Dermot Desmond settles dispute with Morrison on steps of the High Court

Irish billionaire with stakes in Manchester United and Celtic averts legal tussle with hedge fund star

Dermot Desmond, the Irish billionaire who owns stakes in Manchester United and Celtic football clubs, has dramatically settled a multi-million pound legal dispute with David Morrison, his former employee and star hedge fund manager, on the steps of the courtroom.

The pair were set to clash at the High Court in London as soon as next week, bringing to a climax one of the most bizarre and colourful soap operas the hedge fund industry has ever witnessed, matching up two of the UK's biggest and best-known investors.

The terms of the settlement are not known, and neither side would comment, other than to confirm that, alas, the circus the City had been waiting for would not be taking place.

Mr Desmond, one of the wealthiest men in Ireland, first served a writ on Mr Morrison two years ago, after the hedge fund manager was charged with assaulting a cleaner at the Sandy Lane hotel in Barbados.

At the time, Mr Morrison, a former bank of England economist, was chief executive of Mr Desmond's Dublin-based hedge fund group, International Investment & Underwriting (IIU). He was fired weeks later, with Mr Desmond claiming the alleged incident had left him in breach of his contract.

After being charged by Barbados police, Mr Morrison settled with the maid by paying her 5,000 Barbados dollars (£1,400) and a further 1,000 dollars in legal costs. He has always protested his innocence, and friends have gone so far as to claim that it was a set-up, providing Mr Desmond with an excuse to sack Mr Morrison.

In the run-up to the fateful night in Barbados, relations were believed to have already been strained between the two.

Friends say Mr Morrison had been unsuccessfully trying to pin Mr Desmond down for several months to talk about his remuneration package, finally getting him to commit to the Barbados meeting in February. Aside from the issues of pay, others have suggested that Mr Desmond had grown impatient due to a period of poor performance in the fund.

At its peak, towards the end of 2001, the IIU Macro fund had assets of some $165m (£89m), and boasted a list of major global investors that included JP Morgan , Deutsche Bank and Druck Corp.

After Mr Morrison's departure, however, all of the major investors sold out of the fund, leaving it with assets of just $15m by September 2002.

Within weeks of Mr Morrison's dismissal from IIU, Mr Desmond filed a writ against his former employee, who in turn counter-sued for damages.

It is believed both parties were seeking several million pounds. Whilst it was never revealed how much Mr Morrison was looking to claim, it is known that Mr Desmond was after $2.6m of bonuses paid to Mr Morrison in 2000 and 2001, as well as the costs he had incurred from a string of legal battles with the former investors in Mr Morrison's hedge fund, which followed shortly after his dismissal.

These cases - brought by the likes of Deutsche and JP Morgan - concerned a 10 per cent exit fee, which IIU levied when they sold their stakes in the fund. The banks claim that in "side-letters" obtained at the time of entering into the contract with IIU, they were assured that they would not be charged exit penalties if they decided to leave after Mr Morrison's departure.

The first of these cases, brought by JP Morgan, failed last year after the bank realised it had lost the side-letter. Although it eventually managed to obtain a copy from Mr Morrison's former secretary, who still worked for IIU, a Cayman Islands judge ruled that the document was stolen and was hence privileged information which was not admissible in court.

For the US investment bank, the defeat was a bitter blow, leaving it not only unsuccessful in claiming back its $4m in fees from IIU, but also facing a seven figure legal bill.

Deutsche Bank, which had invested in the fund on the behalf of Leonard Stern, the US property tycoon, and another institution, RMF Investment Management, are believed to still be pursuing Mr Desmond.

Mr Morrison, who is a personal friend and former colleague of Gavyn Davies, the former chairman of the BBC, is one of Britain's highest profile UK hedge fund managers, best known for his obsession with cars. As well as owning a fleet of Ferraris, he is also believed to possess his own Formula One McLaren racing car. Four years ago he took part in the European Gumball 3000 rally, alongside celebrities such as Chris Eubank and Gaby Yorath.

His career began back in the mid-1980s, when he worked alongside Mr Davies at a small firm of economic forecasters, Simon & Coates.

The pair moved onto Goldman Sachs where they were made partners and millionaires, before going their separate ways. While Mr Davies set off on the road towards the top job at the BBC, Mr Morrison moved into the secretive hedge fund world, taking a position with the highly respected Tiger Management. After a short spell with Paribas, he ended up working for Mr Desmond.

While the saga has kept both the City and the media entertained, Mr Morrison, who is now estimated to be worth more than £700m, is not believed to have lost too much sleep over the prospect of taking on Mr Desmond in court. After being sacked from IIU, his career picked up exactly where it had left off.

By October last year, he had launched his own hedge fund boutique, Razor, with many of his former clients following him to his new business.

However, as the proprietor of a new company, perhaps he was wise enough to realise that a protracted and public mud-slinging match would do nothing for his clients.

Or maybe it was Mr Desmond who offered the olive branch.

Ireland's "Coolmore Mafia", in which Mr Desmond is a leading member, alongside JP McManus and John Magnier, would also surely not have felt the court battle was in tune with their low-profile, secretive images. With all parties remaining tight-lipped, we may have to wait for the memoirs to find out.