An Appeals Court judge has upheld a High Court ruling that Ernst & Young was not liable for audit work done at British truck maker ERF.
ERF was sold to MAN in 2000 for nearly £100m, but had been owned by Canada's Western Star, which in turn merged into Freightliner.
MAN succesfully sued Freightliner for £350m over the hidden losses at ERF, with Freightliner attempting to recoup its liability for them from former auditors E&Y.
But earlier today Lord Justice Chadwick upheld the 2005 high court decision that found Freightliner liable for frauds carried out at ERF.
In handing down his decision, Chadwick said: 'To hold that the auditors assumed responsibility for the use which a dishonest employee of the audited company might make of the accounts in the context of the parent company's negotiations for the sale of the company would, I think, be to impose a liability greater than they could reasonably thought they were undertaking... it is impossible to hold that E&Y (rather than Western Star) assumed responsibility for the use by Mr Ellis, on behalf of Western Star of the information which E&Y had provided to Western Star.'
Freightliner is understood to have settled its case with Man, paying £250m.
E&Y said they were not surprised by the Court of Appeal's decision.
Lisa Cameron, general counsel of Ernst & Young said: 'We have stressed consistently since the beginning of this action that the case brought by Freightliner against Ernst & Young was unsustainable because it attempted to extend the recognised boundaries of an auditor’s duties and responsibilities.'
By the time the fraud - by the former financial controller Stephen Ellis - was discovered in mid-2001, there was a £100m hole in ERF's balance sheet.
At the original trial in 2005, Ellis made stark admissions in the original trial that he had concealed trading losses and deliberately misled E&Y and made several false journal entries that gave rise to an £18m discrepancy. He also admitted he had concealed and continued to defraud the company for more than a year after it had been sold, by which time E&Y was not longer the auditor.
Freightliner had vigorously fought the claim, arguing that Western Star was as much hoodwinked by the frauds at ERF as MAN.
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