Supreme Court Rules Against Cabildo de Tenerife in CaixaBank Derivative Dispute
The Spanish Supreme Court has ruled against the Cabildo de Tenerife, establishing that financial derivative contracts can remain valid even after the underlying loans are annulled.
A recent Supreme Court ruling has brought a decade of banking litigation involving Spanish public administrations to a close. The court has rejected a claim by the Cabildo de Tenerife to recover nearly 800,000 euros paid to CaixaBank for financial derivative settlements. This decision ends a long-running legal battle that began after the original loans linked to these financial products were annulled.
The dispute dates back to 2010, when the Cabildo, then under the presidency of Ricardo Melchior, took out 62 million euros in loans. To protect against interest rate fluctuations, the administration entered into financial hedges, known as "swaps." Of these, 11 million euros were linked to the entity now part of CaixaBank, with the remainder held by BBVA. In 2014, the High Court of Justice of Madrid invalidated the original loans due to irregularities in how they were set up.
While the loan annulment required them to be paid off, the Cabildo decided to keep the hedging contracts active until the end of 2016, taking advantage of a penalty-free cancellation window. During that time, negative Euribor rates meant the Cabildo had to pay 791,710 euros to the bank. The legal case centered on whether the cancellation of the original debt should automatically void the associated derivatives.
Although the Provincial Court of Santa Cruz de Tenerife initially ruled in the Cabildo’s favor, the Supreme Court has overturned that decision. The court’s Civil Chamber ruled that the financial hedge remained useful because the Cabildo still held other variable-rate debts that justified keeping the contract in place.
The ruling, which also orders the Cabildo to pay the initial legal costs, sets a significant precedent: derivative contracts can remain valid even if the loans that originally prompted them are cancelled. This decision definitively ends the Cabildo’s legal efforts to recover these funds, following a similar dismissed claim against BBVA years ago.