Parties entered into interest rate swap agreement.
Council received up front payment.
As Council’s rate was higher thereafter, it made
payments to Bank periodically.
Such agreements then held ultra vires by the Queen’s Bench
Council made no more payments.
Bank brought action, claiming payment of balance plus
House of Lords noted that a common law claim for recovery of monies paid in pursuance of an
ineffective contract would allow simple interest only (under the Supreme court Act
1981), but equity could award
compound interest in certain circumstances.
Therefore question of whether there was a resulting
trust was crucial.
House of Lords held recipient of monies under a
contract subsequently held void for mistake (here, Islington LBC) did not hold
these monies on resulting trust.
Would be undesirable so to develop the law of
resulting trusts as would give the claimant proprietary interest in monies and
produce injustice to third parties and commercial uncertainty.