Lehman Brothers Australia Ltd v MacNamara & Ors

The Ex parte James principle prevents an insolvency office-holder from acting in a way which, judged objectively, right-thinking people would consider unfair. Its application is not confined to unconscionable or dishonourable conduct.

Paragraph 74 of Schedule B1 to the Insolvency Act 1986 similarly adopts a wide, objective standard of unfair harm. Relief is not restricted to unlawful or discriminatory conduct.

Neither jurisdiction excludes contractual rights. An administrator may therefore be restrained from insisting on a final contractual settlement where both parties made a purely clerical mistake, correction would preserve the agreed bargain, and reliance on the error would confer an unjustified windfall on the estate.

Lehman Brothers Australia Ltd proved in the administration of Lehman Brothers International (Europe) under a claims determination deed. A spreadsheet prepared by the administrators mistakenly treated a euro-denominated bond as denominated in Australian dollars. Both sides overlooked the error, understating the agreed proof by about £1.67 million.

Hildyard J dismissed an application to increase the proof. He held that neither the Ex parte James principle nor paragraph 74 of Schedule B1 to the Insolvency Act 1986 could override contractual obligations freely undertaken. He would also have declined relief on the facts.

The central issues were the threshold under Ex parte James, the scope of paragraph 74, whether either jurisdiction could restrain reliance on contractual rights, and whether refusal to correct the shared clerical mistake was unfair.

1. Appeal allowed. The Ex parte James jurisdiction applies where an officer of the court proposes to act in a manner which, judged objectively, right-thinking people would consider unfair. The standard is not confined to unconscionability, dishonesty or dishonourable conduct. It reflects the standards which society currently expects of the court itself. It applies to omissions as well as positive acts and does not depend on the office-holder’s subjective state of mind.

2. Paragraph 74 of Schedule B1 to the Insolvency Act 1986 is expressed in wide terms and likewise adopts an objective standard of fairness. It is not confined to conduct which cannot be justified by the interests of creditors as a whole, unlawful conduct or discrimination between creditors. The court should proceed cautiously and give great weight to an administrator’s statutory functions and responsibilities to creditors collectively. Those considerations do not preclude a finding that a particular creditor has suffered unfair harm.

3. Neither Ex parte James nor paragraph 74 contains an absolute exception for contractual rights. The fact that an office-holder relies on a freely negotiated contract is highly material, but the jurisdiction may restrain reliance on strict contractual rights where the facts justify relief. The contrary general proposition adopted below could not stand.

4. The claims determination deed was used in performing the administrators’ statutory function of ascertaining claims for distribution. The understatement resulted from a purely clerical mistake made initially by the administrators and overlooked by both sides. Correcting it would implement the parties’ agreed valuation basis rather than reopen or renegotiate their settlement.

5. Finality, certainty and the interests of the estate did not justify perpetuating the error. There was no evidence that correction would undermine the claims determination process or open the floodgates. The larger proof represented the creditor’s true entitlement under the parties’ bargain and gave it no windfall.

6. No right-thinking person would consider it fair for administrators who were equally responsible for the error to insist on their strict contractual rights. Relief was therefore available both under Ex parte James and paragraph 74. Newey and Patten LJJ agreed with David Richards LJ.

1. Court of Appeal (Civil Division): The appeal was allowed. The court held that the Ex parte James principle and paragraph 74 could apply to contractual rights and required the shared clerical mistake to be corrected: [2020] EWCA Civ 321.

2. High Court, Insolvency and Companies List: Hildyard J dismissed the application for directions on 24 October 2018. No citation for that decision is stated in the judgment.