Stephen Foley: Why the courts should remember the first rule of business: a deal is a deal


US Outlook: David Boies, America's most famous litigator, has been having a busy few days.

The British private equity baron Guy Hands hired him to front his case against Citigroup over the buy-out of EMI, but Mr Hands had to take a day-long break from his gruelling testimony this week so that Mr Boies could hot foot it over to another Manhattan court house to present closing arguments for another UK client, Barclays, whose acquisition of Lehman Brothers is in dispute. Fresh from wrapping up Barclays' case, Mr Boies was back in court with Mr Hands the next morning, trying to undo some of the damage that the Terra Firma boss's apparentlyselective memory appears to have done to its claim against Citigroup.

What the two court battles have in common, besides an astonishingly hyperactive 69-year-old rock star attorney, is an attempt to renegotiate deals signed at the extremes of the credit boom and bust: Terra Firma's top-dollar acquisition of EMI in 2007, one of the last leveraged deals before the markets froze and Barclays' purchase of Lehman's US brokerage business for a song in September 2008, days after the parent company had collapsed into bankruptcy.

It is obvious why these cases are in court. Mr Hands faces losing all of Terra Firma's £1.6bn investment in EMI if the record company falls into the hands of its bankers and he has personally put more than 60 per cent of his fortune into the repeated cash calls that have been needed to stop EMI breaching its promises to Citigroup. Creditors of the bankrupt Lehman estate watched jealously as Barclays booked a tasty $4.2bn gain from the value of its Lehman businesses in 2009.

Mr Boies is known for his love of gambling, but you don't have to be an ace at the poker table to know that the potential for clawing back billions of dollars makes it worthwhile playing the hand – even at the hourly rates charged by Boies, Schiller & Flexner and its ilk.

Even at this late stage, there could be settlements between the two sides in either case, with the performance of their courtroom champions having changed the balance of the negotiations.

In law – as in poker – it's not necessarily what hand you have, but how you play it.

At this point I suspect there is a divide between folk in the financial and legal worlds, who are thinking "you can't blame them for trying", and the rest, who might rather live by the notion that "a deal's a deal".

The pivotal issues in the twocases are different, naturally, but they touch on first principles. Mr Hands says he overpaid for EMI because Citigroup misled him into believing there were other bidders, but that is not the same thing as saying he was misled over EMI's finances or business prospects, something that really would be grounds for tearing up an acquisition.

As for Lehman Brothers, Barclays bought the brokerage under the so-called "363 provision" of US bankruptcy laws, which has always allowed judges to wave through the sale of rapidly-deteriorating assets (such as brokerages, whose clients tend to desert in droves if the company is in bankruptcy) in order to keep at least some value for creditors.

The 363 transaction process usually tolerates the rushed and incomplete paperwork of which the Lehman estate now complains, which is why forcing Barclays to pay more could have consequences far beyond the FTSE 100 giant's own balance sheet. It could derail other such emergency deals and throw thousands of people in otherwise viable businesses out of work.

The business world has learned a healthy respect for uncertainty after the credit crisis, but too much of it is a paralysing thing, which is why so many business leaders are angry with the Obama administration.

Let's hope that, whatever the outcome in any of Mr Boies's juicy court cases, the legal system at least reaffirms that a deal is a deal.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
Life and Style
life
Arts and Entertainment
Cold case: Aaron McCusker and Christopher Eccleston in ‘Fortitude’
tvReview: Sky Atlantic's ambitious new series Fortitude has begun with a feature-length special
Voices
Three people wearing masks depicting Ed Miliband, David Cameron and Nick Clegg
voicesPolitics is in the gutter – but there is an alternative, says Nigel Farage
Voices
The veterans Mark Hayward, Hugh Thompson and Sean Staines (back) with Grayson Perry (front left) and Evgeny Lebedev
charity appealMaverick artist Grayson Perry backs our campaign
News
i100
News
people
ebooks
ebooksA special investigation by Andy McSmith
Sport
Chelsea manager Jose Mourinho
footballThe more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Life and Style
Vote green: Benoit Berenger at The Duke of Cambridge in London's Islington
food + drinkBanishes thoughts of soggy school dinners and turn over a new leaf
News
Joel Grey (left) poses next to a poster featuring his character in the film
peopleActor Joel Grey comes out at 82
News
i100
News
business
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Recruitment Genius: Technical Report Writer

£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

MBDA UK Ltd: Indirect Procurement Category Manager

Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee