Court of Appeal's decision to allow $1.8bn claim did not affect decision to call off merger. John Stokdyk reports.
Ernst & Young has denied that last week’s Court of Appeal decisioncision to call off merger. allowing BCCI liquidator Deloitte & Touche to pursue a $1.8bn (#1.1bn) claim against it, helped its merger plans collapse.
On Friday 13 February, the same day that E&Y announced it was calling off its KPMG merger, the court overruled a January 1997 order striking out Deloittes’ claim against Ernst & Whinney – now part of E&Y.
Deloittes’ original claim centred on whether E&Y, auditor to the bank’s Luxembourg-based parent company BCCI Holdings SA in 1985 and 1986, owed a duty of care to BCCI (Overseas), a subsidiary operating in the Cayman Islands. Overseas was audited by PW, which is being sued for $1.5bn relating to its 1985/1986 audits.
The January 1997 ruling separated the claims against E&Y and PW, but the appeal court judges accepted Deloittes’ arguments that the two companies operated as a single bank, and that their affairs could not be disentangled.
The opinion concluded the barrier between the two ‘was a mere shadow’ and ‘there had to be a constant interchange of information between the two sets of auditors’.
E&Y senior partner Nick Land stressed the reappearance of a possible $1.8bn liability had no effect on the merger: ‘There was no relationship. We made the KPMG decision before we knew the ruling.’