RAB Capital, the UK-listed hedge fund manager, has begun legal action to recover $50 million (£27 million) of assets frozen when Lehman Brothers, prime broker to one of its funds, was put into administration last week.

In what lawyers predict will be the first of several similar lawsuits, RAB has sued PricewaterhouseCoopers, Lehman’s administrator, claiming it is entitled to have assets returned immediately - instead of waiting for PwC to decide who is owed what.

The lawsuit hinges on the status of $50 million of US Treasury Bills that RAB deposited with Lehman as part of its prime brokerage agreement.

Prime brokers lend hedge funds shares and other securities in return for collateral, usually in the form of a stable, liquid asset like Government bonds.

Typically, the prime broker has the right to use the collateral for its own needs and RAB Capital acknowledges that Lehman was originally free to use the bonds in question.

However, the fund claims a subsequent agreement excluded those bonds from the wider arrangement, stating they be kept separate.

The status of the bonds is crucial because if they were excluded from the agreement then RAB would be entitled to get them back immediately. If not, RAB Capital would become an unsecured creditor of Lehman Brothers with no guarantee of being paid.

RAB, which used Lehman as prime broker for its Market Cycles fund, declined to comment on the lawsuit. The $50 million fund represents about one per cent of RAB’s total assets.

On Monday, RAB Capital asked the High Court to consider its case immediately saying it needs to publish the funds Net Asset Value (NAV) on October, 1. Lawyers for the RAB told Mr Justice Morgan that the fund would have to suspend its valuations, which could make it harder for investors to sell their stakes in the fund and affect other funds of funds that are invested in RAB Market Cycles.

But the judge refused to consider the case immediately, saying it was a matter for the administrators not the courts to decide at this stage. He added that he would be reluctant to allow RAB Capital special treatment for fear that the court would be bombarded by other Lehman creditors seeking the same.

Judge Morgan gave RAB permission to appeal his decision. RAB declined to comment on its plans.

Lehman Brothers filed for bankruptcy on September, 15, with over $600 billion of debts making it the world’s largest company collapse.

GLG Partners, a UK hedge fund that also used Lehman as prime broker, has filed a lawsuit relating to the bankruptcy in the US.

Last week Lord Falconer of Thoroton, the former Lord Chancellor, predicted the collapse of Lehman Brothers would trigger an explosion of “mega litigation”.

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