(In the case of UBS, Depfa Bank Plc and Landesbank Baden-Wurttemberg v Kommunale Wasserwerke Leipzig GmbH (KWL)): Following a 14 week trial, in a judgment handed down today, KWL has successfully defended approximately EUR350m in claims brought by UBS relating to the sale of complex derivatives products by UBS.
Describing the case as "a case study in how not to conduct investment banking in an honest and fair way", Mr. Justice Males made findings of serious misconduct by key UBS personnel, holding them responsible for bribery and numerous other instances of dishonest and corrupt behaviour, which led to KWL investing in these complex products.
As a result of these findings, not only was KWL entitled to set aside the main derivatives contract, but UBS's claim for damages in respect of its own hedging costs failed, as the Court found that those particular losses were consequences flowing from the bank's own misconduct.
The judgment also heavily criticised UBS Global Asset Management (UBS GAM), concluding that in failing properly to monitor its concentrated bet on high risk financial entities, UBS GAM's actions failed to meet the standard required and that the losses suffered on the investments were in fact caused by UBS GAM's breaches of its obligations to manage the portfolios.
This decision amounts to a comprehensive win for KWL, at the end of a lengthy court battle played out in two jurisdictions over some 5 years. It is one of a small number of post-credit crunch cases in which the banks have lost to the investor - in this case a European quasi-public body.
Michael Barnett, a partner at Addleshaw Goddard said: "While the judge expressed the hope that the bank's conduct in this case "belonged to a bygone era", the outcome highlights the importance for banks of maintaining rigorous, effective and independent control functions."
Leading Counsel for KWL: Tim Lord QC, Simon Salzedo QC, Stephen Midwinter and Craig Morrison (all of Brick Court Chambers).
Solicitors for KWL: Addleshaw Goddard LLP - Michael Barnett (Partner), Louisa Caswell (Partner), Chiz Nwokonkor (Managing Associate).
German Lawyers for KWL: Noerr LLP - Christine Volohonsky, Detlev Strasser, Lucy Holden.
