Lehman Brothers International (Europe) (in administration) (“LBIE”) v Exxonmobil Financial Services BV (“EMFS”) [2016] EWHC 2699 (Comm), 28 October 2016

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Lehman Brothers International (Europe) (in administration) (“LBIE”) v Exxonmobil Financial Services BV (“EMFS”) [2016] EWHC 2699 (Comm), 28 October 2016

Published 8 diciembre 2016

Fomento De Construcciones Y Contratas SA v Black Diamond Offshore Ltd (Court of Appeal hearing)

“Close of business” is a standard expression often used in business documents on the assumption that it has an established meaning. The High Court recently provided a useful reminder that whilst the expression does provide commercial flexibility, where certainty of terms is required, specific timings may be preferable for contractual documentation.

The case concerned a dispute between LBIE, the principal European trading company in the Lehman Brothers group until its failure in September 2008, and EMFS, a financial services arm of the Netherlands based ExxonMobil oil industry group. When LBIE went into administration on 15 September 2008, there was an outstanding sale and repurchase (“repo”) transaction between the parties. The repo was entered into under the standard form Global Master Repurchase Agreement (“GMRA”).

Paragraph 10 of the GMRA provides that if a party defaults on its obligations under the GMRA, all outstanding repos are accelerated and each party’s obligations in respect of delivering securities are replaced with cash payment obligations based on the "Default Market Value" of the securities to be delivered. The Default Market Value is to be established by the non-defaulting party by giving a written "Default Valuation Notice" to the defaulting party before the Default Valuation Time, which is defined as "the close of business in the Appropriate Market on the fifth dealing day after the day on which that Event of Default occurs" (the "Appropriate Market" is the "market which is the most appropriate market for Securities of that description, as determined by the non-Defaulting Party"). If the non-Defaulting Party has not sent a Default Valuation Notice to the defaulting party before the Default Valuation Time, the Default Market Value is to be the Net Value.

In relation to service of notices under the GMRA, paragraph 14(a) provides that notices must be sent to "the address or number, or in accordance with the electronic messaging details set out in Annex I". Paragraph 14(b) provides that if a notice is received after the close of business on the date of delivery, it will be treated as having been given at the opening of business on the next day.

On the day that LBIE went into administration, 15 September 2008, EMFS sent a default notice by fax to LBIE's London office which stated that an event of default had occurred and the transaction had been accelerated. Later the same day, EMFS purported to send a second notice specifying the nature of the default. Initially the fax number was busy and so the second fax was not delivered until 16 September 2008. Having sent the notice of default, EMFS had 5 business days from the event of default to send a Default Valuation Notice to LBIE setting out the value of the securities (the "Default Market Value").

EMFS subsequently argued that its first default notice was not valid because it did not specify what event of default had occurred and as such, the time for delivery of its Default Valuation Notice did not start to run until after delivery of the second notice. LBIE argued that the first notice of default was valid.

Most of the securities were sold by EMFS on 17 and 18 September 2008, though some were not sold, and were valued a few days later. The dispute was as to the balance of the account. In cash terms, LBIE contended that EMFS owed it US$13,938,198, whereas EMFS claimed that LBIE owed it US$8,605,108.

EMFS's Default Valuation Notice was delivered by fax at 6:02pm on 22 September 2008. EMFS had attempted to send the Default Valuation Notice to the fax number specified in the GMRA, but was unsuccessful but it was successfully sent to another fax machine at the same office. One of the key issues to be determined was the meaning of “close of business” in relation to the Default Valuation Notice. LBIE contended that close of business in London is 5pm. EMFS contended that it is 7pm.

In summary, EMFS’s case was that it validly exercised the Default Valuation Notice procedure in the GMRA. Under that procedure, it valued those securities which had been sold at the sale price, those for which a quotation was obtained (all bonds) at the quoted price, and ascribed a valuation to the remaining securities (also all bonds) for which it was not possible to obtain either a sale or a quotation.

LBIE’s case was that EMFS did not validly exercise the Default Valuation Notice procedure in the GMRA because the Default Valuation Notice arrived after close of business, went to the wrong fax number, and (in respect of the non-US securities) having regard to the “Appropriate Markets” provisions in the agreement, came after the Default Valuation Time. In consequence the “fair market value” provisions in the GMRA apply.

Finally, there were disputes between the parties as to the valuation of the securities in the event that LBIE was correct in disputing the validity of EMFS’s exercise of the Default Valuation Notice procedure in the GMRA, which was the subject of expert evidence.


The Court found that in accordance with the contractual definition of "Default Notice" in the GMRA, a default notice only has to state that an event is being treated as an Event of Default. It does not have to identify the specific event. The 15 September 2008 default notice was held to be valid. The court also confirmed that email was a valid method of giving notice under the GMRA.

As regards LBIE's argument that the Default Valuation Notice was not sent to the correct fax number, the court held that, in general, a faxed notice must be sent to the number set out in the GMRA. However, in this case, given that the notice was received by LBIE at the correct office and logged in the usual way, on these facts, LBIE had waived the requirement for the Default Valuation Notice to be served at the fax number specified in the GMRA. It was not until 6 years after delivery of the fax that LBIE raised the issue.

The Court found that the term "close of business" on a particular day can be a useful term which provides a degree of flexibility to discourage arguments based on the precise time of receipt, which may make little commercial sense. Where the intent of a contract is to impose a definite cut-off time, it can do so expressly. As the contract in this case did not do this, the contract should not be interpreted as though it had. The Court accepted that an approximate time of closing for a commercial bank engaging in repo transactions was circa 7pm. The Court found that the Default Valuation Notice was received by LBIE before close of business, and should therefore be treated as being given before close of business on 22 September 2008.

The Court noted that the term "close of business" is used in many different contexts, and that each case would turn on its own facts.

The Court also considered whether, on a true construction of the GMRA, it was open to EMFS to determine a single "global market" (or alternatively "the US market") as the Appropriate Market for all the equities and bonds. The Court concluded that, while it could be said that there was a "global market" in securities in a general sense, it was not a "market" for the purposes of paragraph 10(d)(i) of the GMRA. The Court agreed with LBIE that the US market could not be the Appropriate Market for any non-US securities. The Court, therefore, decided that the Default Valuation Notice was served in time for US securities, but not for non-US securities.

As to valuation, the Court was not asked to carry out a security-by-security valuation or to calculate values for any securities. Instead, the parties identified high-level points of principle which the Court was asked to decide, with a view to valuations being undertaken following judgment. The cost to EMFS of the failure to serve a Default Valuation Notice in time in respect of the non-US securities therefore remains to be determined.


The ordinary meaning of standard phrases such as "close of business" will depend on the context, and “close of business” can have different meanings depending on the nature of the business concerned. The meaning of such standard phrases can also change over time as business patterns change. To avoid any risk of ambiguity in business documents, parties should avoid using common phrases and instead include definitions or explanations to avoid any controversy at a later stage.

The case is also a helpful reminder to parties to ensure that they adhere strictly to the terms of any contract, particularly when serving notices.


Jonathan Brogden

Jonathan Brogden

London - Walbrook

+44 (0)20 7894 6290

Key Contacts

Jonathan Brogden

Jonathan Brogden

London - Walbrook

+44 (0)20 7894 6290

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