Equitable Life, the troubled insurer, dramatically scrapped the largest part of its case against its former auditors, Ernst & Young, yesterday, dropping its claim for some £1.3bn in lost sale proceeds just three months into the marathon eight-month trial.
The retreat represents the collapse of the major part of the insurer's case against E&Y, which it was suing for a total of £2.05bn. It will continue to pursue the auditors for some £705m in damages for alleged negligence. However, its main claim that the value of the business fell by £1.3bn as a result of E&Y's failure to spot the company's financial difficulties - therefore reducing the amount for which the Society could be sold - has been withdrawn.
E&Y said the move meant Equitable had thrown away millions of pounds of policyholders' money in pursuit of the claim over the past four years, on a "gamble that was always bound to fail".
In a statement, E&Y said: "We have always maintained this was a case that should never have been brought. The fact that four years into this process and nearly halfway through the trial Equitable has abandoned its £1.3bn sale claim against Ernst & Young shows what a desperate state their case is in. This is one of the worst examples ever seen of the disreputable tactic of making a hugely inflated claim, now admittedly hopeless, against a 'Deep Pocket' in the hope of forcing a settlement out of fear of litigation risk."
Equitable's chairman, Vanni Treves, played down the significance of the move, insisting that the Society still had a cast-iron case for the rest of its claim against its former auditors, adding that the company would pursue its £1.7bn claim against its former directors.
Commenting on the withdrawal of the sale claim, Mr Treves said he was confident it would not weaken the amount of money that it expects to win during the trial. Explaining the Society's decision, he said: "Even though E&Y has tacitly accepted that their audit was negligent, it appears from the evidence given by the former directors that, although the old board should have sold the business to raise capital, they would not have done so."
Continuing the vicious war of words between the two sides, Mr Treves added that E&Y's decision last Thursday to withdraw five of its witnesses - all of whom were audit experts from KPMG - showed that its own case was on the ropes. "Last Thursday was a turning point in our claim against E&Y and we are now focusing our attention on E&Y's audit failure and our bonus claim," he said.
"Following the fact that KPMG cannot support E&Y's defence, pulling out the E&Y partners from defending their professional conduct and reputations is unprecedented in a negligence claim. The move is intended to avoid their work being publicly ridiculed in cross-examination. E&Y must recognise that their defence to this allegation is bleak, fruitless and doomed to failure and we call on them to admit negligence."
E&Y, however, emphatically denied it had withdrawn the witnesses because of a weakness in its case, saying it had taken the decision because its points had already been made through the cross-examination of other witnesses. "As regards Equitable's assertion that we have tacitly admitted audit negligence - we have not," it said.
"As our QC Mark Hapgood explained to the court this afternoon, 'We emphatically deny negligence. The court will be assisted in this matter by evidence from some eight audit and actuarial experts.'"
The Equitable case is believed to be the most expensive court case in the UK, with legal costs across the numerous parties totalling£100m. About £35m of this is accounted for by Equitable, whose policyholders will ultimately pay the bill for the case.Reuse content