Summary

Unlawful transactions : Local authorities have no power to enter into interest "rate swaps".

District auditor's appeal from decision holding that rate swap transactions were lawful.

Facts

Held

The lending banks contended that under s.11(1) Local Government Act 1972 those swap transactions which were intended to replace or re-profile existing interest obligations were within the section & were lawful. But a local authority which borrowed had to regard Sch.13 which was inconsistent with any incidental power to enter into swap transactions & moreover s.101(6) precluded a local authority entering a swap transaction by a committee or officer. The CA found s.111 applied but s.101(6) did not because swap transactions were incidental to the function of debt management rather than borrowing. But "debt management" was not a function. It was a phrase coined for the purpose of describing the activities of a person who entered the swap market for the purpose of making profits whereas it only described prudent and lawful activities on the part of a local authority. As swap transactions were unlawful it could not be lawful to carry out swap transactions under the guise of "debt management".

Appeal allowed.