Weil Gotshal & Manges has settled its differences with the Royal Bank of Scotland (RBS) after being 'blacklisted' from working with the bank during a $100m (£51m) legal dispute.

Legal Week has learned that Weil Gotshal has started to rebuild its relationship with the bank after settling the dispute last year.

Partners concede that they did not receive work during the long-running dispute but, now the claim has settled, the path is clear for future instructions.

Weil Gotshal and RBS settled the dispute out of court last summer. The disagreement, which related to the structuring of a collateralised debt obligation (CDO), was thought to be the first time a bank had sued a legal adviser over such an instrument.

RBS had claimed the law firm failed to advise National Westminster Bank and Greenwich Natwest – hich were taken over by RBS in 2000 – on the correct value and integrity of the cash CDO after it proved unprofitable.

One banking dispute resolution partner at a magic circle law firm said: "Once there has been a settlement, the general view is to continue work with the firm, although there will always be a longstanding sore."

Weil Gotshal is not a member of the bank's panel but had regularly worked for it in the past. The firm's acquisition finance practice is likely to be particularly relieved by the change in stance given the influence of the bank in Europe's leveraged buy-out market.

The dispute is of particular interest in the current economic climate. The fallout in the sub-prime market has had a knock-on effect on CDOs, potentially opening up law firms to similar disputes in the future as banks attempt to recoup losses.

RBS declined to comment.

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