Held, (1) the defendant lacked capacity to enter into the transactions on the basis of the speculation and indebtedness arguments with the result that they were void and unenforceable as a matter of English law. The Italian Supreme Court decision meant that Italian municipal authorities lacked the substantive power to enter into speculative derivative contracts as a matter of Italian law. On consideration of the swap transactions in the instant case and the factual matrix, they were clearly speculative for the purpose of the legal restriction formulated by that Supreme Court decision, or at least predominantly speculative, which sufficed. The Supreme Court decision also held that certain types of derivative transactions constituted indebtedness and were unlawful for local authorities to enter into other than for the purpose of investment, and the swap transactions in the instant case fell within those categories of indebtedness and had not been intended to finance investment expenditure. As a matter of English law, the inevitable consequence of those conclusions was that the municipal authority had had no substantive power or legal ability to enter into the transactions, and they were void, even though the Supreme Court decision completely altering the legal landscape and compelling that conclusion had come 13 years after the transactions were entered into and effectively meant that the security of obligations governed by English law was subject to the decisions of the courts of the domicile of one of the contracting parties (paras 197–201, 231–232, 252, 267–269, 270–271, 274, 275–276, 463).

(2) The defendant was not entitled to a declaration that it lacked capacity based on an Italian law provision requiring the city council’s approval of any expenditure. On a proper construction of the Italian law provision, the transactions required approval, which was not properly obtained. However, as a matter of English conflicts of law analysis, the Italian law provision was not to be characterised as part of the municipal authority’s constitution. The mere fact that a particular statute was the source of a limitation on the substantive power of a corporation did not mean that every provision in that statute was, as a matter of English conflicts of law analysis, a provision delineating the scope of the corporation’s substantive powers for English law purposes. Since the provision was concerned not with what the authority could do but with the question of which body or natural person could undertake the relevant act on its behalf, it went not to the issue of what substantive powers the authority had, but how they were to be exercised. It therefore raised a question of authority, not capacity. Thus, although the act of the person who purported to enter into the transactions on behalf of the authority could not be attributed to the authority, there was still scope for the operation of the doctrines of ostensible authority and ratification under English law. On the evidence, that person did have ostensible authority and in any event the authority ratified the transactions (paras 289, 298–301, 305–306, 314–315, 317, 318, 321–323, 463).

(3) The defendant was not estopped from arguing that the transactions were void. In circumstances where an ISDA Master Agreement and a single confirmation were entered into at the same time for the sole purpose of executing a single transaction, the representations given by the counterparty in section 3(a)(ii), 3(a)(iii) and 3(a)(v) and the non-speculation provision of the 1992 ISDA Master Agreement did not estop it from contending that the transactions were void. If that were not the case, a legal person who did not have capacity to enter into a particular confirmation would nevertheless have capacity to promise in the Master Agreement that it had such capacity, with the result that it would be subject to the same economic consequences as if it had the capacity it had been found to lack (paras 361–363, 369, 370, 463).

(4) The defendant was accordingly entitled to restitution of the amounts paid to the claimants under the transactions, but the claimants were in principle entitled to rely on a defence of change of position in respect of payments made under the back-to-back hedging swaps subject to certain reservations. There were circumstances in which, where restitution was sought on the basis that one of the conditions for conferring the benefit had not been satisfied, there could be a legitimate change of position on the recipient’s part. In the instant case, the parties had shared a common understanding that they owed each other binding obligations, on the faith of which the claimants changed their position (by entering into back-to-back hedges), and then faced an unjust enrichment claim from the authority when the true position became apparent. The idea that the defence of change of position could never be available in a void contract case was not attractive, paying little regard to the importance of protecting security of receipt and those who had conducted themselves on the basis of appearances which underlay the defence of change of position, which in turn were long-standing concerns of English commercial law. Further, the nature of the change of position contended for by the claimants was not engaging in expenditure wholly unrelated to the obligations arising under the transactions but entering into and performing contracts entered into for the purpose of hedging their liabilities under the transactions. The hedges were not of benefit to the defendant independently of them making it more likely that the claimants would enter into the transactions, and it was routine and objectively foreseeable that the claimants would enter into them. On that basis, a defence of change of position was in principle available, notwithstanding the fact that the defendant’s right to restitution arose from the fact that a condition of those payments (a legally enforceable right to the counter-payments) was not satisfied. The fact that the relevant change of position (entry into the hedging swaps) occurred before receipt of the payments of which the defendant sought restitution, and the payments made under the hedging swaps were made because of the legal liability to do so arising under those swaps, was not fatal to the claimants’ attempt to rely on their liabilities under the hedging swaps as giving rise to a defence of change of position. Indeed, the routine and objectively foreseeable nature of the claimants’ entering into back-to-back transactions by which they assumed (conditional) payment obligations in anticipatory reliance of receiving essentially the same payments from the defendant made the instant case a paradigm case for the availability of the defence of change of position. Furthermore, the defence of change of position was not limited to cases in which a reduction in the recipient’s assets in a particular amount could be established; rather, it could apply when something inherently more uncertain in quantitative terms was made out. The court had to assess whether or not there had been a change of position as at the date of the demand for repayment. The fact that the value of the asset might subsequently increase over time was not a sufficient reason for refusing a defence of change of position altogether. Accordingly, there was a principled case for recognising a defence of change of position to the extent of any swap payments made by the claimants under the hedging swaps subject to quantification (which did not form part of the trial) and the issue of whether any different treatment attached to those payments made after the defendant informed the claimants in late 2020 that any payments were being made without prejudice to its contentions that the swaps were void (paras 400–402, 405–413, 419, 420, 422–423, 424–425, 463).