First trial in the financial list over validity of derivatives transactions draws to a close


The trial of the first case to be heard in the new Financial List has finished and we await the judgment from Mr Justice Blair with interest. The case was transferred in the middle of October, shortly after the Financial List first became operational.

The Financial List is a specialist cross-jurisdictional list set up to handle claims related to the financial markets. It is a joint initiative of the Chancery and Commercial Courts and cases within the list will tried by a pool of specialist judges drawn from both of these courts. Read our earlier article on the Financial List and the sort of claims which might fall within its remit.

This first case, Banco Santander Totta v Companhia Carris De Ferro de Lisboa SA & Others, concerns the validity of nine derivative transactions entered into by four Portuguese public transport companies and Banco Santander Totta (the 'Bank'). The transport companies have ended up paying interest at very high rates (up to 40%) under some of the swap agreements at a time when Euribor rates have been less than 1%.

The main issues for the court to determine are whether the transport companies had the capacity to enter into the transactions and whether the agreements are binding on them. Arguments about capacity are commonly raised in derivatives disputes involving public and quasi-public bodies who seek to argue that the transactions they entered into were 'ultra vires' (ie entered into in excess of the organisation's legal powers or authority) and therefore not binding on them. If such bodies are found to lack capacity, banks' contractual claims against them fail and recoveries are limited to smaller amounts under the law of restitution. An appeal in a case dealing with similar issues, Credit Suisse International v Stichting Vestia Groep [2014] EWHC 3103 (Comm) was due to be heard by the Court of Appeal back in July but settled at the last moment.

The judgment in Banco Santander Totta v Companhia Carris De Ferro de Lisboa SA & Others will be of interest to all those involved in drafting similar agreements or litigating such claims. It will also be interesting to find out whether the experiences of the parties in litigating their case in the Financial List have been favourable. Will the management of the trial and the quality and speed of the judgment encourage other parties to follow suit and transfer or initiate their claims in the Financial List?

We will provide an update on the outcome of the case in due course.