The legal dispute to establish whether the former auditors of Barings Bank bore some responsibility for its spectacular collapse has become so expensive that there may not be sufficient funds to cover the costs of whichever side wins.
It was revealed yesterday in the latest High Court hearing of the dispute that the estimated costs of the case – which has still not come to trial – looked like it would cost nearly £100m, one of the highest ever levels of fees incurred in a legal struggle in the UK.
The costs have mainly been incurred by an army of lawyers employed by the liquidator Ernst & Young and the former auditors, Deloitte & Touche and Coopers & Lybrand, who are contesting the case.
In contrast to the ever-escalating legal bill, it has become apparent that the amount of money which may be used to cover the costs of whichever side wins the case had shrunk dramatically.
This money, known as the "buffer fund", has diminished by up to £45m to £15m since it was established in 1996. This is because it is currently in the hands of the liquidators, who have used it along with their lawyer Slaughter & May to fight the case so far.
Lawyers acting for Coopers and Deloittes objected to the level of spending by the opposition. One person involved in the case said: "If you said this was a case of rapacious spending all round you would not be wrong, but the spending of the Buffer Fund is serious because it means that there may be nothing to pay us if we win."
Those acting for Coopers and Deloittes have now tried to guarantee that their costs would be met if they win by asking the creditors of Barings to agree to put up some security.
The creditors are mainly the US investors known as the Vulture Fund who bought bonds in Barings in 1986. They will benefit if the former auditors are found to have been negligent but so far have not stumped up any money to cover the possibility that the judgement will go the other way.
The judge hearing the case, Mr Justice Evans-Lombe, yesterday adjourned the case to consider whether securities should be provided before the trial begins on 2 October.
Ernst & Young claims Coopers & Lybrand, which merged with Price Waterhouse in 1998, and the Singapore arm of Deloittes, were negligent in failing to spot unauthorised derivatives trades made by Nick Leeson that left Barings with debts of pounds 850m in 1995.Reuse content