Vodafone AirTouch's plans to mount an unsolicited bid for Mannesmann worth at least £100 billion sterling suffered a setback yesterday when the German telecommunications and engineering group forced Goldman Sachs to withdraw temporarily from advising the UK company.

Mannesmann had complained in the High Court in London that the US investment bank was in a position to misuse confidential information. It said some of the information had been acquired when Goldman acted as adviser to Hutchison Whampoa, the main shareholder in Orange, the UK-based mobile operator that Mannesmann bought last month.

A full court hearing on the issue will be held on Thursday.

The unprecedented legal challenge to Goldman's advisory role underlines the difficulty faced by large investment banks in resolving conflicts of interest. This has become a larger issue because of the quickening pace of global consolidation in telecommunications, as well as other sectors.

The development was described as "excruciatingly embarrassing" by one Goldman executive. He said "investment banks are always managing these conflicts, but the thing is not to get caught out. We have been caught out".

Formally, the bank said: "Goldman Sachs believes it has acted entirely properly and has pressed for an early hearing so it can challenge this action vigorously. The firm has agreed not to advise Vodafone with respect to Mannesmann, pending Thursday's hearing."

The issue will complicate Vodafone's decision whether and when to bid for Mannesmann. Last night, its board was still deliberating after again sounding out its shareholders.

Vodafone continues to be advised by Warburg Dillon Read, while Mannesmann's war cabinet includes Morgan Stanley Dean Witter, Merrill Lynch, Deutsche Bank and JP Morgan.