The Supreme Court yesterday ruled that client money held in un-segregated accounts should be treated the same as client money held in segregated accounts, enabling un-segregated account holders to share in the client money pool on the insolvency of a firm with whom the account is held.

The Supreme Court handed down its judgment in relation to the client money application in the matter of Lehman Brothers International (Europe) (LBIE). The judgment has a number of implications for firms who hold client money, and for firms who hold money with banks and other firms as clients themselves. The complicated and controversial nature of the appeal is reflected in the sharply opposing opinions of the Lords in relation to two of the three issues considered.

The courts and FOS are now headed down very different paths in their approach to credit crunch losses suffered by clients of regulated firms. While FOS has all but abandoned the general law of causation in its approach to cases of consumer detriment, we have observed how the courts have held again and again that the general law of causation applies to mis-selling claims.

 Valuation evidence

The court has reaffirmed that comparable sales evidence is the best evidence when determining the retrospective valuation of a property.

The UK Supreme Court has recently considered the role of commercial common sense in interpreting a contract.  Rainy Sky v Kookmin Bank concerned the interpretation of bonds issued by Kookmin Bank to guarantee the return of advance payments made by six purchasers under separate shipbuilding contracts. The shipbuilder had suffered an insolvency event and the purchasers were claiming refunds of the advance payments made to the shipbuilder under the bonds. The Bank contended that the bonds did not guarantee repayment of the advances on insolvency.

Rayford Homes granted security to two lenders, its trustee shareholder and the Bank of Scotland (BoS). The parties entered into an intercreditor agreement (ICA) using the BoS standard form. In a schedule to that agreement was a definition of the term ‘BoS Priority’ over ‘BoS Debt’ up to a monetary limit. The amount was not filled in, nor was the term ‘BoS priority’ actually used in the ICA.

Kookmin Bank v Rainy Sky SA & Others

[2011] UKSC 50

We covered this case back in Issue 120. The case has now reached the Supreme Court where the decision of the Court of Appeal was overturned. In doing so, Lord Clarke adopted the interpretation of the bond which was most consistent with business common sense.

The respected Financial Markets Law Committee sponsored by the Bank of England has published a paper, dated October 2011, containing an analysis of legal uncertainty in the FSA’s Client Assets Sourcebook (CASS) and arising from judicial decisions relating to the administration of Lehman Brothers International (Europe).

BIS and Treasury have published their response to the consumer credit elements of the Government review of consumer credit and personal insolvency. The response explains the initiative that will ensure that over 85% of customers with personal current accounts will see clearer, fairer and more manageable charges for unarranged overdrafts. Customers will be able to get alerts when their balance is low and will not incur a fee if they exceed their limit by a small amount. Also, from late 2013 there will be guaranteed account switching within seven days.

On 31 October 2011, MF Global UK Limited, an insolvent investment broker, became the first investment firm to enter the special administration regime (the “SAR”) created by the Investment Bank Special Administration Regulations 2011 (SI 2011/245).

The SAR was adopted in February 2011 following the collapse of Lehman Brothers and has the advantage over ordinary corporate administration in that it sets special objectives for the administrator and this is the first time the SAR has been used. The SAR sets three objectives for a special administrator: