Thirty years’ law: Local authorities, national courts and the global derivatives markets

Speaker: Dr Jo Braithwaite (London School of Economics)
Chair: Sir Andrew Smith (Fountain Court Chambers)
Series: Current Legal Problems 2017-18

About the lecture:

Between 1987 and 1989, Hammersmith and Fulham London Borough Council entered into nearly 600 derivatives transactions. In 1991, the House of Lords held that the Council lacked the capacity to do so, and the contracts were therefore void. The decision had far-reaching consequences because the Council’s exposure was immense for the time, because dozens of English councils had entered the derivatives markets on the same basis and because of the losses faced by the bank counterparties.

Nearly three decades after the first instance decision in Hammersmith and Fulham LBC the derivatives markets have transformed beyond recognition in terms of their size, complexity and global reach. In the process, numerous legal challenges have arisen, but many among them have been resolved by the courts, regulators or the highly influential trade association. Disputes around the powers of local authorities to enter into derivatives transactions, however, continue apace. Recent cases before the English courts have involved local authorities and various other public bodies from Norway, Holland and Italy, for example. Several such cases are ongoing at the time of writing. This lecture seeks to explain the persistence and evolution of this legal problem. It explores why these issues have become increasingly complex over time, how these local authority cases offer valuable insights into the changing nature of the derivatives markets and what lessons they might offer for the post-crisis regulation of the financial system.

Themes and learning outcomes at a glance:

• Analysis of recent financial markets litigation
• Discussion of capacity to enter contracts
• Insight into risks around financial contracts

About the speaker:

Jo Braithwaite is an Associate Professor of International Commercial Finance Law in the Department of Law, LSE where she teaches banking and finance and is deputy director of the LLM programme. Before joining LSE, she was a solicitor at Allen & Overy and a Thouron Scholar at the University of Pennsylvania. Her recent research has analysed the evolution of the doctrine of contractual estoppel and evaluated the robustness of central counterparties (a type of financial market infrastructure). The latter project has been published as a Bank of England Financial Stability Paper.