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Court of Appeal overturns judgements in Lehman client money case

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The Court of Appeal has handed down its judgment on the appeals made against Justice Briggs’ judgments in an application for directions brought by the joint administrators of Lehman Brothers International (Europe) (in administration).

The administrators’ application concerned LBIE’s obligations in relation to client money held by it prior to the time of administration.

The Court of Appeal’s decision has overturned Mr Justice Briggs’ judgments on two issues.

First, the Financial Services Authority’s client money rules require identifiable client money held by LBIE (at the time of administration) outside LBIE’s segregated accounts to be pooled with the client money held in its segregated accounts, with that pool then to be distributed to all of the clients entitled to claim against it.

Justice Briggs’ judgments had held that (a) the pool was comprised only of the client money in LBIE’s segregated accounts, and (b) that identifiable client money held outside such accounts should be returned to the specific clients for whom it was held.

Second, all clients who ought to have had money segregated for them by LBIE as client money prior to administration are now entitled to share in the client money pool, regardless of whether or not LBIE did in fact segregate client money for them.

Justice Briggs’ judgments had held that only those client money claimants for whom LBIE had segregated client money prior to administration were entitled to claim against the pool.

Tony Lomas, a partner at PricewaterhouseCoopers and one of LBIE’s joint administrators, says: “What is significant about the judgment is that it not only widens the pre-administration client money that must be pooled, but also the number of clients entitled to claim against that pool. This is likely to have a significant knock-on effect both on the timing and level of any distribution of client money to LBIE’s clients. The proper and prompt return of client money is a key priority for the administration, and we remain committed towards achieving that objective.”

Stephen Fletcher, a partner at Linklaters, the administrators’ legal advisers, adds: "The appeal demonstrates the problems that can be faced by liquidators and administrators in dealing with the client money affairs of FSA-regulated firms. The Court of Appeal has given us new answers to some of the acute legal difficulties experienced in LBIE’s administration. We now need to see how we can move forward and resolve the remaining issues."

It is not yet known whether any party to the appeal proceedings intends to seek permission to appeal to the Supreme Court.

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