Goldman Ordered to Pay Some Costs in Libya Case

LONDON — A judge in London’s High Court ordered Goldman Sachs on Tuesday to pay some of the Libyan Investment Authority’s costs for fighting the bank’s efforts to dismiss a lawsuit that the authority filed against Goldman in January.

In the second day of pretrial hearings, the judge, Vivien Rose, said that Goldman was not justified in seeking the application for summary judgment, which the bank has abandoned, and awarded costs to the authority, indicating she viewed the application as unnecessary.

The authority has estimated its costs at about $1 million. For now, Goldman was ordered to give the authority an interim payment of 200,000 pounds within 14 days.

The authority, Libya’s sovereign wealth fund, is suing Goldman over $1.2 billion worth of derivative transactions the bank designed and executed in 2008. After the financial crisis, the transactions were rendered worthless, but Goldman earned $350 million in profit, the suit contends.

The authority contends it was a nascent operation and that Goldman preyed on its financial naivete, exercising undue influence to try to win business, including awarding a coveted Goldman internship to the brother of the deputy head of the authority, a violation of Goldman’s own compliance rules, one witness statement said.

Goldman has countered that the authority’s suit is “a paradigm of buyer’s remorse” and that the authority’s officials were seasoned bankers sophisticated enough to understand the trades and the risks inherent in them. One of them is the head of global banking and markets for Libya at HSBC Bank Middle East Limited.

On Tuesday, the authority was also granted the right to add a number of amendments to its case, including details surrounding the internship, which is also being investigated by the United States Securities and Exchange Commission. It can also include accusations that Youssef Kabbaj, Goldman’s top relationship banker in Libya, “ghost-wrote” the documents that the investment team presented to the authority’s board when seeking approval for the trades.

The judge also permitted the authority to request that Goldman disclose the profits it made on the trades.

If the authority prevails on this point, it could be awkward for Goldman. If it turns out that Goldman made $350 million, or even more, it might alert other clients to scrutinize the fees they are charged.

A lawyer representing Goldman said that the $350 million figure included the anticipated costs of hedging for the duration of the trade and that determining the ultimate profit might be impossible.

The judge took umbrage with both sides regarding the costs. She said that she saw no justification in Goldman’s application for summary judgment, referring to it as “misconceived.” As a result of the unnecessary time and cost, she awarded the costs to the authority on a so-called indemnity basis, which is more severe than a standard basis. But she also noted that the authority’s costs looked excessive and as a result awarded a significantly smaller interim payment, 29 percent of the total $1 million compared with the 60 percent the authority had requested.

In particular, she said she “struggled to see” how the authority spent 1,000 hours on one witness statement.

The final amount will be subject to negotiation or determined by a cost judge if an agreement cannot be reached.

Goldman moved to have the case dismissed in April but withdrew that application when it said the facts presented by the authority had changed.

The trial is scheduled to start in June. The authority pressed to move the date up, perhaps because it is worried that turmoil in Libya could potentially render the case moot. Goldman sought to push it out as far as possible, perhaps for that same reason.

Both parties declined to comment on their motivation for requesting dates.