#6877 - South Tyneside Metropolitan Borough Council V. Svenska Intl - Restitution of Unjust Enrichment BCL

South Tyneside Metropolitan Borough Council v. Svenska Intl

Facts

In this action the plaintiff, South Tyneside Metropolitan Borough Council (the council), claims the sum of 236,880·4382 from the defendant, Svenska International plc (the bank). That sum represents the net sum paid by the council to the bank under an interest rate swap agreement. It is common ground that in the light of the decision of the House of Lords in Hazell v Hammersmith and Fulham London BC [1991] 1 All ER 545, [1992] 2 AC 1 the agreement was ultra vires and void. It is also common ground that in the light of the decision of the Court of Appeal in Westdeutsche Landesbank Girozentrale v Islington London BC [1994] 4 All ER 890, [1994] 1 WLR 938 (Swaps 1) the council is prima facie entitled to recover the net amount paid to the bank under the agreement. The question for decision is whether there has been any relevant change of position by the bank such as to disentitle the council from recovering the whole or part of that sum.

Hedging transactions by the Bank: On 18 December the bank entered into a swap option or swaption with Hammersmith and Fulham London Borough Council under which the bank bought an option to enter into a swap agreement with Hammersmith and Fulham for 35,000. The option expired in December 1988. On the same day it sold an option to another bank for 53,000 on identical terms except that the difference between the fixed rate which the bank was paying the council and the fixed rate which it was receiving from the other bank was 0·431%.

All the swaps were hedged in the way which I have already described and the bank's overall position was checked and adjusted on a very regular and frequent basis. It is not possible now to identify the precise hedge which balanced any particular swap. It would not be fruitful to try to do so because as I understand it the hedging was of the overall book so that except when a swap was first entered into it would not have been possible to match a transaction with its hedge.

Holding

It is common ground that this defence (whatever it may be) is open to a net payee in circumstances of this kind. It was so stated by Hobhouse J in Swaps 1 and no one says that that is wrong. The principal issue between the parties is whether the net payee can rely upon events which occurred before the payment in support of its defence.

Analysis of Lipkin Gorman

It is to be observed that in that passage all the examples given by Lord Goff involve cases where the change of position occurs after receipt of the money by the defendant…. If those statements are taken out of context, they might support the broader approach advocated by Mr Sher. If they are read in their context, in my judgment they do not. It appears to me that the context which Lord Goff had in mind was a change of position after receipt of the money. Certainly most, if not all, of the references given in the passage quoted above express the principle in that way.

Trend in Other Jurisdictions

For example § 142(1) of the American Restatement expressly provides: “The right of a person to restitution from another because of a benefit received is terminated or diminished if, after receipt of the benefit, circumstances have so changed that it would be inequitable to require the other to make full restitution.” Palmer expresses the principle in terms of a change of position ‘after receipt of the benefit’.

So does the Supreme Court of Canada in the Storthoaks case [1976] 2 SCR 147 at 163. Section 94B of the Judicature Act 1908 (as amended) in New Zealand appears to me to be more restricted since it seems to be implicit in the section that the alteration must be after the payment and it is expressly provided that it must be 'in reliance upon the validity of the payment'.

Conclusion

However, Mr Mann's response is that there is a distinction between the two cases. In the first, either the employee is relying upon the implied promise...