E&Y successfully blocks Equitable negligence claim
Published on 2/12/2003
Ernst & Young, the former auditor to Equitable Life, have succeeded in
blocking the major part of a £2.6 billion professional negligence claim launched
against it by the troubled mutual life insurer.
A High Court judge in London struck out Equitable's allegation that the accountant was liable for losses suffered by the society as a result of its failure to sell its business and assets in 1998 and 2000 at a time when they still had a substantial value.
Mr Justice Langley also said Equitable's alternative losses claim - based on the argument that shareholder bonuses for 1997 to 2000 would have been trimmed if the auditors had given proper advice - was "fanciful in approach and amount".
The judge said there might be proper claims which could be advanced on this basis, but at the moment "I do not think it is right or consistent with the Civil Procedure Rules that defendants such as E&Y should face claims of the magnitude of these bonus declaration claims which can be shown to have so many basic flaws".
He added Equitable should have an opportunity to present the bonus declaration claim in a different way and "with a rigour and reality which is presently lacking".
If Equitable did not take that opportunity, he would strike out those claims as well.
Nick Land, E&Y's UK chairman, said after today's ruling: "The judgment vindicates our belief that this claim was ill-conceived and bound to fail from the outset.
"The judge has made clear that it cannot be said to be any part of the auditor's duty to protect the society against the fall in value of its goodwill.
"His comments have also delivered a serious blow to both the approach and the amount of the remaining claim in respect of bonuses.
"It is very hard to see how Equitable can resurrect what remains of the claim. We are absolutely confident of defeating any restated claim that might emerge."
Mr Land added that he hoped the judgment would signal an end to a trend for "enormous and unrealistic" claims to be brought against auditors in the hope of "bullying" them into settling.
"Auditors should not be regarded as insurers of other people's businesses," he said.
Equitable came close to collapse after the holders of guaranteed annuity rate policies (GARs) won a test case against the society in the House of Lords in summer 2000.
As soon as it lost the Lords case, the society was forced to close to new business, admitting liabilities in excess of £1.5 billion, and and drastically cut members' savings.
Courtesy of Daily Telegraph