[2010] EWCA Civ 579; [2012] QB 549 — Court of Appeal, Civil Division (Pill LJ, Etherton LJ, Gross LJ), 20 May 2010
Two Norwegian towns sold eight to twelve years of future income for cash today. They called it a swap; the court called it a loan. The bank paid one lump sum — NOK 231.3 million to one town and NOK 190 million to the other — equal to the present value of the towns' expected power-company dividends and power-station taxes. The towns were to pay quarterly, then a final bullet. On advice, they invested the money, and the investments lost heavily: NOK 125 million and NOK 142 million.
Norwegian law allowed municipalities to borrow only within strict limits. If the deal was a loan, it was beyond their powers. Did that let them keep the money? The contracts were void for lack of capacity, but the towns still had to give the money back. They had taken on the repayment risk, and the bank had no say in the investments that failed; their defence of change of position was rejected.
Turning future income into cash today is borrowing. In a hypothetical, 35 a year for eight years, discounted at 5 per cent, is worth about 226 today. Kyrgyz municipalities and state enterprises have such income streams, and it is their statute that decides whether they may borrow against them. Left open: the judges did not agree on the exact test of capacity. Void contract, money still owed — is that the right result for a public body that was badly advised?
FURTHER READING
Kyrgyz International Economic Law: Consolidated Edition
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6771785
Ala-Too International University
Department of International and Business Law
This video summarises one decision in under two minutes. It is a teaching aid, not legal advice, and it is not a substitute for reading the case.
Two Norwegian towns sold eight to twelve years of future income for cash today. They called it a swap; the court called it a loan. The bank paid one lump sum — NOK 231.3 million to one town and NOK 190 million to the other — equal to the present value of the towns' expected power-company dividends and power-station taxes. The towns were to pay quarterly, then a final bullet. On advice, they invested the money, and the investments lost heavily: NOK 125 million and NOK 142 million.
Norwegian law allowed municipalities to borrow only within strict limits. If the deal was a loan, it was beyond their powers. Did that let them keep the money? The contracts were void for lack of capacity, but the towns still had to give the money back. They had taken on the repayment risk, and the bank had no say in the investments that failed; their defence of change of position was rejected.
Turning future income into cash today is borrowing. In a hypothetical, 35 a year for eight years, discounted at 5 per cent, is worth about 226 today. Kyrgyz municipalities and state enterprises have such income streams, and it is their statute that decides whether they may borrow against them. Left open: the judges did not agree on the exact test of capacity. Void contract, money still owed — is that the right result for a public body that was badly advised?
FURTHER READING
Kyrgyz International Economic Law: Consolidated Edition
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6771785
Ala-Too International University
Department of International and Business Law
This video summarises one decision in under two minutes. It is a teaching aid, not legal advice, and it is not a substitute for reading the case.
- Category
- HAUGESUND
- Tags
- international economic law, Kyrgyzstan, Kyrgyz law
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