Supreme Court on derivative contracts: nullity for hidden costs and Mark to Market

1. The facts

   The case forms part of the extensive civil litigation between companies and banking institutions concerning the subscription of Interest Rate Swap (IRS) derivative contracts, officially entered into for interest rate risk hedging purposes. As reported by publications such as Il Sole 24 Ore and Il Caso.it, the core issue emerged when numerous clients discovered that the contracts contained hidden costs stemming from an initial negative value of the instrument, which had never been explicitly disclosed. The litigation reached the Supreme Court of Cassation following conflicting rulings by lower courts regarding the legal classification of such omissions. While other aspects of the matter, such as floor clauses and Euribor manipulation, are addressed in dedicated articles within this column, this analysis focuses on the proceedings before the Supreme Court, which established the systematic omission of probabilistic scenarios and mathematical formulas required to calculate the derivative's value.

2. 

   Legal framework

   The nullity of derivatives rests on a combination of rules from the Civil Code and the Consolidated Law on Finance (TUF).

   1. Article 1346 of the Civil Code provides that the object of the contract must be determined or determinable; the absence of the Mark to Market formula makes the object indeterminable, leading to nullity pursuant to Article 1418 of the Civil Code.
   2. Article 1325 of the Civil Code lists the cause (causa) among the essential requirements of a contract; case law has consolidated the concept of concrete cause, which in aleatory contracts requires a rational and shared allocation of risk.
   3. Articles 21 and 23 of the TUF mandate written form and disclosure requirements; under this specific legal orientation, their breach goes beyond mere liability for conduct, affecting the structural validity of the legal transaction.

3. Case law orientation

   The case law of the Supreme Court has clarified that the Interest Rate Swap contract is an atypical and aleatory transaction. The core principle established by the United Sections and reaffirmed by simple sections in recent rulings provides that, for the risk to be deemed rational, the bank must provide the client with three essential elements: the Mark to Market value at execution, the mathematical criteria for its recalculation, and probabilistic scenarios. Without these data, the client cannot assess whether the exchange of financial flows is fair or if it contains implicit commissions benefiting the intermediary. The Court has therefore ruled that the omission of such information does not merely constitute a breach of disclosure duties, but entails the nullity of the contract due to indeterminacy of the object and lack of cause.

5. Analysis drafted and verified with edit.legal

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8. Practical lessons for professionals

   1. Legal counsel should always obtain an econometric technical report to verify whether the derivative contract contains probability scenarios and the Mark to Market formula.
   2. Defense strategy should focus primarily on the structural nullity of the object and cause, rather than relying solely on the breach of conduct duties.
   3. It is essential to verify the client's classification (retail vs. professional client), as the scope of disclosure duties required from the bank may vary, without prejudice to the minimum validity requirements of the contract.

References: Articolo 1325 Codice CivileArticolo 1346 Codice CivileArticolo 1418 Codice CivileArticolo 21 Testo Unico della FinanzaArticolo 23 Testo Unico della Finanza

Editorial oversight: Avv. Federico Papa·ICAMUpdated 26 September 2026Content drafted with AI support and subject to editorial source checks. Despite these controls, inaccuracies may remain: reports and rectification requests are welcome. Report a correction