Citi hits back as Hands tries to block trial move

Terra Firma founder argues that his case against bank should be held in New York not London

The epic legal battle over beleaguered music company EMI is set to intensify this week as US investment bank Citigroup counters the arguments of private equity tycoon Guy Hands.

Mr Hands, who bought EMI for £4.2bn in 2007 through his Terra Firma vehicle, is suing Citi for damages over the deal. He alleges that Citi, which lent Terra Firma £2.5bn to complete the deal, misled him into thinking there were other bidders, so he ended up paying too high a price to trump competition.

Citi denies the allegations and is trying to get Mr Hands's case tried in London, where the bulk of the transaction took place. Terra Firma wants the case to be held in New York because that is where Citi is based.

Mr Hands also opposes the move as he would be a key witness and have to testify, but does not enter the UK as he legally avoids high rates of tax by living in Guernsey.

Terra Firma presented its case last week for holding the battle in New York. If successful, a full trial will take place in the US this October.

Terra Firma presented declarations from several potential witnesses. Mr Hands said: "Appearing at trial in the United Kingdom and spending continuous time there managing this litigation, therefore, is a risk I strongly prefer not to take, and it does not exist if the case is tried in New York."

Inga Van Eysden, the chief of the pensions division of the New York City Law Department, argued that four of the partners in Terra Firma are based in the Big Apple and therefore needed to be close to the court.

"Because of the significant economic stake of the New York City Pension Funds in the outcome of this litigation, it is my preference, in my official capacity, that the claims in this action should be litigated in the federal New York forum in which the action is currently pending," said Ms Van Eysden.

Citi has until Thursday to make its arguments for transferring the case to Britain and a judge will make a final decision on jurisdiction at 4pm, on 19 February. Citi is formulating its response this weekend, but will certainly stick to its original argument even in light of Terra Firma's arguments.

EMI, which owns hits by big name artists such as the The Beatles and David Bowie, lost £1.8bn last year and has a £200m pension fund deficit.

Separate to the court action, Mr Hands is trying to raise £120m to stop Citi taking control of the business in what would, in effect, be a debt-for-equity swap. Maltby Capital, the Terra Firma vehicle that formally owns EMI, is likely to fail tests on its loan conditions, according to auditor KPMG.

Mr Hands said in 2008 that cost savings would result in EMI "creating wonderful music in a way that is profitable and sustainable".

Mr Hands is a close friend of William Hague, the shadow foreign secretary and former Conservative Party leader, whom he met at Oxford University. Mr Hague was best man at his wedding.