Skip to content

Morgan Grenfell v Welwyn Hatfield (1995) – No throw of the dice on swaps as wagering contracts

Morgan Grenfell & Co Ltd v Welwyn Hatfield District Council [1995] 1 All ER 1


In an important case for capacity in derivatives law, an interest rate swap agreement between a district council and bank was found not to be a wagering contract under English law.  This was an important test case for UK local authorities’ derivatives trading in the aftermath of the landmark Hazell v Hammersmith & Fulham judgment.

While this case was decided at first instance in the High Court in 1993, it was not appealed further, and was only formally reported in 1995.


From June 1987, Welwyn Hatfield District Council (Welwyn Hatfield) entered into a ten-year interest rate swap contract, on the basis that Morgan Grenfell & Co Ltd (Morgan Grenfell) would be the fixed interest rate payer and Welwyn Hatfield were the floating rate payer. There was a notional principal amount of £25 million. As Welwyn had entered into a back-to-back swap with Islington London Borough Council, Islington LBC entered into the contract as an interested third party.

Subsequently, Welwyn Hatfield were left as an intermediary, receiving £210,000, for which the net payments would flow through either subsidiary, dependent on the movement of interest rates.

From 1989, no further payments were made, pursuant to the decision made in Hazell v Hammersmith & Fulham, in which interest rate swaps were not permitted under the Local Government Act 1972, and thus ultra vires and void. Morgan Grenfell commenced proceedings against Welwyn Hatfield appealed to claim back the payments that they had made prior to this, and stated that the contract was one of a wagering nature under section 1 of the Gaming Act 1892, which would preclude reclamation of payments.

Three issues were discussed as preliminary issues:

First issue:  if the swaps should constitute as wagering contracts under section 18 of the Gaming Act 1845, or section 1 of the Gaming Act 1892.

Second issue: if section 63 and paragraph 12 of schedule 1 of the Financial Services Act 1986 affected this conclusion.

Third issue: if the contracts were considered wagering contracts, whether restitution would arise.


First issue: Ultimately it was decided that swap contracts are commercial or financial contracts and are ultra vires for local authorities. Despite the fact that interest rate swap agreements were speculative by nature, they were not a wagering contract under section 18 of the Gaming Act 1845. Contracts were void as wagering or gaming contracts if the parties entered into the contract for “no purpose other than wagering or gaming”.

Second issue: In respect to the second preliminary issue, the court held that there would be no restitution, holding to the decision of that in Earl Ellesmere v Wallace [1929] 2 Ch 1, in which payments pursuant to a gaming contract were considered gifted, and therefore were not recoverable.

Third issue: Hobhouse J chose not to answer the third issues, on the grounds that any answer would be founded on hypotheticals. The money that had already been repaid to Morgan Grenfell was said to be recoverable.


Whilst it was an integral case, academics and practitioners alike have stated that the verdict does not offer a concrete basis on what features of a contract constitute a wagering contract.  Distinguishing a ratio decidendi seems to be a common feature of the fundamental cases surrounding enforceability of derivative law.

Contact Us
Press enter or esc to cancel