Overview

The Court of Appeal has handed down its judgment on how the administrators of Lehman Brothers International (Europe) (LBIE) should distribute the client money (money belonging to a client but held for safekeeping by an investment firm on behalf of the client under a statutory trust, for example in order to enable the provision of brokerage, trading or portfolio management services by the firm), that LBIE held at the point at which it went into administration.

The issue at hand was that whilst LBIE was required, under the FSA’s rules, to segregate client money from its own money, it consistently failed to do so, resulting in a shortfall in the client money pool available for distribution by the administrators. In addition, one of the banks with which LBIE held US$1bn of client money for safekeeping has also become insolvent, thereby further increasing this deficit. Finally, the FSA’s client money rules did not appear to offer an unambiguous procedure for dealing with these issues.
The Court of Appeal judgment overturns the previous High Court judgment on some significant points.

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