Local authorities swaps litigation

The local authorities swaps litigation (sometimes called simply the swaps cases) refers to a series of cases during the 1990s under English law relating to interest rate swap transactions entered into between banks and local authorities. The House of Lords ruled that such transactions were unlawful. As a result of the decision over 200 separate actions were filed as hundreds of interest rate swap contracts had to be unwound by the courts at great expense.

The law relating to recovery of payments made under contracts subsequently held to be legally void was relatively undeveloped at the time, and the numerous cases led to a rapid evolution in terms of the development and understanding of the English law of restitution and unjust enrichment. Many of the subsequent cases were appealed to the Court of Appeal and three were appealed all the way to the House of Lords. In the course of those proceedings, in addition to the development of English law of unjust enrichment, numerous long established legal precedents of general application were overturned.

The situation was described as a "debacle", and the final costs were enormous. There is no accurate record of the total legal costs over the totality of the legal actions, but the banks were estimated to have written off £600 million as either unrecoverable or compromised as part of the litigation. No one has tried to produce estimates for any corresponding losses to the local authorities.

Local government in the United Kingdom is devolved to various different types of political subdivisions, but these were generally collectively referred to as "local authorities" in the litigation. These local authorities raise money through local taxation (at the time of the swaps litigation this was rates; it has subsequently been replaced by council tax). Local authorities also have limited powers to borrow money in order to fund capital projects and defray the cost over future years. These powers to borrow are carefully circumscribed in the Local Government Act 1972.

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