention, such as the French, Italian and Spanish versions. 54. In so far as Paul Walker J in the Dexia case[2015] EWHC 1746 (Comm) reached a different conclusion on the proper interpretation of article 3(3), that is to say by confining “elements of the situation” to those with a connection to a particular country in a conflict of laws sense, I respectfully disagree with him. ….’ … 128. We are bound by the decision of this court in Santander and must therefore decide that the judge proceeded on a wrong basis when he concluded that the matters relied on by Dexia were not elements relevant to the situation. 129. That is by no means the end of the matter since it still remains a question whether all other elements relevant to the situation of the parties at the time of the contract were located in a country other than England. That calls for an evaluative judgment but, since the judge proceeded on a wrong basis, this court must now conduct that evaluation itself. Relevant elements 130. In the Banco Santander case Blair J considered eight possibly relevant factors in great detail (paragraph 409) and set out his conclusions in paragraph 411: ‘411. Summarising the main points made above, because of the right to assign to a bank outside Portugal, the use of standard international documentation, the practical necessity for the relationship with a bank outside Portugal, the international nature of the swaps market in which the contracts were concluded, and the fact that back-to-back contracts were concluded with a bank outside Portugal in circumstances in which such hedging arrangements are routine, the court's conclusion is that article 3.3 of the Rome Convention is not engaged because all the elements relevant to the situation at the time of the choice were not connected with Portugal only. In short, these were not purely domestic contracts. Any other conclusion, the court believes, would undermine legal certainty.’ This court declined to interfere with what it called the judge’s ‘evaluative exercise’ (paragraph 67). 131. The present case, is, of course, distinguishable in as much as the swap contracts with which this court is concerned did not contain any specific right to assign the contract to a bank outside Italy and there was no ‘practical necessity’ for a relationship between the investor and a bank outside Italy but two of the other three elements, considered by Blair J to be important, are present namely the use of standard international documentation, in the form of the ISDA Master Agreement and the routine back-to-back contracts concluded with banks outside Italy. The third element, the international nature of the swaps market in which contracts were concluded, is perhaps somewhat less obvious in this case than in Banco Santander. 132. In relation to the ISDA Master Agreement, signed by the parties in 2002 and expressly incorporated by the penultimate paragraph of Dexia’s acceptance of Prato’s proposal, the following factors are important: (1) it is the standard form of master agreement of the International Swap Dealers Association Inc. There is thus at once an international element rather than a domestic element associated with any particular country; (2) the form is the Multi-currency – Cross Border form; there is a ‘Local Currency – single Jurisdiction form’ albeit, as we were told, a form used almost entirely in the United States rather than elsewhere. The form thus contemplates more than one currency and the involvement of more than one country; and (3) the form signed by the parties was in the English language, despite that not being the first language of either party. 133. In relation to the back-to-back contracts, Prato submitted that, unlike the investors in Santander, who accepted that it was foreseeable that the bank would enter back-to-back contracts, there was no finding that Prato foresaw any back-to-back hedging arrangements whether with other Italian banks or (as in this case) with banks outside Italy. For Blair J in Banco Santander it was the fact that the back-to-back contracts were ‘routine’ that was important (paragraph 411). It is true that the Master of the Rolls in paragraph 65 of his judgment called them ‘routine and foreseeable’. No doubt they were (objectively) foreseeable because they were routine. The back-to-back arrangements in the present case were equally routine and the fact that they were made with banks outside Italy shows just how international the swaps market actually is. 134. It seems to us that each of these two factors is enough on its own to demonstrate an international and relevant element in the situation such that it is impossible to say that ‘all elements (other than the choice of law) relevant to the situation’ are located in a country other than England such as (in this case) Italy. The international dimension precludes any such assertion. The use of the ISDA Master Agreement is self-evidently not connected with any particular country and is used precisely because it is not intended to be associated exclusively with any such country. 135. We also consider that the presence of back-to-back contracts is highly significant. If the mandatory local laws of a party are to be applied to any individual swap contract, there is a real risk that the back-to-back security will quickly become illusory. If for example the law of one country requires (as does Italian law) a right of withdrawal to be accorded to the investor for seven days after execution but the law of another country governing a back-to-back contract has no such requirement or, say, a 28-day right of withdrawal, the back-to-back contracts will cease to be useful. It is this sort of consideration that led Blair J to emphasise the need for certainty in paragraph 411 of Banco Santander and we agree with him … 137. Mr Davies-Jones made a sustained submission in relation to the lengthy paragraph 409 of the judgment of Blair J with its detailed consideration of eight possibly relevant factors in that case and then compared them in equal detail to the facts of this case. In our judgment this approach was misplaced. It should be possible for parties to swap contracts to know where they are in relation to art. 3(3) of the Rome Convention without the detailed comparison of the facts of one case with the facts of another case. Once an international element comes into the picture, art. 3(3) with its reference to mandatory rules should have no application. It is true that Banco Santander had at least two additional elements pointing away from Portugal (the right to assign and the necessity for a relationship with a non Portuguese bank) and that, in this sense, the present case is not as obvious as Banco Santander; but it is, in our view, obvious enough.”
