Hazell v Hammersmith and Fulham LBC was a landmark council debt case in the UK. The case involved a dispute over the validity of a council tax demand.
In 1991, the claimant, Mr. Hazell, was sent a council tax demand by Hammersmith and Fulham London Borough Council. The demand was for £1,050, which included a penalty for late payment.
The council's decision to impose a penalty for late payment was the central issue in the case.
If this caught your attention, see: Late Fee
Legal Proceedings
Lord Templeman concluded that all swaps were conceptually the same as the unlawful types the banks had admitted, and therefore, a local authority has no power to enter into a swap transaction. This decision sparked a torrent of litigation from local authorities across the land to recover swaps losses.
The case was then heard by two judges in a divisional court, Woolf LJ and French J, who delivered a judgment on November 1, 1989, holding that the swap transactions were ultra vires and beyond the powers of the local authorities. The decision had the bizarre effect of benefiting the chief culprit, Hammersmith, while hurting the more prudent local authorities.
Additional reading: International Swaps and Derivatives Association
The case was appealed again and came before Sir Stephen Brown P, Nicholls LJ, and Bingham LJ, who handed down their decision on February 22, 1990. The Court of Appeal broadly divided the swap entered into by the local authorities into three different types:
- Purely speculative swaps, which were held void;
- Swaps which were part of managing the local authorities' interest rate exposure under their borrowing, which were held valid;
- Swaps which were entered into by local authorities once it became apparent that earlier swaps might be void to mitigate the damage caused by those void swaps (called the "interim strategy"), which were also held valid.
Both at first instance and in the Court of Appeal, the judgments were deliberately handed down at a time when the markets were closed.
Council and Aftermath
The aftermath of the Hazell v Hammersmith and Fulham LBC case was a complex and contentious one. Over 400 open swaps between banks and local authorities were unwound due to the decision.
Many councils had multiple open positions, making the situation even more complicated. In the end, over 200 separate sets of legal proceedings were ongoing.
The cases were collectively referred to as the "swaps cases". Some of these cases were settled before trial, but many others went on to be heard in court.
Additional reading: Industrial Cases Reports
Here are some notable cases that came out of the aftermath:
- Westdeutsche Landesbank Girozentrale v Islington LBC [1996] AC 669, HL
- Kleinwort Benson v Sandwell BC [1994] 4 All ER 890, Hobhouse J
- Kleinwort Benson Ltd v Birmingham City Council [1996] 4 All ER 733, CA
- Kleinwort Benson v South Tyneside MBC [1994] 4 All ER 972, Hobhouse J
- Morgan Grenfell & Co Ltd v Welwyn Hatfield DC [1995] 1 All ER 1, Hobhouse J
- Credit Suisse v Allerdale BC [1997] QB 306
- Kleinwort Benson v Glasgow CC [1997] 4 All ER 641
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