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07 Oct 2019

Lehman Brothers International (Europe) (In Administration) v Exotix Partners LLP [2019] EWHC 2380 (Ch)


The High Court has applied a common sense interpretation to a contract for sale, in circumstances where both parties had been mistaken and/or unclear as to the quantity and value of the assets being sold, with the result that assets worth over $7m were accidentally sold for around $7,500.


In 2014, the Joint Administrators (the “JAs”) of Lehman Brothers International (Europe) (“LBIE”) were in the process of realising assets, which included Peruvian Government Global Depository Notes (the “GDNs”). The JAs mistakenly thought that the GDNs they held were ‘scraps’ with a very low value, whereas in fact they had a substantial market value of over $7m.

LBIE entered into a trade with Exotix Partners LLP (“Exotix”), a broker, for the sale of the GDNs. The trade was made orally via a telephone call between traders, for the sum of c.$7,500, which was stated to be 91.5% of the face value. The call was tape recorded, but the words used had been far from clear.  After the trade was agreed, Exotix sent a summary of its terms to LBIE (known as the “VCON”), which recorded the transaction as the sale of 22,955 GDNs (which in fact a market value of over $7m) at a price of c.$7,500, which LBIE then duly delivered. It was common ground that both parties had made a mistake.

However, after realising what had happened, rather than bringing the issue to the attention of LBIE, Exotix proceeded to sell the GDNs to a third party at the full market rate, thereby making a substantial profit.  

The dispute

Upon learning of the matter, LBIE claimed that Exotix had been unjustly enriched by its receipt (and subsequent onward sale) of the GDNs, which were in fact worth 1000 times the amount agreed during the trade.   LBIE put forward two arguments as to the construction of the agreement:

  1. The “Scraps Argument”: That the sale price of c.$7,500 had been correct, but the parties had intended to deal in 'scraps' such that the contract should be interpreted as a sale of GDNs with a value commensurate to the c.$7,500 sale price.Thus LBIE had over-delivered and was entitled to restitution. This argument, if successful, also required a term to be implied into the Contract to deal with fractional entitlements, because a sale price of c.$7,500 equated to the sale of 22.955 GDNs and it is not possible to sell a fraction of a GDN.

  2. The “Price Argument”: Alternatively LBIE argued that, if the contract was in fact for the sale of 22,955 GDNs, then the agreed price should be interpreted to be over $7m (being 91.5% of the face value of 22,955 GDNs), such that Exotix owed LBIE over $7m.

Exotix’s position was that the correct interpretation of the contract was that it was a sale of 22,955 GDNs for c$7,500.  Accordingly, the contract had been fully complied with.  Exotix accepted that LBIE was mistaken as to the value of the GDNs, but relied upon LBIE’s "extraordinary lack of care in selling its own assets at the wrong price”, and suggested that LBIE had only itself to blame. 


In his judgment, Hildyard J applied the established authorities on contractual interpretation, and thus sought to determine the objective intention of the parties based on the words used in the contract, as opposed to the parties’ subjective intention/understanding.  His decision can be summarised as follows:

  1. The words used in the contract: the contract was formed on the telephone call between the traders and later recorded in the VCON and a trade confirmation.Accordingly, the Judge had regard to: the tape recording; the VCON; and the confirmation, all of which he held were intended to have contractual effect.The words used in the contract should not be ascertained from other pre- or post- contractual documents.

  2. Relevance of other documents: however, in order to determine the objective intention of the parties, the Judge held that the following was admissible evidence: information in fact known to the parties at the time; and information that was ‘reasonably available’ to them.

  3. LBIE’s lack of care not relevant to contractual interpretation: Hildyard J dismissed Exotix’s reliance on LBIE’s alleged "extraordinary lack of care”, which was not relevant to the construction of a contract.

  4. The interpretation of the contract:

    4.1  The parties could not reasonably be supposed to have agreed a sale of GDNs worth $7m at a price of just c.$7,500.Accordingly, Exotix’s case was rejected.

    4.2  Likewise, the parties could not reasonably be supposed to have in fact agreed a sale of all of the GDNs at the correct price of over $7m, not least since there was evidence that Exotix could not in fact have agreed to pay over $7m for the GDNs even if it had wanted to.Accordingly, LBIE’s Price Argument (referred to above) was rejected.

    4.3  Hildyard J considered that the telephone recording, VCON and confirmation were plain as to the intent: namely a sale of GDNs with a face value of 22,955 Peruvian Sol (about $8,100) at 91.5% of nominal value, c.$7,500.In other words, viewed objectively, the parties had in fact contracted for the sale of ‘scraps’.Accordingly, LBIE’s Scraps Argument (referred to above) succeeded.

  5. Implied term: having accepted the Scraps Argument, Hildyard J was also prepared to imply a term dealing with fractional entitlements, with the additional fractional amount to be settled in cash (since it was not possible to sell a fraction of a GDN), in order to give effect to the parties’ agreement and ensure that the contract was workable.

In view of the above, LBIE had over-delivered on the contract and was entitled to restitution from Exotix in respect of the excess amount.


This case is an interesting application of the well-established rules of contractual interpretation and implication of terms in circumstances where the contractual wording was not entirely clear and the parties were, in fact, both mistaken as to the transaction.  The outcome was that assets worth over $7m were mistakenly sold for just $7,500, but the Judge held that the parties could not reasonably be supposed to have agreed this.  Rather, the Judge determined that the parties’ objective intention, based on the words used in the contract, was that it was a sale of small number of GDNs for 91.5% of face value c.$7,500. 

Whilst not part of the ratio of his decision, it is notable that Hildyard J concluded his judgment by stating that his decision accorded, in his view, with “both overall commercial good sense and commercial morality”.  He also suggested that a well-informed observer would come to the same view and thus reach a similar decision. That sentiment may provide some comfort to parties (such as LBIE) who are on the wrong end of a mistaken transaction. 

On the other hand, the case highlights the risks (not least in terms of the potential costs of litigating) arising from a failure to agree the subject matter and price of a transaction with sufficient clarity, an issue that is more likely to arise in trading, where large contracts are entered into orally and at speed.