Lazard Venture Funds, Lazard Funds (Nominees), Midland Bank Trust Corporation, Causeway Capital and Baring Brothers (Guernsey) served a writ on Ernst & Young and the accountants' former incarnation, Ernst & Whinney, last week.
The five funds are suing Ernst & Young for damages for negligence and breach of contract. The firm was asked to carry out a review of John Taylor for the institutions before they invested in it. The reports covered by the legal action date from June 1987 to March 1989.
If the investors win, they will also claim interest, which could be substantial considering the time elapsed since the reports were made.
The case is sensitive because some of the funds, including the Baring fund, still do a lot of business with Ernst & Young.
According to Ernst & Young, John Taylor was a firm of architects based in London's Oxford Street. A spokeswoman for the accountants said that the firm would be strongly contesting the case.
In April 1988, the firm prepared a report on John Taylor and sent it to potential investors and their auditors, she said. The investors put in pounds 1.5m, and more later on. This was at a bouyant time in the property market. Then, in 1989, the building market turned downwards and John Taylor suffered business problems, hitting the investment.
The spokeswoman said: 'This is not a case of negligence on our part, but one of bad timing on the part of the investors.'Reuse content