Lehman Brothers Finance SA v Sal. Oppenheim Jr. & CIE. KGAA
2014
COMMERCIAL COURT
United Kingdom
CORAM
- MR JUSTICE BURTON
Areas of Law
- Contract Law
- Banking and Finance Law
2014
COMMERCIAL COURT
United Kingdom
CORAM
AI Generated Summary
Lehman Brothers Finance S.A. claimed additional sums from Sal. Oppenheim jr. & Cie. KGAA following early termination of option transactions under an English Law ISDA Master Agreement due to Lehman's bankruptcy. The court found the defendant incorrectly used earlier market quotations to calculate the termination payment. The court ruled the Market Quotation method was appropriate, and recalculated the payment, adding justified interest.
Judgment
Mr Justice Burton :
The claim of the Claimant (Lehman Brothers Finance S.A. (in liquidation)) is for the balance of the sum which it claims was properly due from the Defendant (Sal. Oppenheim jr. & Cie. KGAA) arising out of early termination of four option transactions governed by an English law ISDA Master Agreement (1992 version) (“the Agreement”) dated 6 th September 2001, together with interest. The dispute is one of the continuing consequences of the Lehman Brothers crash. It has been ably and thoroughly argued by Mr Bayfield for the Claimant and Mr Forbes Smith for the Defendant.
The following is common ground:
The transactions were put and call options by reference to the Nikkei 225 Stock Average Index (“Nikkei Index”).
There was Automatic Early Termination of the Agreement by virtue of the event of default arising out of the entry into Chapter 11 bankruptcy proceedings, at 01.44 am New York time on Monday, 15 th September 2008, of the Claimant’s Credit Support Provider (as designated in the Schedule to the Agreement), Lehman Brothers Holdings Inc. (“LBHI”), by reference to Section 5(a)(vii)(4) of the Agreement. The Claimant was thereby the Defaulting Party and the Defendant the Non-defaulting Party by reference to Section 6(a) of the Agreement.
The Tokyo Stock Exchange and Osaka Securities Exchange were closed for a Japanese holiday on Monday, 15 th September 2008, and did not reopen until 9 am on Tuesday, 16 th September 2008.
As between close on Friday, 12 September and reopening of the market on 16 September there was a substantial fall in the Nikkei Index as of 16 September and continuing, compared with close on Friday, 12, and the consequence was that the value of the four options rose.
In the Schedule to the Agreement the parties made an election as to which of two available payment measures should apply in the event of Early Termination, namely Market Quotation and Loss . The parties elected for Market Quotation (and for a payment method, the Second Method , which is not in issue).
By letter dated 30 th April 2009, the Defendant informed the Claimant that it had determined that the amount to be paid by it to the Claimant in respect of the transactions arising out of the Early Termination was €1,849,968.99, (although without at that stage providing any calculations in support), and after an email dated 18 th June 2009, by which it submitted calculations which it asserted supported such figure (to which I shall return), the D