Lehman Brothers Australia Limited v MacNamara & Others

The Court of Appeal allowed Lehman Brothers Australia Limited's appeal against the refusal of the High Court to direct the administrators of Lehman Brothers International (Europe) to increase LBA's agreed proof of debt under a Claims Determination Deed by approximately £1.67 million, that sum having been omitted by a common clerical mistake. The court analysed the common-law principle in Ex parte James and paragraph 74 of Schedule B1 to the Insolvency Act 1986, concluding that the relevant standard for intervention is one of unfairness judged objectively (rather than an absolute test of unconscionability).

The court held that neither Ex parte James nor paragraph 74 is excluded from applying to contractual rights simply because they are contractual, and that an administrator, as an officer of the court, can be required not to rely on strict contractual rights where it would be unfair to do so. Applying those principles to the facts, and having regard to the shared clerical error, the purpose of CDDs and the absence of legitimate prejudice to other creditors, the court directed correction of the admitted proof.

Background and parties

• Lehman Brothers Australia Limited (LBA) was in liquidation in Australia and had entered into a Claims Determination Deed (CDD) with the administrators of Lehman Brothers International (Europe) (LBIE) under which LBA's Agreed Claim Amount was fixed at £23,355,508 and paid in full.
• Both parties later discovered a clerical error in the valuation schedule that undervalued one bond position by £1,672,583.44 so that the Agreed Claim Amount should have been £25,028,091.44. Rectification was not available to LBA for the purposes of the proceedings.

Procedural posture

This was an appeal to the Court of Appeal from Hildyard J's dismissal of LBA's application for directions (High Court, Insolvency and Companies List, CR-2011-010530). LBA sought a direction either under the court's inherent jurisdiction (Ex parte James) or under paragraph 74 of Schedule B1 to the Insolvency Act 1986 that the administrators should increase the admitted proof to correct the mutual clerical error.

Issues framed

1. What is the correct test for intervention under the principle in Ex parte James (unconscionability or unfairness)?
2. Whether paragraph 74 of Schedule B1 can be invoked to require an administrator to act so as to avoid unfair harm to a creditor in the circumstances of a shared clerical error in a CDD.
3. Whether contractual finality in CDDs prevents the court from granting relief under Ex parte James or paragraph 74.

Reasoning and subsidiary findings

• The court reviewed the authorities and concluded that the relevant standard is an objective test of unfairness (the standard expected of a right‑thinking person), not a narrower equitable concept of unconscionability. Earlier formulations using terms such as "dishonourable" or "unconscionable" were examined but a fairness test is consistent with authority and with paragraph 74.
• The court rejected the proposition that Ex parte James or paragraph 74 cannot apply to contractual rights; whether contractual rights should be restrained depends on the facts and fairness in the particular case.
• The shared clerical error, admitted by both parties and attributable in part to the administrators' staff, meant LBA suffered real harm by being deprived of the true agreed entitlement; correction would not subvert the legitimate objectives of the CDD process nor cause a real windfall or unfair prejudice to other creditors.
• The judge's earlier emphasis on finality and contractual certainty was relevant but not decisive; those considerations did not outweigh the justice of correcting the acknowledged common error.

Conclusion

The Court of Appeal allowed the appeal and directed that the administrators should recognise the larger sum as LBA's Agreed Claim Amount. The court therefore ordered correction of the admitted proof by direction under paragraph 74 and applying the principle in Ex parte James.

Appeal allowed. The Court of Appeal held that intervention under Ex parte James and paragraph 74 of Schedule B1 may restrain an administrator from enforcing strict contractual rights where it would be unfair to a creditor; applying that objective fairness test to the facts (a shared clerical error in a CDD, the administrators partially responsible and no legitimate prejudice to others), the court directed correction of the admitted proof.

Appeal from the High Court, Chancery Division, Insolvency and Companies List (Hildyard J), CR-2011-010530; judgment of the Court of Appeal: [2020] EWCA Civ 321 (this report).