Lehman Brothers Special Financing Inc v National Power Corporation & Anor

Lehman Brothers Special Financing Inc v National Power Corporation & Anor

The 2002 ISDA Master Agreement requires the Determining Party to use objectively commercially reasonable procedures to produce an objectively commercially reasonable result when determining the Close-out Amount. Once a determination is made and notice is served, the Determining Party cannot remake the determination except to correct manifest error or invalidity; otherwise, the court will determine the correct amount. NPC’s determination did not comply with the Agreement in respect of the Accrued Amount and the option premium, but the use of the UBS Transaction (excluding the option premium) was commercially reasonable.

Parties
Claimant: Lehman Brothers Special Financing Inc.; First Defendant: National Power Corporation; Second Defendant: Power Sector Assets and Liabilities Management Corp
Jurisdiction
England and Wales
Judgment Date
12 March 2018
Procedural Posture
Commercial/financial Dispute / Judgment After Trial
Outcome
Declaration of the correct method for Close-out Amount determination; correction of NPC’s calculation; directions for further calculation if required.
Legal Topics
ISDA Master Agreement, Close Out Amount Determination, Early Termination, Contractual Interpretation, Objective Reasonableness in Contractual Discretion
Contract Law Banking and Finance Law ISDA Master Agreement Close Out Amount Determination Early Termination Contractual Interpretation Objective Reasonableness in Contractual Discretion

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Parties

Lehman Brothers Special Financing Inc.

Claimant

National Power Corporation

First Defendant

Power Sector Assets and Liabilities Management Corp

Second Defendant

Procedural Posture

Commercial/financial Dispute / Judgment After Trial

Legal Issues

  1. 1 Whether a Determining Party under the 2002 ISDA Master Agreement can remake a determination of Close-out Amount after serving a calculation statement
  2. 2 Whether the 2002 ISDA Master Agreement requires an objectively reasonable result or only a rational result in Close-out Amount determinations
  3. 3 Whether NPC’s determination of the Close-out Amount complied with the requirement to use commercially reasonable procedures to produce a commercially reasonable result

Ratio Decidendi

The 2002 ISDA Master Agreement requires the Determining Party to use objectively commercially reasonable procedures to produce an objectively commercially reasonable result when determining the Close-out Amount. Once a determination is made and notice is served, the Determining Party cannot remake the determination except to correct manifest error or invalidity; otherwise, the court will determine the correct amount. NPC’s determination did not comply with the Agreement in respect of the Accrued Amount and the option premium, but the use of the UBS Transaction (excluding the option premium) was commercially reasonable.

Court Disposition

Declaration of the correct method for Close-out Amount determination; correction of NPC’s calculation; directions for further calculation if required.

Orders

  • NPC’s determination of 26 January 2009 is subject to correction by the court to exclude the option premium and include the Accrued Amount.
  • If calculation details remain in dispute, the court will address them in consequential proceedings, including interest.