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London Underground sues magic circle firm over Metronet advice
Freshfields Bruckhaus Deringer is set for a High Court showdown with London Underground Ltd (LUL) after the company launched a £141.96m claim against the firm.
The claim was originally for £178.5m, but LUL managed to recoup £36.54m from other sources. It is, however, aiming to recoup from Freshfields the costs it incurred while negotiating that repayment. It is also claiming interest.
The claim, launched by Ince & Co partner Andrew Ottley, relates to advice the firm gave on LUL’s PPP with the now defunct Metronet.
Mayer Brown London senior partner Sean Conn-olly has been instructed for Freshfields, with One Essex Court’s Laurence Rabinowitz QC retained.
He will go head-to-head with Brick Court Chambers’ George Leggatt QC, who is advising LUL on the claim.
LUL claims that Freshfields was negligent in the drafting of contracts relating to the PPP deal, costing it £178.5m.
Freshfields won the mandate to advise LUL in 1998, with corporate finance partner Richard Philips and project finance partner Jeffrey Rubinoff leading.
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 Freshfields without reference to LUL meant it had to pay out on the put options instead.
The put option price was significantly higher than the actual value of the bonds at that time.
A Freshfields spokesperson said: “We totally reject the claim and we’ll be defending it vigorously.”
An LUL spokeswoman confirmed the action, but declined to comment further.
Freshfields earned £30m from LUL over a five-year period. The relationship came to an end in 2003, when LUL switched to Herbert Smith.