Lehman Brothers Special Financing Inc v National Power Corporation & Anor [2018] EWHC 487 (Comm) (12 March 2018)

Lehman Brothers Special Financing Inc v National Power Corporation & Anor [2018] EWHC 487 (Comm) (12 March 2018)

Under the 2002 ISDA Master Agreement, the Determining Party is required to use commercially reasonable procedures to produce a commercially reasonable result when determining the Close-out Amount. This is an objective standard, not limited to rationality. Once a determination is made and notified, the Determining Party cannot unilaterally withdraw and replace it; errors may be corrected by the court or tribunal, but not by a fresh determination from the party. NPC's determination was subject to scrutiny for compliance with these standards, and the court found that the original determination was a determination within the meaning of the Agreement, but errors could be corrected by the...

Citation
[2018] EWHC 487 (Comm)
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 Court Financial List Claim / Judgment After Trial
Outcome
Claim allowed in part; court to determine the correct Close-out Amount based on objective standards.
Legal Topics
ISDA Master Agreement Interpretation, Close Out Amount Determination, Objective Reasonableness Standard, Early Termination of Derivatives Contracts
Contract Law Banking and Finance Law ISDA Master Agreement Interpretation Close Out Amount Determination Objective Reasonableness Standard Early Termination of Derivatives Contracts

Case Brief

Summary, issues, holding and outcome

More case intelligence is available

Unlock the full research layer for this judgment.

Full judgment text Downloadable case file Legal principles 3 Authorities cited 17 Party arguments 2 Amounts and remedies 4
Sign in to unlock

Parties

Lehman Brothers Special Financing Inc.

Claimant

National Power Corporation

First Defendant

Power Sector Assets and Liabilities Management Corp

Second Defendant

Procedural Posture

Commercial Court Financial List Claim / Judgment After Trial

Legal Issues

  1. 1 Whether a Determining Party under the 2002 ISDA Master Agreement can remake a Close-out Amount determination after serving a calculation statement
  2. 2 Whether the 2002 ISDA Master Agreement requires an objectively reasonable result or merely a rational one 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

Under the 2002 ISDA Master Agreement, the Determining Party is required to use commercially reasonable procedures to produce a commercially reasonable result when determining the Close-out Amount. This is an objective standard, not limited to rationality. Once a determination is made and notified, the Determining Party cannot unilaterally withdraw and replace it; errors may be corrected by the court or tribunal, but not by a fresh determination from the party. NPC's determination was subject to scrutiny for compliance with these standards, and the court found that the original determination was a determination within the meaning of the Agreement, but errors could be corrected by the...

Court Disposition

Claim allowed in part; court to determine the correct Close-out Amount based on objective standards.

Orders

  • NPC's original determination is not void but is subject to correction by the court for errors.
  • The court will determine the Close-out Amount in accordance with the objective standard required by the 2002 ISDA Master Agreement.