Swiss Bank fights landmark claim

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The Independent Online
Swiss Bank Corporation is one of three firms of advisers being sued for £375m in a case, due to start on Monday, that could become a legal landmark. Earlier this week the merchant bank was cleared by the Stock Exchange of improper action concernin g its role in Trafalgar House's £1.2bn bid for Northern Electric.

Nederlandse Reassurantie Groep (NRG), a Dutch reinsurance company, alleges that SBC - along with the actuaries Bacon & Woodrow and the accountants Ernst & Young - was negligent in its advice on the £122m purchase of Victory Reinsurance and three associated companies from Legal & General in 1990.

Charles Sands, a partner with Allison & Humphreys, the City law firm advising NRG, said he believed the claim was by far the largest made so far against a merchant bank. The City would be taking a great interest in the case because there was no case law on merchant banks' duties and responsibilities in such transactions, Mr Sands said.

The trial will break new ground by using a computer link between the solicitors' offices and the High Court to enable easy reference during the proceedings.

The basis of the NRG claim, which is being vigorously defended, is that neither Bacon & Woodrow nor Ernst & Young warned it over the extent of the shortfall in Victory Re's reserves - now estimated at more than £250m - caused by marine and aviation losses associated with storms in 1987, the Exxon Valdez oil spill and other catastrophes.

It claims it relied on the advice of SBC, which introduced the opportunity of the deal, in deciding whether to proceed with the £122m acquisition. At the time NRG was 51 per cent owned by Nationale-Nederladen (NatNed), a large Dutch financial institution. Since then, NatNed has merged with NMB Postbank to form Internationale Nederladen Groep.

Bill Dikland, who became chairman of NRG in July 1991, said yesterday the deal had proved so disastrous that the company had been forced to withdraw from the market, sell the life reassurance companies and put the non-life businesses into run-off, or liquidation. Its workforce had been cut from 900 at the end of 1992 to 300. Even if it won the case, it did not envisage re-entering the market.

Ernst & Young said this was "yet another instance" of an investor trying to recoup losses resulting from a bad investment decision by suing professional advisers."We have satisfied ourselves that our work was not negligent and we will defend the action vigorously," it said.

Duncan Ferguson, senior partner of Bacon & Woodrow, said the case was the first dispute of this kind to involve the firm in its 70-year history. The claim would be vigorously resisted.

SBC denied that its advice was deficient in any way.