Determination of ‘Loss’ in the Lehman Brothers Finance vs Klaus Tschira Stiftung case

On 22 February 2019 the High Court handed down judgment in the case of Lehman Brothers Finance AG (“LBF”) (in liquidation) v Klaus Tschira Stiftung GmbH ([2019] EWHC 379 (Ch)), a case concerning the determination of “Loss” following an Automatic Early Termination (“AET”) under a 1992 ISDA Master Agreement. The ISDA Master Agreement governed a number of large equity collar hedge transactions entered into by the defendants to protect themselves against the drop in the value of shares in SAP. The case involves a discussion of the non-defaulting party’s (NDP) broad discretion as to the methodology of calculating Loss under a 1992 ISDA Master Agreement but goes on to determine that such discretion does not extend as to what should fall within Loss. It also confirms the relevance of the general principles of breach of contract at common law, in particular the compensatory principle of damages and the principles of remoteness and mitigation.