Truck group wins claim on bad sale

Man Nutzfahrzeuge AG, the German truck manufacturer, was induced to purchase
its UK subsidiary ERF on the basis of fraudulent statements made by ERF’s former
financial controller, the High Court has found.

Man brought the claim against ERF’s former owner Freightliner, then known as
Western Star, on the basis that false accounting at ERF had misrepresented its
trading position.

In a claim worth up to £350m, a judge ruled that Stephen Ellis had concealed
huge problems in ERF’s accounts before its sale to Man.

Ellis, who had been financial controller from 1998 to the time of the sale,
had falsified VAT returns, and made false entries into ERF’s accounts that
flattered the company’s position, the judge found.

Lord Justice Moore-Bick said that Man had been ‘induced to purchase ERF by
fraudulent statements made by Mr Ellis’.

The judge declined to make any assessment of the precise liability at this
stage. Freightliner said that it would appeal.

‘The former financial controller of ERF admitted at the trial that he had
been concealing trading losses and deliberately misleading Ernst & Young, as
well as continuing to perpetrate the fraud for more than a year after the
company was sold and E&Y had ceased to be its auditor,’ the judge said.

Ellis was dismissed once the fraud was discovered.

Separately, the judge rejected claims that ERF’s auditors E&Y should be
held liable for the fraud.

Freightliner made claims against E&Y in the UK for a failure to meet duty
of care on ERF’s 1998 and 1999 year-end accounts.

A decision to find E&Y liable would have risked extending the bounds of
auditor liability unneccessarily, the judge said. that E&Y had ‘not stepped
outside its
statutory function’.

E&Y’s deputy general counsel Lisa Cameron claimed that it was an attempt
by Freightliner ‘to extend the recognised boundaries of an auditor’s duties,
which was bound to fail’.

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