is a leading

English trusts law English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the ...

case concerning the circumstances under which a

resulting trust A resulting trust is an implied trust that comes into existence by operation of law, where property is transferred to someone who pays nothing for it; and then is implied to have held the property for benefit of another person. The trust property ...

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 The House of Lords, also known as the House of Peers, is the Bicameralism, upper house of the Parliament of the United Kingdom. Membership is by Life peer, appointment, Hereditary peer, heredity or Lords Spiritual, official function. Like the ...

, 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 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 ...

cases.

Facts

The

Westdeutsche Landesbank Girozentrale WestLB AG (derived from ''Westdeutsche Landesbank'', i.e. "Western German state Bank") was a European commercial bank based in Düsseldorf, Germany which was mainly owned by the German state of North Rhine-Westphalia. Landesbanks are a group of par ...

sued

Islington LBC Islington London Borough Council is the local authority for the London Borough of Islington in Greater London, England. The council was created by the London Government Act 1963 and replaced two local authorities: Finsbury Metropolitan Borough ...

for the return of £1,145,525, which included compound interest, as money that it had paid under an

interest rate swap In finance, an interest rate swap (IRS) is an interest rate derivative (IRD). It involves exchange of interest rates between two parties. In particular it is a "linear" IRD and one of the most liquid, benchmark products. It has associations wit ...

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 O ''Hazell v Hammersmith and Fulham LBC'' 9922 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 ...

'', to be ''

ultra vires ('beyond the powers') is a Latin phrase used in law to describe an act which requires legal authority but is done without it. Its opposite, an act done under proper authority, is ('within the powers'). Acts that are may equivalently be termed ...

'' and

void Void may refer to: Science, engineering, and technology * Void (astronomy), the spaces between galaxy filaments that contain no galaxies * Void (composites), a pore that remains unoccupied in a composite material * Void, synonym for vacuum, a ...

because they exceeded councils' borrowing powers under the

Local Government Act 1972 The Local Government Act 1972 (c. 70) is an Act of the Parliament of the United Kingdom that reformed local government in England and Wales on 1 April 1974. It was one of the most significant Acts of Parliament to be passed by the Heath Gov ...

. 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

arose immediately, because the bank plainly did not intend to make a

gift A gift or a present is an item given to someone without the expectation of payment or anything in return. An item is not a gift if that item is already owned by the one to whom it is given. Although gift-giving might involve an expectation ...

. Among the arguments, counsel for the bank submitted that a resulting trust arose on all

unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make res ...

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. On the 18 February 1993, Hobhouse J held at first instance the bank could recover the money because the council had been unjustly enriched at the bank's expense, and could recover compound interest. ''

'' was considered and ''

Sinclair v Brougham ''Sinclair v Brougham'' 914AC 398 is an English trusts law case, concerning the right of depositors to recover sums which were deposited (or loaned) to a building society under contracts of deposit which were beyond the powers of (''ultra vires' ...

'' was applied. On the 17 December 1993, the

Court of Appeal A court of appeals, also called a court of appeal, appellate court, appeal court, court of second instance or second instance court, is any court of law that is empowered to hear an appeal of a trial court or other lower tribunal. In much of t ...

, with

Dillon LJ Sir George Brian Hugh Dillon (2 October 1925 – 22 June 2003) was a British lawyer and judge who served as a Lord Justice of Appeal from 1982 to 1994. Biography Dillon was born in a naval family, the son of Captain George Crozier Dillon, RN, ...

Leggatt LJ Sir Andrew Peter Leggatt, PC (8 November 1930 – 21 February 2020) was a British judge who served as the Lord Justice of Appeal and as a member of the Privy Council. He was noted for his acerbic wit and precise, well-written judgements. As ...

and Kennedy LJ, upheld the High Court, with

Andrew Burrows Andrew Stephen Burrows, Lord Burrows, (born 17 April 1957BURROWS, Prof. Andrew ...

acting for Islington LBC, and

Jonathan Sumption Jonathan Philip Chadwick Sumption, Lord Sumption, (born 9 December 1948), is a British author, medieval historian and former senior judge who sat on the Supreme Court of the United Kingdom between 2012 and 2018. Sumption was sworn in as a Just ...

