Hazell v Hammersmith and Fulham LBC
| Hazell v Hammersmith and Fulham LBC | |
|---|---|
 |
|
| Court | House of Lords |
| Full case name | Hazell and Others v Hammersmith and Fulham LBC |
| Decided | 24 January 1991 |
| Citation(s) | [1992] 2 AC 1, [1991] 2 WLR 372, [1991] 1 All ER 545 |
| Case history | |
| Prior action(s) | [1990] 2 QB 697 |
| Case opinions | |
| Lord Templeman | |
| Court membership | |
| Judge(s) sitting | Lord Keith of Kinkel, Lord Brandon of Oakbrook, Lord Templeman, Lord Griffiths, Lord Ackner |
| Keywords | |
| Resulting trusts, local authority, interest rate swaps | |
Hazell v Hammersmith and Fulham LBC [1992] 2 AC 1 is an English administrative law case, which declared that local authorities had no power to engage in interest rate swap agreements because they were beyond the Council's borrowing powers, and that all the contracts were void. Their actions were held to contravene the Local Government Act 1972.
Prior to the judgment, a large number of local authorities had entered into such swap transactions. Accordingly, the decision of the House of Lords declaring such practices to be unlawful set off a torrent of collateral litigation unwinding such swaps. Although this clearly caused difficulties for the banks and local authorities engaged in such swap transactions, it has been noted that the "swap litigation" was instrumental in developing the modern law of restitution under English law.
Up until the early 1990s, a number of local authorities had been engaged in interest rate swap transactions as part of managing their debt portfolios. Under the Local Authorities Act 1972, the local authorities had power to borrow in order to amortise their costs of capital projects over a longer period of time. In connection with that borrowing, certain local authorities sought to enter into swap transactions to hedge their exposure to fluctuations in interest rates. There were some doubts as to the ability of local authorities to enter into such transactions, but the local authorities sought the opinion of Anthony Scrivener QC, a leading commercial silk, who had advised that if a "rate swap is undertaken as part of the proper management of the council's fund then ... the swap will be intra vires" [i.e. within the powers of the council].
Whilst most local authorities engaged in swap transactions on a prudent scale to manage their debt portfolios, the position of Hammersmith and Fulham LBC was different. Writing about the swaps litigation, Professor Ewan McKendrick described it thus:
In his 2008 book, Follow The Money, Duncan Campbell Smith paints a dramatic picture of the moments before the litigation commenced, with the slowly dawning realisation developing amongst the principals that somehow a very left-wing London Borough Council has managed to accumulate an extraordinarily large swaps exposure to the various banks simply to be able to collect and spend the premiums for entering into the trades:
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