Herbert Smith Freehills LLP 2017/18

06

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HEADLINE DEALS GOLDMAN SACHS CASE STUDY

Following the financial crisis of 2008, Goldman Sachs International (GSI) found itself facing a $1.2 billion claim brought against it by the Libyan Investment Authority (the LIA).

The LIA had entered into nine equity derivative contracts, the value of which depended on the share price performance of six US and European stocks. However, in light of the crisis that followed shortly after the trades were entered into, all nine expired as worthless and the LIA lost the entirety of its investment. GSI asked us to act on their behalf. This case was exceptional, as the causes of action behind the LIA’s claim were highly unusual: firstly, they maintained that GSI had obtained the LIA’s entry into the trades through ‘undue influence’. This included the claim that GSI’s salesperson became such a close and trusted adviser to the LIA’s investment team that he was able to influence their decision-making inappropriately. The LIA also pointed to other factors relating to undue influence such as the provision of corporate hospitality, training and the offer of an internship to the younger brother of the LIA’s Deputy Chairman. They then went on to claim that the trades were ‘unconscionable bargains’ – where a contract is unfairly one-sided and based on unequal bargaining power – primarily because of their pricing, which they considered to be excessive. The case ran for two and a half years and a number of trainees were involved in different stages of the litigation. During the trial GSI called four witnesses, including a senior banker responsible for the trading relationship, as well as two expert witnesses (on the pricing of the trades and their suitability for a sovereign wealth fund). After a hard fought trial, the judge dismissed both elements of the claim, concluding that GSI had not been in a position of undue influence. Our trainees played a key part in this success, assisting the witnesses and experts alike.

“THE TRIAL WAS ONE OF THE MOST INTENSE PERIODS IN MY CAREER, WITH PARTNERS, ASSOCIATES AND TRAINEES OPERATING AT FULL TILT. HOWEVER, IT WAS HUGELY SATISFYING TOWORK AS A TEAM AND GET THE RESULT OUR CLIENT WANTED.”

HARRY EDWARDS, PARTNER

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