Risk of losing E&Y case sees Equitable back down
Equitable says it remained confident of proving that Ernst & Young audit was negligent, but backed down because it feared the judge would not find in its favour
Vanni Treves, chairman of Equitable Life, this morning said the firm backed
down from its £2.6bn claim against Ernst & Young because it feared the judge
would not find in its favour.
Treves said Equitable remained confident of proving that the E&Y audit
was negligent, but decided against pursuing the claim further after taking legal
advice.
‘We remained confident of proving that Ernst and Young’s audit was negligent;
indeed, even its own independent financial experts (KPMG) were unable to fully
support the basis of the audit,’ Treves said.
‘But the evidence given by the former directors in Court has persuaded us
that there is too great a risk that the judge would find as a matter of fact
that the former directors would not have done anything differently, whatever E
&Y had done and said.
‘Or alternatively, that they would have taken steps to attempt to mitigate
the problems, but not ones which would allow the Society to claim losses from E
&Y.’
Treves said it was with ‘great sadness and frustration’ that Equitable had
taken the decision to settle, and played down suggestions that it had launched
the claim opportunistically.
‘We launched this hugely technical and complex litigation after careful
deliberation, having taken expert audit and actuarial guidance and having
received clear legal advice,’ said Treves.
‘We had a duty to bring the claim against Ernst & Young. Not to have
launched this action would have been a dereliction of our responsibilities to
continuing policyholders.’
The Equitable chairman added: ‘Of course, we are deeply disappointed that we
have been unable to secure redress for our policyholders. But we cannot ignore
the evidence, broadly given by all the former directors.
‘We must recognise that if we had fought on and lost on the issue of
causation, we would have had to pay very substantial costs to E&Y, as well
as more costs to our advisers – additional costs which would have been borne by
our policyholders.’
Equitable, on the brink of collapse in 2001, has stabilised its finances and
at the end of 2004 had free capital of £547m. It will report further progress
when it publishes its half year results for the period ended 30 June 2005 on 29
September 2005.