Westdeutsche Landesbank v Islington London Borough Council

Westdeutsche Landesbank v Islington LBC
Court	House of Lords
Full case name	Westdeutsche Landesbank Girozentrale v Islington London Borough Council
Decided	22 May 1996
Citation(s)	[1996] UKHL 12, [1996] AC 669
Court membership
Judges sitting	Lord Goff Lord Browne-Wilkinson Lord Slynn Lord Woolf Lord Lloyd
This case overturned a previous ruling
Sinclair v Brougham [1914]
Keywords
Compound interest, resulting trust, unjust enrichment

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12 (22 May 1996) is a leading English trusts law case concerning the circumstances under which a resulting trust arises. It held that such a trust must be intended, or must be able to be presumed to have been intended. In the view of the majority of the House of Lords, presumed intention to reflect what is conscionable underlies all resulting and constructive trusts.

The decision was arguably the most significant of all of the local authorities swaps litigation cases.

The Westdeutsche Landesbank Girozentrale sued Islington LBC for the return of £1,145,525, which included compound interest, as money that it had paid under an interest rate swap agreement with the council. Interest rate swap agreements had been declared by the House of Lords, a few years earlier in Hazell v Hammersmith and Fulham LBC, to be ultra vires and void because they exceeded councils' borrowing powers under the Local Government Act 1972. The council accepted that it should repay the money it had received under the void contract, but that it should only repay simple interest. Previously, the courts had only allowed awards of compound interest if the claimant could establish a property right (though this was later reversed in Sempra Metals Ltd v IRC).

Accordingly, Westdeutsche argued that when it paid over the money a resulting trust arose immediately, because the bank plainly did not intend to make a gift. Among the arguments, counsel for the bank submitted that a resulting trust arose on all unjust enrichment claims, which this was, given that the basis for the initial contract had failed. The council contended that on traditional trust law principles there could be no resulting trust (and therefore no property right, and compound interest) because the council's conscience could not be affected when it could not know (before the judgment in Hazell) that the contract was void. A resulting trust needed to be linked to a deemed intention of the parties that money be held on trust, but there was none because the bank had intended the money to pass under a valid swap agreement (even though it did not turn out that way). It followed that compound interest could only begin accruing from the later date of the council's conscience being affected.