QC for Westdeutsche. The council appealed.

Judgment

The House of Lords by a majority (

Lord Browne-Wilkinson Nicolas Christopher Henry Browne-Wilkinson, Baron Browne-Wilkinson, PC (30 March 1930 – 25 July 2018) was a British judge who served as a Lord of Appeal in Ordinary from 1991 to 2000, and Senior Lord of Appeal in Ordinary from 1998 to 2000. ...

Lord Slynn Gordon Slynn, Baron Slynn of Hadley (17 February 1930 – 7 April 2009) was a British judge and Advocate General of the European Court of Justice. He particularly specialised in European law. He was a Lord of Appeal in Ordinary. Early life ...

and

Lord Lloyd Anthony John Leslie Lloyd, Baron Lloyd of Berwick, (called Tony; born 9 May 1929) is a retired British judge, and a former member of the House of Lords. Early life and education Lloyd was born on 9 May 1929, the son of Edward John Boydell Llo ...

) held that Westdeutsche bank could only recover its money with simple interest because it only had a personal claim for recovery in a common law action of

money had and received An action for money had and received to the plaintiff's use is the name for a common law claim derived from the form of action known as ''indebitatus assumpsit''. The action enabled one person to recover money which has been received by another: fo ...

. But the bank had no proprietary equitable claim under a

. There was no resulting trust because it was necessary that the council's conscience had been affected when it received the money, by knowledge that the transaction had been ''ultra vires'' and void. Consequently, it was necessary that there would be an "intention" that the money be held on trust, but this was not possible because nobody knew that the transaction would turn out to be void until the House of Lords' decision in ''

'' in 1991. In his Lordship's view all resulting trusts (even those described by Megarry J as "automatic" in ''

Re Vandervell's Trusts (No 2) ''Re Vandervell Trustees Ltd (No 2)'' 974EWCA Civ 7is a leading English trusts law case, concerning resulting trusts. This was the third decision concerning Tony Vandervell's will. The first was '' Vandervell v Inland Revenue Commissioners'', ...

'') depended on intention and were not connected with the law of

. It followed that no trust arose, and there was only a personal claim for the money back. This meant, said the majority, that only simple interest, and not compound interest was payable (a controversial decision that was overturned in '' Sempra Metals Ltd v IRC''). The two dissenting judges,

Lord Goff Robert Lionel Archibald Goff, Baron Goff of Chieveley, (12 November 1926 – 14 August 2016) was an English barrister and judge who was Senior Lord of Appeal in Ordinary, the equivalent of today's President of the Supreme Court. Best known for ...

and

Lord Woolf Harry Kenneth Woolf, Baron Woolf, (born 2 May 1933) is a British life peer and retired barrister and judge. He was Master of the Rolls from 1996 until 2000 and Lord Chief Justice of England and Wales from 2000 until 2005. The Constitutional R ...

, also thought that there should be no

of the money because if a proprietary claim were available, in other cases like this it would have an unfair impact on other creditors of an insolvent debtor, and similarly because it could potentially be unfair if assets could be traced. However, they would have held that compound interest should be available on personal claims. Lord Goff, however, expressly did not enter into a discussion of the points about

that went beyond the scope of the present case. Lord Woolf quoted '' De Havilland v Bowerbank''(1807) 1 Camp 50 where

Lord Mansfield CJ William Murray, 1st Earl of Mansfield, PC, SL (2 March 170520 March 1793) was a British barrister, politician and judge noted for his reform of English law. Born to Scottish nobility, he was educated in Perth, Scotland, before moving to Lond ...

stated, "that though by the common law, book debts do not of course carry interest, it may be payable in consequence of the usage of particular branches of trade; or of a special agreement". There was no reason why compound interest should not be awarded if it was ordinary commercial practice. Lord Goff gave his judgment first, agreeing that there was no resulting trust for different reasons, but in dissent arguing that compound interest should be awarded on personal claims. Lord Browne-Wilkinson's judgment, agreed with by the majority, followed. Lord Slynn gave a short opinion concurring with Lord Browne-Wilkinson. Lord Woolf concurred with Lord Goff. Lord Lloyd concurred with Lord-Browne-Wilkinson.

