Representing 22 Australian investors in the Supreme Court of England, Johnson Winter & Slattery (JWS) has this week come out with a landmark victory against the Lehman Brothers Group.
Acting as co-counsel for Australian investors in Lehman-originated synthetic CDOs (collaterised debt obligations) with a value of approximately $250 million, the unanimous decision was handed down on 27 July by seven judges of England's highest court, dismissing the appeal by Lehman Brothers Special Financing Inc (LBSF) - a member of the now bankrupt Lehman Brothers group.
The decision upholds investors' claims to 'note-holder' priority, being their contractual right to a priority claim ahead of LBSF to recover certain collateral underlying their CDOs.
LBSF argued that the contractual provisions creating note-holder priority, which Lehman entities created, drafted and marketed themselves, were invalid under English law as a result of the 'anti-deprivation rule' and that LBSF had prior claim to the collateral.
"I expected that we would win but I didn't expect a unanimous decision. The investors were delighted with the result," JWS partner Jim Hunwick told Lawyers Weekly, adding that the case, which began back in June 2009, was particularly challenging given the large number of clients and cross-border legal issues.
"Had Lehman's cynical attempt to invalidate its own documents succeeded, this would have called into question the validity of many widely-used contractual provisions. This fight is not over yet, however. We can expect Lehman to try anything it can to stop the trustee and the English courts from giving effect to this win."
According to Hunwick, Lehman Brothers has claimed that the decision of the Supreme Court of England has little effect because what matters is the position of the United States.
"The US position at the moment is not clear in our case because Lehman is refusing to allow us to litigate it," he said. "It's not clear what they're doing but at this point they appear to be saying that the position in the US is different and that's all that matters to them."
Hunwick was first approached by investors in Lehman CDOs shortly after the Lehman collapse in September 2008, seeking advice on how to preserve their rights. He was assisted by senior associate Michael Garry as well as litigation partner Paul Reidy and insolvency partner David Proudman.