Time barred: court rejects contract claim based on limitation period

Introduction
Defence arguments
Comment


Introduction

In January 2015 a leading Italian bank was sued by a client company. The client company claimed that the interest rate swap contracts concluded between the parties be ascertained and declared null and void based on the following arguments:

• No master agreement had been executed relative to the contracts at issue and therefore the formal requirements under Italian law for this type of contract were lacking.
• The contracts had allegedly been concluded in violation of the bank's general duties of correctness and delay since their economic conditions were unbalanced, speculative and disadvantageous for the client.
• In the client's view, the bank had failed to comply with its disclosure and transparency obligations under the relevant legislation.

Alternatively, the claimant requested that:

• the contracts be cancelled (due to fraud and error);
• one of the contracts be annulled and the bank ordered to pay damages; and
• the bank be ordered to reimburse the sum of over €700,000 and compensate for the financial damage suffered as a result of the sums debited to its current account.

Defence arguments

The bank rejected the claims based on the preliminary argument that the limitation period for taking action had already elapsed since the type of claim had to be properly classified and therefore the relevant limitation period applied.

Further, the bank argued that the complaints made by the client company concerning the alleged incorrect structuring of the contracts and the lack of an information note should have referenced the violation of general principles of good faith and fairness in the phase prior to the conclusion of each contract (ie, the negotiation phase and the definition of the relevant economic conditions). As a result, the bank argued that the client company's complaints could, at most, abstractly constitute only one (even though non-existent in practice) case of pre-contractual liability under Article 1337 of the Civil Code. In this respect, the bank cited Judgment 24795/2008 of the Court of Cassation, which states as follows:

The rule laid down in art. 1337 of the Italian Civil Code does not refer only to the hypothesis of unjustified breach of negotiations but has the value of a general clause, the content of which cannot be precisely predetermined, and implies the duty to treat fairly, refraining from misconduct. The Company shall provide the other party with all relevant information, known or known with ordinary diligence, for the purposes of the conclusion of the contract. It follows that the violation of the obligation to behave in good faith in the conduct of negotiations and in the formation of the contract is relevant not only in the event of unjustified breach of the negotiations and, therefore, of failure to conclude the contract or the conclusion of an invalid or ineffective contract, but also in the event that the contract concluded is valid and, however, is detrimental to the victim of the misconduct of others.

Since the last contract in the case at hand had been signed in July 2007, the limitation period had elapsed by the time the claim was made.

Likewise, the limitation period had elapsed for the nullity claim on the interest rate swap contracts for an alleged "lack of written form according to article 23 of the TUF[the Finance Law Collection]", as this was to be classed as a case of so-called 'relative nullity', for which the limitation period is five years. (Relative nullity can be relied on by only one party for its own protection.) The Court of Pavia clarified this point as follows on 26 January 2013:

The nullity provided for by the TUF (art. 23), as relative nullity and, as such, similar to invalidity, is subject to validation and is subject to a limitation period of five years, not ten years. The rule laid down in Article 1422 of the Italian Civil Code, which provides for no limitation period for certain proceedings aimed to declare invalid a contract, is in fact justified by the fact that the declaration of invalidity under Article 1418 of the Italian Civil Code protects the general interest, while Article 23 of the TUF protects the interests of only one party.

Comment

The court rejected the client company's claims and declared that the bank's preliminary objection based on the limitation period to be well founded.

The decision confirmed that the last contract signed by the parties dated back to July 2007, while the request for mediation had been communicated to the bank in October 2014 (ie, after the expiry of the five-year period provided by law).

With regard to the relative nullity of the interest rate swap contracts due to the lack of a master agreement, the court stated that:

• the five-year limitation period had elapsed; and
• the request for cancellation of the contracts due to a lack of consent was time barred, as the five-year period provided for in Article 1442 of the Civil Code had elapsed.

The court concluded that further examination would be superfluous, rejected the claimant company's complaints and ordered it to pay the defendant's legal expenses.

For further information on this topic please contact Manuela Grassi at Ichino Brugnatelli e Associati by telephone (+39 (0)2 48193249) or email (manuela.grassi@ichinobrugnatelli.it). The Ichino Brugnatelli e Associati website can be accessed at www.ichinobrugnatelli.it.