Westdeutsche Landesbank Girozentrale v Islington LBC [1996]

Westdeutsche Landesbank Girozentrale v Islington LBC [1996]

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12, [1996] AC 669 is a leading English trusts law concerning the circumstances under which a resulting trust arises. The House of Lords ruled that a resulting trust must be intended or must be able to be presumed to have been intended.

The Westdeutsche Landesbank Girozentrale (WestLB) sued Islington LBC (the Council) for the return of £1,145,525, which included compound interest, as money that WestLB 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 [1992], 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.

The House of Lords held that WestLB could only recover its money with simple interest because it only had a personal claim for recovery in a common law action of money but had no proprietary equitable claim under a resulting trust. 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. Although 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 Hazell v Hammersmith and Fulham LBC [1992].

The Court viewed that all resulting trusts depended on intention and were not connected with the law of unjust enrichment. It followed that no trust arose because it is impossible to have such as intention as the transaction was ultra vires and hence void ab initio. Therefore, there was only a personal claim for the money back, so only simple interest, not compound interest, was payable.
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