Henry Forbes Smith was junior counsel for the First and Second Respondents resisting an application by the Administrators of Lehman Brothers International Europe to force them to pay Lehman’s in-the-money $60 odd million position on two swap transactions they had open when Lehman went into administration, either by implying terms to that effect into Section 2(a)(iii) of the ISDA Master Agreement or by declaring Section 2(a)(iii) to be void as contrary to the anti-deprivation rule of English bankruptcy law. In 2009, Judge Peck in the US Bankruptcy Court declared Section 2(a)(iii) to be void as contrary to US bankruptcy law on the application of Lehman’s US administrators. In the English High Court, however, Mr Justice Briggs upheld Section 2(a)(iii) and held that the Respondents were entitled not to pay. Lehman’s administrators said that, apart from the four Respondents, none of the thousands of other counterparties with whom it had open swaps when it went into administration had relied on Section 2(a)(iii) as a ground for not paying Lehman’s in-the-money position. The International Swaps and Derivatives Association (ISDA) intervened in the proceedings to argue that the Respondents should forever be exposed to liability should Lehman’s bankruptcy ever end. Mr Justice Briggs rejected that contention and held that the Respondents’ potential exposure to Lehman curing its insolvency ended on the termination date of the swaps, which was 20 December 2010.
Henry Forbes Smith was junior counsel for the First and Second Respondents and was instructed by Macfarlanes LLP.