A judge at a U.K. high court has ordered Goldman Sachs to pay the legal costs of the Libyan sovereign wealth fund, after the U.S. investment bank tried to have a $1 billion lawsuit filed by the fund in January dismissed.
The bank will now have pay at least £200,000 ($321,301) to the Libyan Investment Authority (LIA) within the next 14 days.
The Libyan fund, set up in 2006 while the country was still under the dictatorship of Muammar Gaddafi, claims the bank deliberately misled the sovereign fund in order to make "substantial" profits of $350 million. It's also alleged that the bank knew of the fund's lack of financial expertise but encouraged it to enter a number of complex financial derivative transactions earning Goldman Sachs a "very large" premium.
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Goldman denies the allegations and tried to dismiss the case by sending it to a smaller "summary trial" rather than a full hearing. A representative of Goldman Sachs told CNBC on Monday that the bank continues to believe this case is entirely without merit and intends to contest it vigorously as it moves through the legal process.
Back in August, the bank dropped this attempt and a two-day hearing was held in London this week to see if the bank would have to pay the costs associated with the LIA's response to the original summary judgment application.
At the hearing which ended on Tuesday afternoon, Judge Vivien Rose stated that the summary judgment application by Goldman Sachs was misconceived and should never have been issued. The £200,000 is a guaranteed payment but could rise to £680,000 which is the full amount that the LIA had asked for. If the two parties are unable to decide on the full amount in the near future then a judge will be appointed. Costs were awarded on an "indemnity basis" which is rare and is deemed to be more generous that costs awarded on "standard basis".
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The attorney representing Goldman Sachs remarked at the hearing that the full amount of the costs demanded by the LIA was "absolutely eye watering." Goldman Sachs declined to comment on the ruling. The case will now proceed to a full trial in 2016.
The disputed derivative trades in early 2008 cost $1 billion, and carried a high degree of risk, but lost a substantial amount of value by the end of the year and expired "worthless" in 2011, the LIA says. New details of the allegations were contained in witness statements filed during this week's hearing, when both sides met in court for the first time.
A statement by attorney Catherine McDougall, who was assigned to the LIA shortly after the derivative trades, detailed her alarm at the lack of financial knowledge that the LIA had and the close relationship it had with some employees from Goldman Sachs. It also made claims that some LIA employees had been on a Goldman-funded trip to Morocco which involved "heavy drinking and girls".
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Another witness statement from Goldman banker Andrea Vella, also field on Monday, claimed that LIA staffers were financially literate and did understand the risks associated with the derivative trades. Judge Vivien Rose said on Monday that the case would be tried on narrower allegations surrounding the derivative trades unless the LIA wanted to make amendments to add claims of improper social conduct. She also believed that the claims by the LIA didn't specify that the hospitality from Goldman was being classed as improper.