“History repeats itself, at least with variations.”3 Haugesund Kommune v. Depfa ACS Bank 4 also concerned swap transactions which were beyond the power and authority of the local authorities entering into them. The variation lies in the fact that the local authorities were not English, but Norwegian. Two Norwegian local authorities—Haugesund Kommune and Narvik Kommune (“the Kommunes”)—entered into “zero coupon swaps agreements” with Depfa ACS Bank (“Depfa”), an Irish bank which is an indirect subsidiary of a German bank. Under the agreements, Depfa advanced money to the Kommunes, which were to make fixed quarterly payments over a given period. These payments consisted mainly of interest but also included a small amount of amortisation. At the end of the agreed period, the Kommunes had to make a “bullet” payment, which consisted of the outstanding interest and principal sum.

Section 50 of the Norwegian Local Government Act 1992 (“the 1992 Act”) restricts the purposes for which the Kommunes could raise loans. Before entering into the agreements, Depfa consulted its lawyers, who advised that the swap agreements did not fall within the scope of s 50 of the 1992 Act. But, some time after the Kommunes had invested the money advanced by Depfa, the Norwegian Ministry of Justice published its opinion that the “swap” agreements were in fact loans within the scope of s 50 of the 1992 Act and the superior Norwegian administrative authorities ordered the Kommunes to sell off their investments.

The investments made by the Kommunes with the money advanced by Depfa proved to be disastrous. The Kommunes suffered combined losses of about £26.7 million. However, in an attempt to avoid repaying Depfa all the money advanced, the Kommunes sought declarations of non-liability to Depfa under the swap contracts since they had been concluded ultra vires the powers of the Kommunes. Proceedings began in the English courts as a result of an English jurisdiction clause in the agreements. Depfa argued that the swap agreements were valid. Alternatively, even if the agreements were void, Depfa contended that it could recover the sums advanced in unjust enrichment.5