Merrill Lynch v Comune di Firenze; UBS v Comune di Firenze; Dexia Crediop v Comune di Firenze

(1) Merrill Lynch International Bank Ltd v Comune di Firenze; (2) UBS Ltd v Comune di Firenze; (3) Dexia Crediop SpA v Comune di Firenze

October, 25-30 days, Commercial Court

For the claimant Merrill Lynch International Bank:

Fountain Court’s David Railton QC leading Adam Sher of the same set, instructed by Freshfields partner Ian Taylor

For the claimant Dexia Crediop:

Fountain Court’s Richard Handyside QC leading Richard Power, instructed by Allen & Overy partner James Partridge

For the claimant UBS:

3 Verulam Buildings’ Sonia Tolaney QC leading Sandy Phipps of the same set, instructed by Cleary Gottlieb Steen Hamilton partner Jonathan Kelly

For the defendant Florence:

Fountain Court’s Patricia Robertson QC leading James Duffy, instructed by Gregory Rowcliffe Milners partner Chris Harper

Sonia Tolaney QC
Sonia Tolaney QC

This case comes as a direct result of the financial meltdown in Europe. The Italian city of Florence is being sued by three major banks, Merrill Lynch International, UBS and Italy’s Dexia Crediop. They want a declaration that interest rate swap transactions by the city, involving notionals in excess of €250m (£202m), are valid and binding.

Between 1997 and 2007, dozens of Italian cities and regions borrowed €111bn from London-based banks, the repayments of which were funded by swap derivatives.

Although these deals appeared to offer attractive interest rates in reality the regions had unwittingly placed their taxpayers on the hook for complex derivative bets that would end up costing them far more than expected. The banks are now calling in the loans.

The Italian city says the deals were invalid because it lacked capacity to enter into the transactions due to alleged breaches of Italian law and the presence of alleged “hidden commissions” in favour of the banks. Florence also has a counterclaim against the banks for breaches of Italian financial services regulations. In effect, it says it was mis-sold the swaps.

This is one of the lead cases of a large number in the Commercial Court between international banks and cities or regions of Italy. There have been claims by banks against Verona, Piemonte, Tuscany and Pisa, amongst others. There are also legal proceedings ongoing in Italy in relation to similar transactions.