Lehman Brothers Finance AG v Klaus Tschira Stiftung GmbH & Anor

Lehman Brothers Finance AG v Klaus Tschira Stiftung GmbH & Anor

The Defendants' Loss Calculation was not in accordance with the ISDA Master Agreement as it was based on uncollateralised replacement transactions which could not have been entered into, at a date not justified by the contract, and included losses too remote to be recoverable. The correct approach required valuation by reference to collateralised replacement transactions as at the Early Termination Date or as soon as practicable thereafter. The Defendants' calculation was therefore not binding on the Claimant.

Parties
Claimant: Lehman Brothers Finance AG (in Liquidation); Defendant: Klaus Tschira Stiftung GmbH; Defendant: Dr H C Tschira Beteiligungs GmbH & Co KG
Jurisdiction
England and Wales
Judgment Date
22 February 2019
Procedural Posture
Commercial/contractual Dispute / Judgment After Trial
Outcome
Defendants' Loss Calculation declared invalid and not binding; alternative calculation substituted.
Legal Topics
ISDA Master Agreement, Loss Calculation, Derivatives Close Out, Remoteness of Damages, Mitigation of Loss, Interpretation of Standard Form Contracts
Contract Law Banking and Finance Law ISDA Master Agreement Loss Calculation Derivatives Close Out Remoteness of Damages Mitigation of Loss Interpretation of Standard Form Contracts

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Parties

Lehman Brothers Finance AG (in Liquidation)

Claimant

Klaus Tschira Stiftung GmbH

Defendant

Dr H C Tschira Beteiligungs GmbH & Co KG

Defendant

Procedural Posture

Commercial/contractual Dispute / Judgment After Trial

Legal Issues

  1. 1 Whether the Defendants' Loss Calculation under the ISDA Master Agreement was valid and binding on the Claimant
  2. 2 Whether the Loss Calculation was made reasonably and in good faith as required by the Master Agreement
  3. 3 Whether the Defendants could base their Loss Calculation on uncollateralised replacement transactions at a date after the Early Termination Date

Ratio Decidendi

The Defendants' Loss Calculation was not in accordance with the ISDA Master Agreement as it was based on uncollateralised replacement transactions which could not have been entered into, at a date not justified by the contract, and included losses too remote to be recoverable. The correct approach required valuation by reference to collateralised replacement transactions as at the Early Termination Date or as soon as practicable thereafter. The Defendants' calculation was therefore not binding on the Claimant.

Court Disposition

Defendants' Loss Calculation declared invalid and not binding; alternative calculation substituted.

Orders

  • Declaration that the Defendants' Loss Calculation is not binding on the Claimant.
  • Determination that the correct Loss is €22.84 million before set-off, resulting in a net figure of minus €77.16 million after accounting for the Independent Amount.