Lehman Brothers International (Europe)v Exotix Partners LLP

Commercial contracts are construed objectively by reference to the words used, the agreement as a whole, its purpose, the facts known or assumed by both parties, and commercial common sense. Subjective intentions, post-contract conduct and one party’s internal information generally cannot be used to construe recorded terms.

Where a trade is expressed by reference to nominal value, the agreed price may assist in identifying its subject matter. A term may be implied for workability only where custom is sufficiently certain, or where the contract otherwise lacks commercial or practical coherence. The court cannot imply a term merely because it would be fair or convenient.

If the agreed subject matter is legally incapable of delivery and no saving term can be implied, the contract may be void for failure of consideration, with restitution available.

Lehman Brothers International (Europe) agreed orally to sell Exotix Partners LLP a portfolio including Peruvian global depository notes. The parties described the trade by reference to a nominal amount of Peruvian currency and a price of 91.5 per cent, but the trade was settled by delivery of 22,955 notes. Each note had a nominal value of PEN 1,000, so the delivered holding was worth substantially more than the price paid.

The dispute concerned the objective construction of the trade, the admissibility of internal and post-contract material, whether a term should be implied to deal with a fractional delivery, and the consequences if performance was legally impossible. LBIE also sought restitutionary relief for the over-delivery and coupon payments.

1. Construction. The recorded telephone exchanges, VCON and Confirmation were to be construed objectively. The admissible factual matrix did not include LBIE’s internal Sign-Off Pack or BONY spreadsheet, post-contract delivery instructions, or later correspondence. The Confirmation was admissible because it was an expected document recording and enabling settlement of the trade.
2. The trade was for GDNs with an aggregate nominal value of PEN 22,955, at 91.5 per cent of that value, for consideration of US$7,707.93. The use of nominal value, the price calculation, the Bloomberg “M” input and the surrounding commercial context outweighed the fact that 22,955 whole GDNs were delivered.
3. Implied term. The court could not imply a fractional-settlement term merely because it reflected usual or fair behaviour. A trade custom must be “invariable, certain and notorious”. A term based on necessity or obviousness requires more than reasonableness or commercial improvement; the agreement must otherwise lack commercial or practical coherence. Here, without a term providing for delivery of 22 GDNs and cash settlement of 0.955 GDNs, the agreement was unworkable. That term was therefore implied.
4. LBIE was entitled to restitution for Exotix’s unjust enrichment through receipt of the over-delivered GDNs and related coupon payments. Monetary restitution was appropriate. The provisional view was that the award should reflect the value obtained on the onward sale, the relevant coupon payments and interest.
5. Alternative basis. If no saving term could be implied, performance according to the express bargain was legally impossible. This was treated as a failure-of-consideration case, distinct from a common mistake concerning an external state of affairs. The trade would therefore be void and unenforceable, with restitution available. LBIE’s amendment to plead that consequence was permitted because it raised a legal consequence of the construction issue and required no further evidence.

First-instance decision in the High Court (Chancery Division). No prior appellate decision is stated in the judgment.