Significance

''Westdeutsche'' has on its facts been superseded by ''

Sempra Metals Ltd v Inland Revenue Commissioners ''Sempra Metals Ltd v Inland Revenue Commissioners''

_where_the_House_of_Lords_held_that_the_courts_could_award_compound_interest_in_a_restitutionary_claim_at_common_law._In_''Westdeutsche''_it_was_conceded_that_compound_interest_could_not_be_awarded_at_common_law,_and_the_case_was_argued_to_fall_within_resulting_trust_principles._However,_the_bank's_claim_could_now_have_succeeded_without_recourse_to_establishing_a_resulting_trust._In_this_respect,_on_what_circumstances_give_rise_to_a_resulting_trust,_however,_''Westdeutsche''_is_still_the_leading_case._Note_Sempra_Metals_Ltd_has_recently_been_overturned_by_Prudential_Assurance. However,_while_remaining_the_leading_case_on_the_circumstances_under_which_a_resulting_trust_will_arise,_and_thus_a_proprietary_remedy_is_available,_''Westdeutsche''_has_been_subjected_to_wide-ranging_criticism,_particularly_from_academic_circles_focused_on_Unjust_enrichment_in_English_law.html" "title="007UKHL 34is a UK tax law case, concerning the availability of compound interest upon personal claims. The effect of the case, decided by a majority, was to reverse the outcome of ''Westdeuts ...

'', where the House of Lords held that the courts could award compound interest in a restitutionary claim at common law. In ''Westdeutsche'' it was conceded that compound interest could not be awarded at common law, and the case was argued to fall within resulting trust principles. However, the bank's claim could now have succeeded without recourse to establishing a resulting trust. In this respect, on what circumstances give rise to a resulting trust, however, ''Westdeutsche'' is still the leading case. Note Sempra Metals Ltd has recently been overturned by Prudential Assurance. However, while remaining the leading case on the circumstances under which a resulting trust will arise, and thus a proprietary remedy is available, ''Westdeutsche'' has been subjected to wide-ranging criticism, particularly from academic circles focused on Unjust enrichment in English law">unjust enrichment In laws of equity, unjust enrichment occurs when one person is enriched at the expense of another in circumstances that the law sees as unjust. Where an individual is unjustly enriched, the law imposes an obligation upon the recipient to make res ...

. This view, represented by Peter Birks and Robert Chambers, suggests that Lord-Browne Wilkinson was wrong to regard resulting trusts as responding to conscience, rather than the absence of any intention to benefit another person. Birks argued that a proprietary remedy need not necessarily follow, although Chambers regards it as possible.

Notes

References

* {{cite journal , author= Peter Birks, author-link=Peter Birks, year= 1999, title= Equity, conscience, and unjust enrichment, journal=

Melbourne University Law Review The ''Melbourne University Law Review'' is a triannual law journal published by a student group at Melbourne Law School covering all areas of law. It is one of two student-run law journals at the University of Melbourne, the other being the '' M ...

, volume= 23, issue= 1, publisher=

Melbourne Law School Melbourne Law School is one of the professional graduate schools of the University of Melbourne. Located in Carlton, Victoria, Melbourne Law School is Australia's oldest law school, and offers J.D., LL.M, Ph.D, and LL.D degrees. In 2021-22, THE ...

, url= http://www.austlii.edu.au/au/journals/MULR/1999/1.html, access-date=25 January 2013 English trusts case law English derivatives case law House of Lords cases 1996 in case law 1996 in British law 1996 in London History of the London Borough of Islington

Facts

Judgment

Significance

See also

Notes

References