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Guinness Mahon V. Kensington And Chelsea Rlbc Notes

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GUINNESS MAHON V. KENSINGTON AND CHELSEA ROYAL LONGON BOROUGH COUNCIL FACTS On 23 September 1982 the Kensington and Chelsea Royal London Borough Council apparently entered into an agreement with Guinness Mahon & Co. Ltd. ("the bank") setting out the terms of a transaction of a type known as an interest rate swap. Decision in Hazel: On 1 November 1989 the Divisional Court, in Hazell v. Hammersmith and Fulham London Borough Council
[1990] 2 Q.B. 697, declared, as subsequently upheld in the House of Lords [1992] 2 A.C. 1, that such an agreement as the council had apparently concluded with the bank was ultra vires the council and so void from the start. Proceedings in Westdeutche: In early 1993 two actions selected as test actions for the resolution of the problems arising from the invalidity of such interest rate swaps came before Hobhouse J. They were Westdeutsche Landesbank Girozentrale v. Islington London Borough Council ("Westdeutsche") and Kleinwort Benson Ltd v. Sandwell Borough Council ("Sandwell") [1994] 4 All E.R. 890. Decision in Westdeutche at first instance: Hobhouse J. gave judgment in February 1993 upholding the claims of the banks in all cases. In particular, he refused to draw a distinction between what might be described as "open swaps," where the period prescribed in the ultra vires agreement had not expired and "closed swaps," where it had. Appeal on open swaps alone to CA: Though there were appeals in Westdeutsche [1994] 1 W.L.R. 938 on certain points in relation to open swaps there was none in Sandwell because it was settled and therefore none in relation to a closed swap. Accordingly this appeal has been argued on the footing that it is in substance an appeal from the order of Hobhouse J. in Sandwell in so far as it related to a closed swap. HOLDING MORRIT LJ Basis of the decision in Westdeutche was failure of consideration I have referred at length to the course of the proceedings in Westdeutsche to demonstrate that the true basis for the recovery by the bank of the net amount it paid to the local authority, which had no capacity to enter into the swap agreement, was for money had and received as on a total failure of consideration.

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