Terra Firma vs Citi: From the Rolls building

While the lawsuit lasted only a matter of days, it rekindled memories of the first trial back in 2010 and gave gathered members of the financial media an insight into the world of boom-era deal-making.

On day one of Guy Hands’ cross-examination, he told the court that confidential information is leaked to bidders in auctions on “an everyday basis”.

Terra?Firma’s case hinged on claims that Citi bankers had passed incorrect information to Hands about the existence of another bidder in the auction process, Cerberus Capital Management, and about the price Cerberus would be submitting. Citi, which was managing the auction and representing EMI, as well as providing financing to Terra?Firma?for the deal, denied that any such information was imparted.?

The counsel for Citi, Mark Howard QC, described as a “famously brilliant cross-examiner” by legal directory Chambers & Partners, presented Hands with elements of Terra?Firma’s compliance procedures as well as those stipulated by the then-regulator, the Financial Services Authority.?

“In assessing your conduct and evidence and how it is likely you behaved, should we work from the premise that you at all times worked to and complied with the standards of the FSA?” asked Howard.

Howard went on to analyse the non-disclosure agreement that Terra Firma?had signed with EMI in order to access due diligence materials and participate in the auction; the NDA prohibited the sharing of information on other bidders’ activity.?

“The whole basis on which this auction was set up,” said Howard, “was that each bidder is designed to be in the dark about the other bids.”

“It might have been designed that way,” replied Hands, “but I have never seen an auction that works in that way.”

Howard pressed on whether Hands knew at the time that the NDA prohibited the sharing of such information.

“I don’t know whether I understood it at the time, and whether I would have taken any notice. I have worked in the City for 20-odd years and things don’t work that way.” 

Hands went on to describe how information on other bids was shared with participants to create “competitive tension” in the process.

“I can give you examples of numerous auctions in which confidential information is disclosed. It’s something that happens on an everyday basis in the City,” said Hands. While you don’t want information on your bid leaked to other bidders, “you assume it will happen”, he added.

“Are confidentiality agreements treated with a pinch of salt in Terra Firma?” asked Howard.?

“Not with a pinch salt, but treated with realism,” came the reply.?

The judge, Justice Burton, asked whether Hands would expect his information to be passed to other bidders.?

“The reality is you enter these auctions,” replied Hands, “You know information is getting passed. You simply hope you have better and more reliable information.”