Price Waterhouse fights pounds 150m negligence claim
Monday 12 January 1998
The pounds 147m lawsuit brought by Bank Austria, alleging breach of contract and negligence, is the latest in a series of actions that have dogged accountancy firms since the recession of the early 1990s. PW itself could still face a potential multi-million dollar claim over its role in the collapse of Bank of Credit and Commerce International.
In the latest court action, due to start before Mr Justice Neuberger tomorrow, Bank Austria will attempt to recover losses resulting from its 1990 acquisition of a majority stake in Sovereign Leasing, a UK leasing company later bought by Girobank, now known as Sovereign Finance.
The claim alleges that PW failed to spot serious problems with Sovereign which in effect rendered the company worthless. The accounting group was was employed by Bank Austria to carry out a due diligence investigation of the company and provide financial advice on the deal.
Bank Austria, created by the merger of Zentralsparkasse und Kommerzialbank Aktiengesellschaft and Oesterreichische Laenderbank Aktiengesellschaft a year after the Sovereign transaction, became one of Europe's largest banks when it acquired Creditanstalt in late 1996.
It claims it relied heavily on PW's advice and argues that, had the true position been revealed by the firm's work, it would not have gone ahead with the Sovereign deal. Bank Austria claims it was forced to add pounds 111m to its original commitment to Sovereign of more than pounds 33m in order to prevent the company going into liquidation.
PW said it would defend itself "with the utmost vigour". It would be seen to have "acted entirely properly in keeping with the highest standards normally associated with one of the world's top consulting and business advisory firms".
It is understood that PW's lawyers will be arguing that the accountants involved gave adequate warnings about the situation at Sovereign, a company specialising in so-called small-ticket leasing, which is particularly vulnerable in worsening business conditions.
Though Bank Austria claims its shake-up of the management in late 1991 was responsible for the business's gradual return to profitability, PW is believed to be basing its case on a counter-argument that its clients contributed to the outcome by not taking its advice. It will also be argued that the claimed losses of pounds 147m have been substantially mitigated by the fact that Sovereign was sold in November 1996 for an undisclosed sum, believed to be in the region of pounds 65m.
The case, which could last three months, comes amid growing worries about mounting legal actions against accountants and other professionals in the wake of corporate collapses and other problems. There is special concern about the principle of joint and several liability, under which an adviser can be held responsible for the total loss regardless of the degree of fault.
It is generally assumed that such claims are covered by insurance, but the rising number of cases has made cover increasingly expensive and hard to obtain. Earlier this decade, partners at Binder Hamlyn, now part of Arthur Andersen, were left facing bankruptcy after a judgment in a case brought by ADT broke their firm's insurance cover. The insurers settled the claim when, after an appeal, the two sides settled on half the size of the original judgment.
And why are 'southern' ways of speaking spreading north?
- 1 Cameron's freebie to apartheid South Africa
- 3 A forgotten episode in Russian history leaves links with the Philippines
- 4 Australian ultra-nationalist politician Stephanie Banister in car crash immigration TV interview
- 5 Nelson Mandela: From 'terrorist' to tea with the Queen
- < Previous
- Next >
iJobs Money & Business
£55000 - £70000 per annum: Pro-Recruitment Group: A well-known and renowned in...
£450 - £500 per hour: Cornwallis Elt : Business Analyst Finance System Hy...
£400 - £550 per day: Cornwallis Elt : BUSINESS ANALYST- OPERATIONS- PRIVATE B...
£50000 - £65000 per annum + benefits + bonus: Harrington Starr: Market Data SM...