Interest rate swap agreements had been declared by the House of Lords, a few years earlier in Hazell v Hammersmith and Fulham LBC, to be ultra vires and void because they exceeded councils' borrowing powers under the Local Government Act 1972.

Previously, the courts had only allowed awards of compound interest if the claimant could establish a property right (though this was later reversed in Sempra Metals Ltd v IRC[1]).

Accordingly, Westdeutsche argued that when it paid over the money a resulting trust arose immediately, because the bank plainly did not intend to make a gift.

Among the arguments, counsel for the bank submitted that a resulting trust arose on all unjust enrichment claims, which this was, given that the basis for the initial contract had failed.

Consequently, it was necessary that there would be an "intention" that the money be held on trust, but this was not possible because nobody knew that the transaction would turn out to be void until the House of Lords' decision in Hazell v Hammersmith and Fulham LBC in 1991.

Lord Goff gave his judgment first, agreeing that there was no resulting trust for different reasons, but in dissent arguing that compound interest should be awarded on personal claims.

I feel bound to say that I would not at first sight have thought that an equitable proprietary claim in the form of a trust should be made available to the Bank in the present case, but for two things.

It is the combination of those two factors which has provided the foundation for the principal arguments advanced on behalf of the Bank in support of its submission that it was entitled to an award of compound interest.

Professor Birks has argued for a wider role for the resulting trust in the field of restitution, and specifically for its availability in cases of mistake and failure of consideration.

For all of these reasons I conclude, in agreement with my noble and learned friend, that there is no basis for holding that a resulting trust arises in cases where money has been paid under a contract which is ultra vires and therefore void ab initio.

The dramatic consequences which would occur are detailed by Professor Burrows in his article on 'Swaps and the Friction between Common Law and Equity' in [1995] RLR 15, 27: the duty to account for profits accruing from the trust property; the inability of the payee to rely upon the defence of change of position: the absence of any limitation period: and so on.

However, if no resulting trust arises, it also follows that the payer in a case such as the present cannot achieve priority over the payee's general creditors in the event of his insolvency - a conclusion which appears to me to be just.

For all these reasons I conclude that there is no basis for imposing a resulting trust in the present case, and I therefore reject the Bank's submission that it was here entitled to proceed by way of an equitable proprietary claim.

This submission was reinforced, after completion of the oral argument, by sending to your Lordships Professor Peter Birks' paper 'Restitution and Resulting Trusts," Goldstein, Equity: Contemporary Legal Developments (1992).

I can see no moral or legal justification for giving such priority to the right of T to obtain restitution over third parties who have themselves not been enriched, in any real sense, at T's expense and indeed have had no dealings with T. T paid over his money and transferred the shares under a supposed valid contract.

My Lords, wise judges have often warned against the wholesale importation into commercial law of equitable principles inconsistent with the certainty and speed which are essential requirements for the orderly conduct of business affairs: see Barnes v Addy (1874) LR 9 Ch.App.

It is said that, since the Bank only intended to part with its beneficial ownership of the monies in performance of a valid contract, neither the legal nor the equitable title passed to the local authority at the date of payment.

This was plainly right because the local authority had no relevant knowledge sufficient to raise a constructive trust at any time before the monies, upon the bank account going into overdraft, became untraceable.

Professor Birks, whilst accepting that the principles I have stated represent "a very conservative form" of definition of a resulting trust (page 360), argues from restitutionary principles that the definition should be extended so as to cover a perceived gap in the law of "subtractive unjust enrichment" (p. 368) so as to give a plaintiff a proprietary remedy when he has transferred value under a mistake or under a contract the consideration for which wholly fails.

Three cases were principally relied upon in direct support of the proposition that a resulting trust arises where a payment is made under a void contract.

In the judgments, it is not always clear whether this House was laying down general propositions of law or merely giving directions as to the proper mode in which the assets in that liquidation should be distributed.

If Sinclair v Brougham, in both its aspects, is overruled the law can be established in accordance with principle and commercial common sense: a claimant for restitution of monies paid under an ultra vires, and therefore void, contract has a personal action at law to recover the monies paid as on a total failure of consideration; he will not have an equitable proprietary claim which gives him either rights against third parties or priority in an insolvency; nor will he have a personal claim in equity, since the recipient is not a trustee.

It is a judicial remedy giving rise to an enforceable equitable obligation: the extent to which it operates retrospectively to the prejudice of third parties lies in the discretion of the court.

[... Lord Browne-Wilkinson then analysed In re Ames' Settlement [1946] 1 Ch 217 and continued...] The argument for a resulting trust was said to be supported by the case of a thief who steals a bag of coins.

Monies stolen from a bank account can be traced in equity: Bankers Trust Co v Shapira [1980] 1 WLR 1274, 1282c-e. See also McCormick v Grogan LR 4 HL 82, 97.

However, whether English law should follow the United States and Canada by adopting the remedial constructive trust will have to be decided in some future case when the point is directly in issue.

in the Court of Appeal (at p. 955) that there is no good ground for departing from the general rule that interest is payable as from the date of the accrual of the cause of action.Lord Slynn gave a short opinion concurring with Lord Browne-Wilkinson.

Westdeutsche has on its facts been superseded by Sempra Metals Ltd v Inland Revenue Commissioners,[1] where the House of Lords held that the courts could award compound interest in a restitutionary claim at common law.

However, while remaining the leading case on the circumstances under which a resulting trust will arise, and thus a proprietary remedy is available, Westdeutsche has been subjected to wide-ranging criticism, particularly from academic circles focused on unjust enrichment.

This view, represented by Peter Birks and Robert Chambers, suggests that Lord-Browne Wilkinson was wrong to regard resulting trusts as responding to conscience, rather than the absence of any intention to benefit another person.