Interesting Swiss Federal Tribunal judgment regarding Lehman Brothers / ISDA Master Agreements

Interesting Swiss Federal Tribunal judgment regarding Lehman Brothers / ISDA Master Agreements

On 29 January 2019, the Swiss Federal Tribunal (SFT) uploaded to its website an interesting judgment that is related to the liquidation of a Swiss Lehman Brothers subsidiary. The judgment is dated 17 December 2018 and has the case number 5A_723/2017.

The relevant Swiss Lehman subsidiary is Lehman Brothers Finance AG (LBFAG), which is being liquidated by PricewaterhouseCoopers AG in Zurich (PwC).

The claimants in the present matter, two entities domiciled in Germany, filed with PwC in its capacity as the liquidator of LBFAG claims in excess of CHF 642m, to be recognized by PwC in LBFAG’s bankruptcy liquidation. PwC, however, rejected these claims in April 2013. The claimants challenged PwC’s decision before the courts in Zurich and, ultimately, before the SFT.

For financial law practitioners and commercial litigators this new SFT judgment 5A_723/2017 contains some interesting considerations. Two of these considerations shall be briefly summarized below.

The parties to the dispute at issue had entered into variable forward sale and variable forward purchase transactions, based on a 1992 ISDA Master Agreement (ISDA MA). In the Schedule to the ISDA MA, the parties had agreed that in an early termination event, the compensation payment would be calculated on the basis of the payment measure “Loss”, and pursuant to the payment method “Second Method”.

The first point of contention in the proceedings before the SFT was the issue of the distribution of the burden of proof for the loss calculation pursuant to the ISDA MA. In this regard, the claimants argued, in essence, that the ISDA MA would provide that they (as the non-defaulting parties) would only have to deliver a loss calculation – the “Calculation Statement” defined in the ISDA MA – to the other party and that it would then be incumbent on the respondent (as the defaulting party) to prove to them, as claimants, an unreasonable loss determination. Thus, the claimants essentially concluded that they had no burden of proof in relation to the claimed loss amount.

The High Court of the Canton of Zurich (Zurich High Court) had rejected claimants’ above-mentioned position. In a compressed and simplified form, the Zurich High Court took the position that once PwC as LBFAG’s liquidator rejected the claimants’ loss calculation, the claimants had the burden of proving the claimed loss in the court proceedings initiated by them.

In the Schedule to the ISDA MA, the parties had agreed that English law shall be applicable to their contractual relationship. The above-mentioned issue of which party bears the burden of proving the relevant loss was, therefore, to be determined in light of English law. This determination, discussed and ruled upon in the second instance by the Zurich High Court, was only to be examined by the SFT under the restricted angle of arbitrariness. Under this restricted angle of arbitrariness, the SFT rejected the claimants’ assertion and confirmed the Zurich High Court’s conclusion that under the applicable English law, the claimants had to prove the claimed loss (see, in particular, consideration 5.3.3 of the SFT judgment; below is a tentative translation):

The claimants’ view that they would only have to submit a loss calculation and that the respondent (opposite party) would be obligated to pay and that they would not bear any burden of proof for the reasonable loss calculation does not need to be discussed in detail herein. Even if the solution of the claimants would also appear to be justifiable or even more appropriate, the Zurich High Court can in any event not be accused of arbitrariness within the meaning of Article 9 of the Swiss Federal Constitution (…).

Another interesting aspect contains the circumstance that the Zurich High Court had concluded in its judgment that it needed an expert opinion from a court-appointed financial expert in order to make an assessment and determination related to the claimed loss. The Zurich High Court concluded that the relevant loss determination is very complicated and would need expert knowledge that it does not have. Now, in this regard, it is interesting to note that claimants had not asked the Zurich High Court to obtain an expert report from a court-appointed financial expert. Lacking such a request, the Zurich High Court concluded in its judgment that the loss amount claimed had not been proved.

Before the SFT, the claimants challenged the Zurich High Court’s above-mentioned reasoning. Among other things, the claimants argued that the Zurich High Court should have commissioned an expert report on its own initiative.

In the result, the SFT rejected claimants’ above-mentioned argument. Among other things, the SFT stated in this context (see consideration 6.5.6 of the SFT judgment; below is a partial tentative translation):

The Zurich High Court rightly concluded that, in the concrete case, the ex officio order of an expert opinion on the loss calculation would lead to a certain preference of the claimants. It is not apparent to what extent it should have been impossible or unreasonable for the claimants to request the obtaining of a court-commissioned expert opinion in a normally valid and timely manner. (…) If the Zurich High Court, in the absence of an application for evidence by the claimants, did not itself order the necessary evidence to determine the loss, this does not constitute an infringement of rights. 

Philipp H. Haberbeck, Zurich; first published on LinkedIn on 29 January 2019 (

The information contained in this post is for general informational purposes only and is not intended to constitute legal advice. Readers of this post should not take any actions or decisions without seeking specific legal advice.




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