The Libyan Investment Authority (incorporated under the laws of the State of Libya) v Goldman Sachs International
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Rose,MRS JUSTICE ROSE |
| Judgment Date | 14 October 2016 |
| Neutral Citation | [2016] EWHC 2530 (Ch) |
| Docket Number | Case No: HC-2014-000197 |
| Court | Chancery Division |
| Date | 14 October 2016 |
[2016] EWHC 2530 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mrs Justice Rose
Case No: HC-2014-000197
Philip Edey QC, Roger MasefieldQC, Edward Cumming, Edward Harrison, Robert Avis, Timothy Sherwin (instructed by Enyo Law LLP) for the Claimant
Robert Miles QC, Orlando Gledhill, Rupert Allen (instructed by Herbert Smith Freehills LLP) for the Defendant
Hearing dates: 13 th June – 17 th June, 20 th June – 24 th June, 27 th June, 28 th June, 30 th June, 1 st July, 4 th July – 8 th July, 11 th July – 15 th July, 18 th July, 21 st July, 26 th July – 29 th July 2016.
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
CONTENTS
| PARA | |
| I INTRODUCTION | 1 |
| II THE PARTIES | 13 |
| (a) The LIA | 13 |
| (b) Goldman Sachs | 20 |
| III THE EVIDENCE AT TRIAL | 21 |
| (a) Witnesses of fact for the LIA | 21 |
| (b) Witnesses of fact for Goldman Sachs | 33 |
| (c) Assessment of the evidence of the factual witnesses | 37 |
| (d) Missing witnesses | 45 |
| (e) Contemporaneous documents | 53 |
| IV THE FEATURES OF THE DISPUTED TRADES | 56 |
| V THE HISTORY OF DEALINGS BETWEEN THE PARTIES | 67 |
| (a) The early stages: summer 2007 | 67 |
| (b) The investment in the Petershill and Mezzanine Funds | 75 |
| (c) Autumn 2007 | 77 |
| (d) The Citigroup Trades | 82 |
| (e) The EdF Trades | 100 |
| (f) The April Trades | 110 |
| (g) Events following the April Trades | 123 |
| (h) The Stormy Meeting and the end of the relationship | 126 |
| VI THE LAW | 132 |
| (a) Actual and presumed undue influence | 133 |
| (b) The unconscionable bargain claim | 159 |
| VII ACTUAL UNDUE INFLUENCE: THE HAITEM ZARTI INTERNSHIP AND THE APRIL TRADES | 162 |
| VIII DID A PROTECTED RELATIONSHIP ARISE BETWEEN THE LIA AND GOLDMAN SACHS? | 195 |
| (a) The level of sophistication at the LIA | 197 |
| (i) The level of sophistication of the Board of Directors | 200 |
| (ii) The level of sophistication of Mr Layas | 203 |
| (iii) The level of sophistication of Mr Zarti | 211 |
| (iv) The level of sophistication of the Equity Team | 214 |
| (v) Goldman Sachs' view of the sophistication of the LIA | 224 |
| (b) Other factors relevant to the existence of the protected relationship | 226 |
| (i) References to the desire of Goldman Sachs to build a strategic partnership | 228 |
| (ii) The provision of training, research and general assistance | 234 |
| (iii) Corporate hospitality and gifts | 238 |
| (iv) The presence of Mr Kabbaj at the LIA's offices in Tripoli | 241 |
| (v) Advisory work on other deals | 248 |
| (vi) Incidents arising from the history of dealings between the parties | 259 |
| (vii) Goldman Sachs' view of the relationship | 269 |
| (viii) The deals which LIA refused to do | 270 |
| (ix) The deals that the LIA did with other counterparties | 275 |
| (x) Conclusion on the factors relevant to the protected relationship | 278 |
| IX BREACHES OF THE DUTY OF CANDOUR AND FAIRNESS | 279 |
| (a) The Board and Mr Layas' understanding of the nature of the Disputed Trades | 285 |
| (i) Mr Layas' presentation of the Citigroup Trade to the LIA Board | 290 |
| (ii) The exchange about the call option in the forex trade | 309 |
| (iii) The confirmation letters | 312 |
| (b) Mr Zarti's understanding of the nature of the Disputed Trades | 319 |
| (i) Presentations to the Board of Directors | 321 |
| (ii) The Stormy Meeting | 323 |
| (c) The Equity Team's understanding about the Disputed Trades | 334 |
| (d) Conclusions about actual undue influence: the LIA's misunderstandings and Goldman Sachs' knowledge | 349 |
| X PRESUMED UNDUE INFLUENCE: DO THE DISPUTED TRADES CALL FOR AN EXPLANATION? | 350 |
| (a) Did Goldman Sachs earn excessive profits on the Disputed Trades? | 352 |
| (i) How trades are priced | 356 |
| (ii) Booking the trade | 363 |
| (iii) What was the level of profit earned on the Disputed Trades? | 364 |
| (iv) Was that profit unusually high? | 372 |
| (b) Other points on how the prices were arrived at | 401 |
| (c) Were the Disputed Trades unsuitable for the LIA? | 406 |
| XI CONCLUSIONS | 432 |
I INTRODUCTION
For many years the State of Libya was isolated from the international community as a result of sanctions imposed by the United Nations and by the USA. Under those sanctions foreign investment in Libya had been prohibited and the country had been effectively excluded from the international financial system. Economic sanctions against Libya were lifted by the United Nations in September 2003 and by the USA in September 2004. Libya found itself with accrued oil revenues of many billions of dollars, mainly held as cash in the Libyan Central Bank. The Government of Libya decided to set up the Claimant, the Libyan Investment Authority ('LIA'), as a sovereign wealth fund to start investing this money for the benefit of the present and future citizens of Libya. In late 2007 and early 2008, the LIA had at least US$30 billion of assets to manage and an expectation of substantial additional monies coming in every year.
Banks and investment firms from all over the world beat a path to the LIA's door with offers of help and investment proposals. Among those was the Defendant, Goldman Sachs International ('Goldman Sachs'), the renowned investment bank. A sister company of Goldman Sachs, Goldman Sachs Asset Management ('GSAM') first made contact with the LIA in November 2006 and meetings between the Defendant and the LIA started in the summer of 2007. Between September 2007 and April 2008 the LIA and Goldman Sachs entered into a number of transactions including what have been referred to in these proceedings as the 'Disputed Trades'. The most important characteristic of the Disputed Trades for present purposes was that they were all synthetic derivative trades, comprising a put option and a forward. Under each trade, the LIA paid a lump sum to Goldman Sachs (referred to as a premium) in return for which it gained 'exposure' to a number of shares in a particular underlying company. The Disputed Trades were also all leveraged which means that the number of shares to which the LIA gained exposure – called the notional number – was very many more than the LIA could have bought with the premium. What 'exposure' means here is that no actual shares were acquired by the LIA at any time pursuant to the trade. If the price of the shares in the underlying company rose by the maturity date of the trade, then Goldman Sachs would pay the LIA the difference between the share price at the start of the trade and the share price on the maturity date multiplied by the total notional number of shares. Depending on how high the share price rose, Goldman Sachs might have to pay the LIA a sum greatly in excess of the premium. But if the price of the shares was the same or lower at the maturity date than it was at the start of the trades, then Goldman Sachs kept the premium and the LIA had nothing; no shares and no money.
The period over which these trades were concluded between January and April 2008 marked a time when the early inklings of the financial crisis that would soon engulf the world had already become apparent and share prices had fallen significantly over a short period. Many people, including the LIA, thought that share prices would bounce back during 2008 and that the market disruption they were experiencing was a temporary blip. They thought that this was a good opportunity to enter the market.
There are nine Disputed Trades challenged by the LIA in these proceedings:
a. Two trades in Citigroup Inc, the US banking corporation, were concluded, one for a premium of $100 million on 24 January 2008 and one for a premium of $100 million on 28 January 2008. These combined Citigroup Trades gave the LIA exposure to about 22 million Citigroup shares which was about three times the number of shares that could be bought with $200 million.
b. Three trades were concluded in respect of the French energy company Électricité de France ('EdF').
• The First EdF Trade was entered into on 19 February 2008 with a premium of €50 million ($73.4 million). This gave the LIA exposure to just over 3 million EdF shares which was 4.6 times the number of shares that it could have bought with €50 million.
• The Second EdF Trade was entered into on 22 February 2008 with a premium of €44.3 million ($65.6 million). This gave the LIA exposure to about 3 million EdF shares, again about 4.6 times what could be bought with the premium.
• The Third EdF Trade was also entered into on 22 February 2008 for a premium of €25 million ($37 million). This gave the LIA notional exposure to just over 1 million shares in EdF, which was a leverage of three times.
c. On 23/24 April 2008 the LIA entered into four further trades with Goldman Sachs ('the April Trades').
• The Santander Trade was for a premium of €95.7 million ($151.7 million) in relation to the Spanish banking group Banco Santander. This gave the LIA notional exposure to over 36 million shares in Santander which was over five times what could be bought with the premium.
• The Allianz Trade was for a premium of €48 million ($75.4 million) in relation to the German insurance group Allianz. The notional exposure was 1.7 million shares with a leverage of 4.6.
• The ENI Trade was for a premium of €96 million...
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