Local Authorities and Swaps: Undermining the Market?
In the 33rd Lionel Cohen lecture delivered at the Faculty of Law of the Hebrew University of Jerusalem on 22 May 1990, Roy Goode challenged lawyers to think more carefully about the concept and implications of a market in commercial law.1 He argued that lawyers tend to assume that a market is 'at bottom no more than the aggregate of a set of bilateral contracts'2 but went on to demonstrate, with his customary vigour and insight, that 'in terms of legal effect a market . . . is a great deal more than the aggregate of bilateral contractual relationships'.3 He argued that 'the needs and practices of the market are driving English contract and commercial law, in particular by forcing the evolution of new techniques for the creation and transfer of rights, by applying old concepts to new situations and by modifying and expanding rules of law both to accommodate legitimate business expectations and to protect the stability and integrity of the market'.4 My purpose in the course of this essay is not to challenge the argument put forward by Goode. Rather, it is an attempt to provide a casestudy which illustrates the issues that were raised during that important lecture.
In the course of his lecture, Goode asked: '[w]hat court, at least in an international trading centre, is going to issue a ruling which puts at risk billions of pounds worth of business on its own country's markets, with the havoc it could cause to the participants and the risk of losing the market altogether to another trading centre whose judges were seen as more commercially robust? And if there were an errant ruling which was sustained on appeal, or even the mere fear of such a ruling, surely the legislature would be impelled to act?'5 The answer to the first of these questions would appear to be the House of Lords, at least as far as critics of the decision of the House of Lords in Hazell v. Hammersmith and Fulham London Borough Council6 are concerned. There it was held that local authorities did not have the capacity to enter into swap transactions with the result that such____________________