Dear Colleagues,
Tomlinson J has returned to the
swaps case, previously circulated on the list, of Kommune & Anor v Depfa ACS Bank & Anor [2010] EWHC
227 (Comm) (12 February 2010) http://www.bailii.org/ew/cases/EWHC/Comm/2010/227.html,
which involved swaps transactions between a Bank and municipalities in Norway.
The situation turned out to be more complicated than it appeared at the time of
the first judgment, and so Tomlinson J is forced to survey a range of issues
and tricky points on restitution, including:
- “The
starting point of the enquiry is in my view that Depfa would not have
advanced the money to the municipalities had it been advised by Wikborg
Rein that there was any material risk that the swaps were prohibited loans
giving rise to no contractual obligation on the part of the
municipalities. The money so advanced was in fact irrecoverable as a
contractual debt in accordance with the agreed but unenforceable terms.
The money was paid over in circumstances where no legal relationship
subsisted or came into effect between the payor and the payee. Depfa could
recover the money only to the extent that it could demonstrate that the
municipalities had by its receipt been unjustly enriched at its expense.
That is an uncertain remedy, often difficult of valuation, for as pointed
out by Goff and Jones, The Law of Restitution, 7th Edition at
paragraph 14-002, a restitutionary claim is not one for damages for loss
suffered. In my judgment this is one of those perhaps rare cases where it
is possible and appropriate to say that the bank had lost the money
advanced the moment it paid it over. It acquired in return no right to its
recovery. Indeed it acquired nothing in return.
- Mr Pollock
sought to characterise "the restitutionary right" as "an
integral part of the (alleged) loss-making transaction". I do not
consider that this is appropriate. It is true that Depfa's mistake as to
the validity of the transaction is one of the factors which gives rise to
the liability of the municipalities to make restitution. However in no
sense can it be said that Depfa acquired valuable rights under the
transaction. There was no transaction in the sense in which that word is
in this context normally used. There was no contract. That is the essence
of Depfa's complaint against Wikborg Rein. In these circumstances, the
approach which I derive from the authorities, even if they do not
necessarily compel it, is that Depfa is to be treated as having suffered
loss when it paid away pursuant to a non-existent transaction and that the
measure of that loss is the whole amount advanced together with the cost
of funding. Further losses might be incurred and its loss might in fact be
reduced, but the situation is one in which the law permits recovery in
full of the outstanding loss, that loss being assessed independently of
the possibility of further recoveries. That is at least in part because
the transaction itself was worthless to Depfa, and Depfa would not have
advanced the money had it been advised that it would have no contractual
right to its recovery.”
At the end of the judgment (at [33]-[38]), there
is yet further evidence that it is a matter of regret that the House of Lords
were denied the opportunity to consider the appeal in City Index last year.
Best wishes,
James
--
James Lee
Lecturer
Director of the LLB Programme
Birmingham Law
School
University of Birmingham
Edgbaston
Birmingham
B15 2TT, United Kingdom
Tel: +44 (0)121 414 3629
E-mail: j.s.f.lee@bham.ac.uk
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