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Westdeutche Landesbank V. Islington London Borough Council Notes

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This is an extract of our Westdeutche Landesbank V. Islington London Borough Council document, which we sell as part of our Restitution of Unjust Enrichment BCL Notes collection written by the top tier of Oxford students.

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WESTDEUTCHE LANDESBANK V. ISLINGTON LONDON BOROUGH COUNCIL FACTS Local authorities began to enter into interest-rate swap transactions after they came into use in the early 1980s. However, as is well known, in Hazell v. Hammersmith and Fulham London Borough Council [1992] 2 A.C. 1 your Lordships' House, restoring the decision of the Divisional Court [1990] 2 Q.B. 697, held that such transactions were ultra vires the local authorities who had entered into them. There then followed litigation in which banks and other financial institutions concerned sought to recover from the local authorities with which they had dealt the balance of the money paid by them, together with interest. Out of the many actions so commenced, two were selected as test cases. In a powerful judgment Hobhouse J. held that the plaintiffs ("the bank") were entitled to recover from the defendants ("the council") the net balance outstanding on the transaction between the parties, viz. the difference between the upfront payment of PS2.5m. paid by the bank to the council on 18 June 1987, and the total of four semiannual interest payments totalling PS1,354,474.07 paid by the council to the bank between December 1987 and June 1989, leaving a net balance of PS1,145,525.93 which the judge ordered the council to pay to the bank. He held the money to be recoverable by the bank either as money had and received by the council to the use of the bank, or as money which in equity the bank was entitled to trace into the hands of the council and have repaid out of the council's assets. The appeal of the council is confined to one point only - the question of interest. The question has however arisen whether the bank should also have the benefit of an equitable proprietary claim in the form of a resulting trust. This is relevant in this case only because the Court's jurisdiction to award compound interest depends on whether the claimant has a proprietary claim in equity. RELEVANT

ISSUE

Whether, where money has been paid by a party to a contract which is ultra vires the other party and so void ab initio, he has the benefit of an equitable proprietary claim in respect of the money so paid. HOLDING LORD GOFF

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