Lehman Brothers International (Europe) ((in Administration)) and Others
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE BRIGGS,Mr Justice Briggs |
| Judgment Date | 02 November 2012 |
| Neutral Citation | [2012] EWHC 2997 (Ch) |
| Docket Number | Case No: 7942/2008 |
| Court | Chancery Division |
| Date | 02 November 2012 |
[2012] EWHC 2997 (Ch)
Mr Justice Briggs
Case No: 7942/2008
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
COMPANIES COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Iain Milligan QC, Mr David BlayneyandMr Daniel Bayfield(Instructed by Linklaters Llp) for Lehman Brothers International (Europe)
Mr Martin Moore QC, Mr Nik Yeo(Instructed by Norton Rose Llp) for Lehman Brothers Inc.
Mr Richard Salter QC, Mr Jonathan Davies-Jones(Instructed by Field Fisher Waterhouse) for Lehman Brothers Finance Ag
Mr Richard Snowden QC, Mr Ben Shaw(Instructed by Weil Gotshal & Manges Llp) for 314 Commonwealth Ave. Inc.
Hearing dates: 27, 28 September, 1, 2, 3, 4 October 2012
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Approved Judgment
Introduction
This application by the administrators of Lehman Brothers International (Europe) ("LBIE") seeks the court's directions as to the interpretation, characterisation, validity and present effect of what may loosely be described as security provisions in two standard form documents, originally devised for use as between LBIE and its external ("street") customers, but in this case used as between LBIE and an affiliated company within the Lehman Brothers group, namely Lehman Brothers Finance SA ("LBF"). Originally, similar issues were identified in relation to a third standard form agreement but, at a late stage in the preparation for the hearing of this matter, it became common ground that no transactions or activity ever occurred pursuant to it so that, although the resolution of those issues might have been of some theoretical use as guidance for the administrators in relation to similarly worded agreements with other parties, it was sensibly agreed at the outset of the hearing that it would be inappropriate for any further time or effort to be taken up in relation to it.
Notwithstanding that narrowing of the ambit of these proceedings, and late (but still welcome) agreement by the parties as to some specific issues, the issues which it is agreed that I should nonetheless still resolve exceed twenty, and some of those are significantly sub-divided.
Two unusual features appearing in both the documents lie at the heart of most, but by no means all, of the issues which I am invited to decide. The first is that, in each case, the documents purport to describe the security thereby created as a "general lien" with attendant rights of retention, sale and the application of proceeds, whereas in fact, as the parties would have known when the documents were created, the vast bulk of the property of LBF to which the security related, held from time to time by LBIE, consisted of intangibles, mainly de-materialised securities and money. The second is that, in addition to purporting to create security for payment of debts owed by LBF to LBIE, the same provisions purported also to constitute security in respect of debts owed by LBF to a broadly (if arguably imprecisely) defined class of LBIE's affiliates within the Lehman Brothers group but without, at least in express terms, creating any agency or trust relationship between LBIE and its affiliates regulating the circumstances in which LBIE might be obliged to realise the security for the benefit of its affiliates, or the priority as between LBIE and its affiliates in the application of any proceeds of such realisation. It is a reflection of the central importance of those two unusual features that this application has come to be known as the Extended Liens application.
In common with most of the previous applications by LBIE's administrators for directions, I have not on this occasion been required, or even invited, to decide any contentious issues of fact. For the most part, I have been invited to base my conclusions upon a statement of agreed facts, although for certain limited purposes I have been provided with assumed facts designed to operate, as previously, as a template by reference to which the administrators can deal with matters as they arise and when the precise facts are ascertained. The parties have indeed already identified further issues between them arising out of these two documents which I am specifically asked not to decide, because of their fact-sensitivity. Furthermore, it is common ground that the agreed and assumed facts are to be taken as such only for the purposes of these proceedings.
