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[1996] AC 699 (HL). The claimant bank entered into an interest rate-swap agreement with the local authority which was later ruled to be unlawful. The bank sought a return of its money, not under common-law principles of Restitution, but under Equitable principles. The bank's reason for doing this was that, under equity, it would be entitled to compound interest on the sum repayed. This was not an unreasonable request -- after all, the authority would have had to pay the compound interest if the agreement had been valid, and so was 'unjustly enriched' at the bank's expense.

In order to claim an equitable remedy, the bank tried to argue that aresulting trust arose on the principles ofsinclair v brougham (1914). However, even in 1914 it was clear that the circumstances of Sinclair were on the boundary of the court's ability to find a trust relationship. It would be difficult, for example, to fit the decision in that case into one of the categories of resulting trust identified by Megarry J in re vandervell no 21974 ('automatic' or 'presumed intention').

Consequently the House of lords declined to follow Sinclair, and held that there was no trust relationship on the facts of the present case. As Lord Browne-Wilkinson puts it:

Since the equitable jurisdiction to enforce trusts depends upon the conscience of the holder of the legal interest being affected, he cannot be a trustee of the property if and so long as he is ignorant of the facts alleged to affect his conscience, i.e., until he is aware that he is intended to hold the property for the benefit of others in the case of an express or implied trust, or, in the case of a Constructive Trust, of the factors which are alleged to affect his conscience.

Although the decision in Westdeutsche was by a bare majority, the disagreement was whether the jurisdiction of equity was wide enough to allow an award of compound interest even without a trust being found. The majority held that it was not, and the bank's claim failed. However, there was no disagreement about the nature of a resulting trust.

This decision has implications far beyond the use of resulting trusts in a restitutionary context. It suggests, for example, that Megarry's notion of an 'automatic' resulting trust, which has been unchallenged for twenty years, can no longer be supported. This means that a number of leading cases have to be regarded as wrongly decided. See theoretical basis for resulting trusts for discussion of this point.