In a landmark judgment, the Court of Appeal has today dismissed UBS's appeal and upheld the 2014 decision of the High Court in favour of the Leipzig Water Authority, KWL by a 2:1 majority. UBS brought the appeal in an effort to overturn the High Court ruling (reached following a 15 week trial), in which Mr Justice Males described UBS's dealings with KWL as "a case study in how not to conduct investment banking in an honest and fair way".
The case concerned the sale by UBS to KWL of complex structured credit derivative products called CDOs, which exposed the municipal authority to a liability to UBS of hundreds of millions of Euros during the global financial crisis. Ruling that KWL were able to set aside the derivative transactions, Mr Justice Males found that UBS had entered into a dishonest arrangement with KWL's corrupt financial advisors in order to sell the derivative products to the water authority.
Following one of the longest hearings in Appeal Court history before a panel consisting of Lord Justices Hamblen and Briggs (now Lord Briggs of Westbourne) and Lady Justice Gloster, those findings were today upheld by the Court of Appeal.
Holding that KWL was not liable under the derivative contracts, the Court concluded that UBS bore the consequences of a bribe that KWL's corrupt advisors had paid to one of KWL's managing directors to enter into those transactions, stating "UBS set out dishonestly to assist [KWL's advisors] in the very course of abusive conduct which led to the making of the transaction and the payment of the bribe in order to facilitate it". This is a ground-breaking ruling in circumstances where UBS were not found to have known of the bribe itself.
In a separate but related finding, the Court of Appeal unanimously agreed with Mr Justice Males that UBS' Global Asset Management business (UBS GAM), appointed by KWL to manage the transactions, had negligently breached its duties to the water authority. The Court of Appeal held that, if KWL had been liable to UBS for losses under the derivative contracts, those losses were caused entirely by UBS GAM's negligent portfolio management.
Michael Barnett, Head of Litigation at Addleshaw Goddard, KWL's lawyers, commented that "the Court of Appeal's judgment once again represents a full vindication of KWL's position, maintained throughout the case, that UBS should never have sold these complex derivative products to the water authority and that it did so in a manner that fell way below the expected standards of investment banking".
Leading Counsel for KWL: Tim Lord QC, Simon Salzedo QC, Stephen Midwinter QC and Craig Morrison (all of Brick Court Chambers)
German Lawyers for KWL: Noerr LLP - Christine Volohonsky, Lucy Holden