Barings dispute goes to trial as PwC fails to agree deal with liquidators

The stage was set yesterday for the most expensive trial in British legal history, after the liquidator to Barings Bank failed to agree a settlement with PricewaterhouseCoopers, one of its former auditors, in a dispute over £1bn of losses left by the bank's collapse. It is thought the agreement fell apart following a dispute among creditors over allocating the proceeds.

The long-awaited trial will now go begin on 2 October, with the first witnesses being called as early as mid-November.

Ernst & Young, Barings' liquidator, unveiled the proposed settlement six weeks ago on the morning of what should have been the opening day of the trial. Another of Barings' former auditors, Deloitte & Touche, did not settle and was to be the sole defendant in a sharply scaled-back trial.

At a hearing scheduled to plan the ongoing case against Deloittes yesterday, Charles Aldous QC, counsel for Ernst & Young, said an agreement could not be reached with PwC on several "important issues" and the original case would proceed after all.

It is the second time a potential settlement has faltered amid disputes among creditors. In 1998, a group of Barings' US creditors blocked a settlement, believed to be worth less than £100m, that was brokered by the City Disputes Panel. The creditors had purchased Barings bonds at knock-down prices when the bank's crisis emerged. Related creditors tried unsuccessfully to replace Ernst & Young with another liquidator, KPMG, in May.

Doubts over the latest settlement emerged when the parties failed to make it legally binding last week. But the renewed prospect of a full-blown trial came as a surprise. Christopher Butcher QC, for Deloittes, said he had learnt the news only half an hour before yesterday's hearing. Mr Justice Evans-Lombe, the trial judge, ruled that Ernst & Young should pay costs borne by Deloittes in preparing for what was set to be a smaller case.

Rick Murray, legal adviser to Deloitte & Touche, said afterwards: "To launch a settlement effort on the eve of trial, which caused the court to believe for six weeks that an agreement was a breath away, and then declare it all hopeless on the eve of the court's summer recess implies at least irresponsibility."

PwC expressed regret at the development. "But we remain ready for trial and are confident that we have a very strong case. The collapse of Barings was due to management failure and fraud, not our audit," it said.

Legal sources indicated that the chances of reaching an out-of-court settlement with any of the parties by October were dwindling. The trial is expected to cost more than £100m in fees, and is to be heard in what lawyers dub the "Super Court", a High Court annexe which is the only courtroom large enough to house the 50-strong army of lawyers involved, along with more than 1,000 files of evidence.

Ernst & Young claims that Coopers & Lybrand, which merged with Price Waterhouse in 1998, and the Singapore arm of Deloittes, were negligent in failing to spot unauthorised derivatives trades made by Nick Leeson that left Barings with debts of £850m in 1995. Coopers & Lybrand was auditor to the Barings Group in London, and succeeded Deloitte as auditor to Barings Futures Singapore in 1994.

Mr Leeson served two and a half years of a six-and-a-half year jail sentence in Singapore. ING, the Dutch financial services group, bought the bulk of Barings' business, including its liabilities, in 1995 for a symbolic £1.