Two Norwegian municipalities appealed to the Court of Appeal against a decision that they were liable to make restitution for monies advanced under swaps when they had lacked capacity.
In Haugesund Kommune and Narvik Kommune v Depfa ACS Bank  EWCA Civ 579, the swap contracts contained English law and jurisdiction clauses. The court adopted an “internationalist” interpretation of the municipalities’ constitution and held that there was a lack of capacity, which in English law meant that the swap contracts were invalid and void.
The bank claimed restitution of the monies advanced. The municipalities raised the defence of “change of position” on the basis that the monies had been spent on the intended investments which had turned out bad.
The court held that those investments had been made without any involvement by the bank and on the understanding that the municipalities had to repay the principal and interest to the bank, whatever happened to the investments. The municipalities took the risk on the investments and there was no basis on which the defence of change of position could succeed.
Paul Howcroft, Partner, Fladgate LLP (firstname.lastname@example.org)