Wider interest in Kleinwort swaps case

A case which will be closely scrutinised by local authorities which become involved in interest rate swaps is now heading for the House of Lords.

The Law Lords have given leave for Kleinwort Benson to continue its fight for the right to seek repayment of money it paid to three local authorities under a swaps arrangement.

And, in a relatively rare move, Kleinwort Benson has succeeded in obtaining leave for its appeals to "leapfrog" direct from the Commercial Court to the Law Lords without the usual process of a hearing before the Court of Appeal.

The local authorities at the centre of the current claim are Lincoln City Council, Birmingham City Council and the London Borough of Southwark.

The case is one which will be widely watched throughout local government circles in the wake of the slew of previous interest rate swaps litigation. If it ultimately paves the way for a ruling that local authorities should repay substantial sums of money they received under interest rate swaps deals, the implications for some in respect of local budgeting could be far-reaching.

The cases arise out of interest rate swaps made by the councils which in 1990 were declared ultra vires by the House of Lords.

It raises the question of whether Kleinwort Benson is entitled to sue for restitution of the money on the basis of a mistake having been made in respect of the law and, if so, whether an extended limitation period applies.

In the Commercial Court on 12 July last year Mr Justice Langley decided against the company on a preliminary point of law, holding that it did not have a good cause of legal action.

Now, that decision is to be challenged before the Law Lords, probably at a hearing later this year.