Equitable advised to drop plan for legal campaign

Vanni Treves, the chairman of the scandal-ridden Equitable Life mutual insurance society, is steeling himself for a fresh clash with rebel policyholders.

Vanni Treves, the chairman of the scandal-ridden Equitable Life mutual insurance society, is steeling himself for a fresh clash with rebel policyholders.

Mr Treves will issue a statement today saying that he has been advised by the legal firm Herbert Smith that both Equitable and its policyholders will be wasting their money trying to sue the Government over regulators' inability to prevent the society's financial agonies.

The lawyers have also advised Mr Treves that because of this he does not have to debate a resolution at Equitable's forthcoming annual meeting which calls for a £2m fighting fund.

However, sources close to Mr Treves say that he will nevertheless put the resolution to the meeting so that everyone can have their say. This will ensure him an uncomfortable time at the hands of Paul Braithwaite, who is leading the Equitable Members' Action Group (Emag). Mr Braithwaite initiated the campaign for a £2m fund after the publication of the Penrose report last month.

Emag wants to take the government to the European Court of Human Rights, alleging maladministration. But on Herbert Smith's recommendation, the Equitable board will urge policyholders to throw out the Emag proposals, on the grounds that they and the society have "no realistic claims against regulators".

The board will also point to the case of Bank of Credit and Commerce International, where similar action against the Bank of England has taken 15 years and cost more than £50m.

Instead, Mr Treves wants the Parliamentary Ombudsman, Ann Abrahams, to reopen her investigation into the government's handling of Equitable. She would not require as strong a case as the courts, and the process would be considerably quicker and cheaper.

Over the past 20 years the Department of Trade and Industry, the Treasury and the Financial Services Authority have at different times had responsibility for overseeing the conduct of insurance companies.

But when the Penrose report was published Ruth Kelly, the financial secretary to the Treasury, told the House of Commons that the Government saw no case for compensation.