“… even assuming that the Cattolica Decision correctly reflects Italian law, under the law as explained in that decision, only derivative contracts involving an upfront payment and those which terminate or significantly modify pre-existing loans should be considered “indebtedness”, and as such may be relevant for the purpose of Article 119(6) of the Italian Constitution. I note on this point that there is no indication by the Court in the Cattolica Decision as to what the “significant modifications” to existing indebtedness could be or how such modifications are to be identified. In any case, in my view, the entering into of a plain vanilla derivative transaction which simply has the effect of hedging the interest rate risk to which a local authority is exposed on its indebtedness, without modifying the duration or amount of such indebtedness, cannot be regarded as a significant modification in the sense indicated under the Cattolica decision, even despite the lack of clarity from the Court in that judgment as to what might constitute a “significant modification”.”
“… I should note that Court of Cassation in the Cattolica Decision acknowledged in paragraph 4.6 that swaps in general always have a negative mark to market at inception for one of the parties. The Court further held in paragraph 9.8 that certain elements, such as the mark-to-market, probabilistic scenarios and hidden costs must be disclosed by the bank to its customer in order to comply with mandatory requirements (such as “causa” and “oggetto”) required for the validity of a contract governed by Italian law. As such, the Supreme Court acknowledged that even in a scenario where a local authority is a party to a derivative contract the mark-to-market of the transaction at inception is never equal to zero. This means that if on the one hand as we have seen above local authorities were permitted to enter into “collar” swaps, and on the other hand, if the mark-to-market at inception is never equal to zero, there could never be an equivalence between the value of the floor and cap options. This is because a negative mark-to-market at inception presupposes a financial difference between the value of the floor and cap options in a collar swap.”
“38. The objective of conflict of laws rules is to enable a court to decide which system of law is to be applied to resolve a legal question when there is a foreign, ie non-English, element, involved in an issue. In the present case the legal question is: by which system or systems of laws do you decide whether a contract, putatively governed by English law, between a Norwegian legal entity and an Irish one, is valid and binding on the Norwegian legal entity when it is alleged that the Norwegian legal entity did not have the “power” or the “capacity” to enter into the contract because of the terms of a Norwegian statute concerning the ability of kommunes to conclude contracts of loan? I have deliberately used both “powers” and “capacity” in the last sentence. The issue to be resolved is, ultimately, whether the contract is valid or void in the circumstances described … 47. So, I return to the question: in what sense must we interpret the word “capacity” in Dicey’s rule? Counsel have found no authorities in which there is any discussion of the meaning of the word for the purposes of the rule. None of the cases cited in the footnotes to Dicey assist on this point. It appears to be a novel issue. How the word “capacity” is interpreted for the purposes of the rule is, as Etherton LJ has stated in his judgment, ultimately a matter of policy. In my view it is important to remember the purpose of the rule, which is to determine which systems of laws will be used, under English conflicts rules, to decide whether a “corporation” has the ability to exercise the legal right to enter into a binding contract with a third party. If that accurately summarises the rule’s purpose, then I think, following the approach of Auld LJ in the Macmillan case[1996] 1 WLR 387 , 407 that the concept of “capacity” has to be given a broader, “internationalist”, meaning and must not be confined to the narrow definition accorded by domestic English law. In my view it should be interpreted as the legal ability of a corporation to exercise specific rights, in particular, the legal ability to enter a valid contract with a third party. So I agree with the approach of Tomlinson J; for the purposes of English conflicts of laws, a lack of substantive power to conclude a contract of a particular type is equivalent to a lack of “capacity”, to use English terminology. 48. For similar reasons, it seems to me that the concept of a corporation’s “constitution” must be given a broad, “internationalist” interpretation. It is not a question of just trying to find some document, like a royal charter, or the memorandum and articles or some other written description of what the corporation is and can do. For the purposes of this English conflict of laws rule it is necessary to examine all the sources of the powers of the corporation under consideration. This will include any constitutional documents but also relevant statutes and other rules of law of the country where the corporation was created.”