Equitable life yesterday won the right to sue its former auditors Ernst & Young for £2.6bn after the Court of Appeal overturned an earlier judgement that had thrown out its claim.
The troubled insurance company had contested the decision of a High Court judge in February which rejected the majority of a £2.6bn suit it had launched against the accountants.
Equitable claimed it would have put itself up for sale for £3.5bn had Ernst & Young fully informed it of its precarious finances. The cost of paying guaranteed pension rates to its customers landed Equitable with a £1.5bn bill in July 2001 and the company was forced to close to new business having failed to find a buyer.
This 'lost sale' claim, the first of a two-part action, was rejected by Mr Justice Langley in February, but the Court of Appeal overturned the decision and said Equitable could sue for "the lost chance of a sale" which Equitable reckons cost it £2.55bn.
The ruling now means Equitable can go forward with the second part of its claim, that Ernst & Young failed to rein in the society's over-generous bonus policy.
Mr Justice Langley had said the £1.6bn claimed was "fanciful", but following the ruling, Equitable can sue its auditors for £1.24bn of losses so that, with both claims, Ernst & Young could be facing a compensation bill of £2.6bn.
However the Court of Appeal did say that it had "serious doubts" over the size of Equitable's suit. Equitable can also seek to recover the costs of defending its claim from Ernst & Young, which are believed to be in the millions.
Ernst & Young, however, said it was still determined to fight the suit through the trial process and did not regret trying to have Equitable's claims against it struck out. "The strike-out process has shown up the flaws of Equitable's claim. We are confident it will be discredited on closer examination," Victoria Cochrane, counsel for Ernst & Young, said yesterday.
The case will go to trial in October 2004. Meanwhile, Equitable is suing 15 former directors of the society for negligence but nine non-executive directors are trying to have Equitable's claims thrown out.