Lomas & Ors (Joint Administrators of Lehman Brothers International (Europe)) v Burlington Loan Management Ltd & Ors, Court of Appeal - Chancery Division, October 05, 2016, [2016] EWHC 2417 (Ch),[2016] WLR(D) 503

Resolution Date:October 05, 2016
Issuing Organization:Chancery Division
Actores:Lomas & Ors (Joint Administrators of Lehman Brothers International (Europe)) v Burlington Loan Management Ltd & Ors
 
FREE EXCERPT

Neutral Citation Number: [2016] EWHC 2417 (Ch)

Case No: 7942 of 2008

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

COMPANIES COURT

IN THE MATTER OF LEHMAN BROTHERS INTERNATIONAL (EUROPE)

AND IN THE MATTER OF THE INSOLVENCY ACT 1986

Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 5 October 2016

Before :

THE HONOURABLE MR JUSTICE HILDYARD

- - - - - - - - - - - - - - - - - - - - -

Between :

- - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - - - - - - - - -

William Trower QC, Daniel Bayfield (QC from 11 January 2016) and Stephen Robins (instructed by Linklaters LLP) for the Administrators

Robin Dicker QC, Richard Fisher and Henry Phillips (instructed by Freshfields Bruckhaus Deringer LLP) for the First to Third Respondents

Antony Zacaroli QC, David Allison QC and Adam Al-Attar (instructed by Kirkland & Ellis International LLP) for the Fourth Respondent

Tom Smith QC and Robert Amey (instructed by Michelmores LLP) for the Fifth Respondent

David Foxton QC and Craig Morrison (instructed by Cleary Gottlieb Steen & Hamilton LLP) for the Sixth Respondent

Hearing dates: 9-11 November & 16-25 November 2015

Further submissions received 7, 14 & 21 December 2015

Further hearing 24 June 2016

Supplemental submissions received 21 July 2016

- - - - - - - - - - - - - - - - - - - - -

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

.............................

THE HONOURABLE MR JUSTICE HILDYARD

151

TABLE OF CONTENTS

INTRODUCTION.........................................................................................5

The ISDA Master Agreements in issue: the 1992 and 2002 Forms .....................................6

The significance of the points in issue ..................................................................6

The issues for adjudication ..............................................................................7

The parties to Waterfall IIC and their roles ...........................................................7

Structure of Judgment.....................................................................................8

PART 1: THE ISDA MASTER AGREEMENTS....................................................8

The basic framework of the ISDA Master Agreements ..............................................9

Specific provisions relating to interest under the ISDA Master Agreements ....................12

Provisions of the 1992 Form relating to interest ...................................................12

The provisions of the 2002 Form relating to interest ...............................................15

Applicable principles of construction: English law ................................................16

Issue 11 ...................................................................................................17

Points relevant to construction and not contentious ................................................18

Wentworth's submissions on Issue 11 ................................................................20

The SCG's approach ....................................................................................29

GSI's submissions on Issue 11 ........................................................................33

My assessment and preferred construction .........................................................36

My answers to Question 11 ............................................................................42

Further sub-questions under Question 11 ............................................................43

Issue 12 ...................................................................................................46

Issue 13 ...................................................................................................49

Issues 14 to 18 ...........................................................................................51

Issue 14 ...................................................................................................51

Issue 15 ...................................................................................................54

Issue 16 ...................................................................................................55

Issue 18 ...................................................................................................55

Issue 10 ...................................................................................................55

Wentworth's arguments on Issue 10 ..................................................................58

The SCG's arguments on Issue 10 ....................................................................61

Adjudication of Issue 1 ................................................................................67

Issue 19: whether answers different under New York law .........................................68

THE GERMAN MASTER AGREEMENT .........................................................71

Brief summary of Issues 20 and 21 and the competing arguments ...............................72

Expert evidence on relevant principles of German law ............................................73

Relevant provisions of the GMA .......................................................................74

Relevant provisions of the BGB ........................................................................77

Issue 20: circumstances in which a ``damages interest claim'' lies under the BGB ............81

Issue 20(1) ................................................................................................82

Common ground between the experts ................................................................82

The Accrual Issue .......................................................................................83

The 2016 BGH Decision and its consequences ......................................................85

Is the Accrual Issue affected by the fact that LBIE is in an English not a German insolvency proceeding? ..............................................................................................89

The Default Issue ........................................................................................93

The test for serious and definitive refusal (sec. 286(2) no.3) ......................................94

Does the opening of insolvency proceedings itself amount to serious and definitive refusal within the meaning of section 286(2) no.3 of the BGB? ...........................................96

Should a proof in LBIE's administration be taken to constitute a warning notice for the purposes of the BGB? .................................................................................102

Conclusion on Issue 20(1) ............................................................................105

Issue 20(2) ..............................................................................................105

Issue 21 ..................................................................................................108

Issue 21(i) ...............................................................................................108

Issue 21(ii) ..............................................................................................110

Issue 21(iii) .............................................................................................113

General position .......................................................................................113

Simplified or ``abstract'' method of quantification ................................................114

ISDA Master Agreements: Supplemental Issue 1(A) ..............................................115

Genesis of Supplemental Issue 1(A) .................................................................116

The opposing parties and their perspectives .......................................................117

Relevant contractual provisions .....................................................................119

York's submissions ....................................................................................122

York's contentions as to the application of its analysis of the Judge's reasoning ............123

Administrators' position and contentions ..........................................................125

The SCG's submissions on Supplemental Issue 1(A) .............................................128

My assessment and conclusions as to Supplemental Issue 1(A) .................................130

Issue 27 ..................................................................................................132

Conclusion ..............................................................................................132

SCHEDULE ............................................................................................133

The SCG's case on the first aspect of Issue 20 (the ``Accrual Issue'') ..........................134

Wentworth's case on the first aspect of Issue 20 ...................................................137

My conclusions on the Accrual Issue ...............................................................143

APPENDIX 1 ..........................................................................................147

APPENDIX 2 ..........................................................................................150

Mr Justice Hildyard :

INTRODUCTION1. This is the third tranche of what has become known as the Waterfall II Application, which concerns the application of statutory interest pursuant to rule 2.88 of the Insolvency Rules 1986 (``Rule 2.88'') on debts proved in the administration of Lehman Brothers International (Europe) (``LBIE'').

  1. LBIE was the principal trading company for the European operations of the Lehman Brothers group. LBIE entered into administration on 15 September 2008, the same day as the ultimate holding company of the group filed for protection under Chapter 11 of the US Bankruptcy Code. The collapse of the Lehman group shook the financial world.

  2. The need for LBIE's...

To continue reading

REQUEST YOUR TRIAL