Lehman Brothers International (Europe) v Exxonmobil Financial Services BV

Lehman Brothers International (Europe) v Exxonmobil Financial Services BV

The Default Notice served by EMFS on 15 September 2008 was valid under GMRA. The Default Valuation Notice was validly served, but not in time for non-North American securities due to the requirement for security-by-security determination of Appropriate Market. Valuation under GMRA is subject to rationality, not objective reasonableness, and EMFS was entitled to adopt conservative methodologies within contractual bounds. The 40% discount applied to certain bonds was irrational; a 20% discount as per EMFS's contemporaneous internal valuation was rational. For equities, EMFS could adopt Dr Ellis's lower bound methodology. For bonds, observable bid prices were valid where available.

Parties
Claimant: Lehman Brothers International (Europe); Defendant: ExxonMobil Financial Services BV
Jurisdiction
England and Wales
Judgment Date
28 October 2016
Procedural Posture
Commercial Dispute / Judgment
Outcome
Judgment for both parties on different issues; consequential matters to be determined post-judgment.
Legal Topics
Repo Transactions, Contractual Discretion, Valuation of Securities, Default Notice, Master Agreements
Commercial Law Contract Law Financial Markets Repo Transactions Contractual Discretion Valuation of Securities Default Notice Master Agreements

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Parties

Lehman Brothers International (Europe)

Claimant

ExxonMobil Financial Services BV

Defendant

Procedural Posture

Commercial Dispute / Judgment

Legal Issues

  1. 1 Validity of Default Notice under GMRA
  2. 2 Validity and timing of Default Valuation Notice
  3. 3 Determination of Appropriate Market under GMRA

Ratio Decidendi

The Default Notice served by EMFS on 15 September 2008 was valid under GMRA. The Default Valuation Notice was validly served, but not in time for non-North American securities due to the requirement for security-by-security determination of Appropriate Market. Valuation under GMRA is subject to rationality, not objective reasonableness, and EMFS was entitled to adopt conservative methodologies within contractual bounds. The 40% discount applied to certain bonds was irrational; a 20% discount as per EMFS's contemporaneous internal valuation was rational. For equities, EMFS could adopt Dr Ellis's lower bound methodology. For bonds, observable bid prices were valid where available.

Court Disposition

Judgment for both parties on different issues; consequential matters to be determined post-judgment.

Orders

  • Default Notice of 15 September 2008 held valid.
  • Default Valuation Notice validly served but not in time for non-North American securities.