Herbies named as defendant in London Underground’s negligence claim against Freshfields

Legacy Herbert Smith has been joined as a defendant with Freshfields Bruckhaus Deringer in a £140m professional negligence claim being pursued by London Underground (LUL).

Herbert Smith has instructed Fountain Court’s Tim Dutton QC to defend the claim, which is set down for a four-week hearing next October. One Essex Court heavyweight Laurence Rabinowitz QC has been instructed by Mayer Brown partner Ian McDonald for Freshfields.

4 New Square has picked up the mandate for LUL with Justin Fenwick instructed by Ince & Co partner Charlotte Davies. Originally LUL had turned to Brick Court Chambers George Leggatt QC, but he has since been appointed to the High Court bench (22 October 2012).

Herbert Smith said it would vigorously defend the claim, which centres on advice provided by the firms to the company on its 2003 public-private partnership (PPP) deal with collapsed transport company Metronet.

The firm said in a statement: “We’re not commenting on the detail of the case but we have a good defence to the claim and are defending it vigorously.”

Freshfields was dropped as adviser to LUL in 2003 in favour of Herbert Smith after the magic circle firm billed £30m over five years for advising the group on three controversial PPP deals worth £7bn (11 August 2003).

It is understood that Herbert Smith has been joined to the action because of the additional advice it gave on the Metronet deal.

Legal fees for the London Underground PPP totalled more than £70m, according to the April 2005 Public Accounts Committee report (11 April 2005).

The Lawyer revealed last July that Freshfields had been hit with the suit, which was originally for £178.5m, but was reduced after LUL managed to recoup £36.54m from other sources (25 July 2011).

In April 2003 LUL entered into a PPP with Metronet for the renovation of seven underground lines. Together they created special purpose companies so that ownership of the lines would pass to Metronet when the renovation work was complete.

When financing was agreed with the special purpose companies’ banks, LUL entered into put option agreements on the bonds issued as part of the fundraising. These agreements stipulated that if any of the special purpose companies were to become insolvent, LUL would purchase their debt. When the companies went into administration in July 2007, LUL had to pay £1.74bn in respect of that debt.

LUL claims that the sum would have been much lower if it had been allowed to simply repay the bonds at their market price. It claims that a drafting error approved by the firms without reference to LUL meant it had to pay out on the put options instead.