The result is that this hearing has been concerned only with matters of law, and therefore with legal submissions. Nonetheless six full days of legal argument, preceded by the pre-reading of hundreds of pages of closely reasoned skeleton arguments, based on some eleven lever arch files of authorities, have been directed to the issues by four separate legal teams. Furthermore, the arguments have changed and developed substantially in relation to some of the main issues during the course of the hearing, despite the exchange of position papers between the parties designed (in lieu of statements of case) to assist in the identification of the real matters in dispute. The result was that important aspects of some parties' cases emerged for the first time only in reply, necessitating an unusual process of rejoinder speeches and a one day extension to the planned timetable for the hearing.
I make no complaint at all about those aspects of the manner in which the case has developed. On the contrary, the iterative process of position statements, skeleton arguments and, in particular, oral submissions has stimulated the analysis of these frequently complex issues, and their intricate relationship, at first instance in a manner which, it is to be hoped, may greatly reduce the risk of arguments being substantially re-cast, for the first time, at the appellate level. Beyond that, I wish to pay tribute to counsel (leading and junior) for the quality of the oral and written argument, and to the parties' solicitors for the helpful way in which the case has been prepared and presented generally.
THE PARTIES
LBIE
LBIE needs no introduction. It has been described in a number of previous decisions of mine, in terms which need not be repeated. It is sufficient for present purposes to say that LBIE was the European hub company within the Lehman Brothers group. It was, for that purpose, the main street-facing entity within the group for its European business, and the repository of such of the property of its street customers as was necessary or appropriate in connection with those customers' business transactions with group companies. Similarly it was a main repository for the property of its affiliates in connection with their activities in Europe.
LBIE was represented at the hearing by Mr Iain Milligan QC, Mr David Blayney and Mr Daniel Bayfield.
LBF
Again, LBF will be reasonably familiar to most readers of this judgment. I need add little to my description of it in paragraphs 55 to 58 of my judgment in Pearson & ors v Lehman Brothers Finance SA [2010] EWHC 2914 (Ch) (" RASCALS"), save to say that LBF's Swiss bankruptcy process was recognised as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 ("CBIR") pursuant to the Order of Registrar Derrett on 12 November 2009.
LBF was joined to these proceedings first because it was LBIE's counterparty under both the documents with which I am concerned and, secondly, because it is the appropriate party to pursue all arguments tending to diminish the ambit, effect, validity and extent of the security rights purportedly created over LBF's property. In the jargon of these proceedings, it is the archetypal "ownership affiliate".
LBF was represented at the hearing by Mr Richard Salter QC and Mr Jonathan Davies-Jones.
Commonwealth Ave. Inc. ("314 CA")
314 CA is a newcomer to the English litigation arising out of the Lehman group collapse. It is a Delaware company, having Lehman Brothers Holdings Inc. ("LBHI") as its ultimate parent company. As at September 2008, when the group collapsed, its primary function within the group was to act as a parent affiliate for a number of non-US affiliates that had been set up by the Lehman Brothers Strategic Transactions Group ("STG"), as well as being counterparty to various affiliates involved in the STG's transactions.
The reason for the joinder of 314 CA is that it is a creditor of one or more other group affiliates, but has no assets held by LBIE (and no other assets) capable of being encumbered by the security rights under review. Nonetheless, as a creditor of one or more affiliates (although not LBF) it is at least potentially a beneficiary of those security rights, to the extent that they are replicated in documents of the same type between LBIE and those affiliates which are its debtors.
314 CA has therefore, after some period of searching, been identified and joined as a suitable proponent of all arguments favourable to the recognition and effect of that part of the security rights in issue which purport to appropriate relevant property as security for the payment of debts owed to affiliates other than LBIE.
CA was represented at the hearing by Mr Richard Snowden QC and Mr Ben Shaw.
Lehman Bros Inc. ("LBI")
Because of its importance within the group as a whole, and its status as the American hub company within the group, LBI has been a frequent participant in the litigation arising from the group's collapse. It signified, at an early stage, a desire to participate in this application, albeit an uncertainty as to whether its interests...
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