Equitable Life has dropped its lost sale claim against Ernst & Young.
In a dramatic turn of events at the High Court, Equitable said that it would
no longer be pursuing its £1.3bn claim against Ernst & Young for the ‘lost
chance of a sale’ aspect of its £2bn negligence claim.
The move dramatically changes the nature of the lawsuit at the high court,
which, when pegged at over £2bn, threatened E&Y’s future.
Equitable’s withdrawal of the lost sale claim comes after sustained pressure
from Ernst & Young, which had argued that, since Equitable had not raised
the issue in its cross examination of directors, it could not plausibly make the
claim, for £1.3bn.
Mark Hapgood, for E&Y, said last month: ‘It is only the lost sale claim
that enables the Society to go on saying to the press, week after week, that
they are claiming – and inferentially may recover – £2bn from Ernst &
Young. It is quite probably the thought of the embarrassment of having to climb
down from that figure that is keeping the case alive’.
E&Y had even promised to claim indemnity costs from Equitable over the
claim, on the basis that its conduct of the claim had been unreasonably weak.
The withdrawal of the claim reduces Equitable’s claim to at least £700m and
possibly less if other points made by E&Y are taken into perspective,
reducing it to £500m plausibly.
Simultaneously, Equitable attempted to put its climbdown into a more positive
perspective today, saying that, on the bonus claim, the only remaining claim
left in Equitable’s four-year legal battle, E&Y should now stop trying to
‘defend the indefensible’.
The bonus claim alleges that E&Y’s negligence denied Equitable the chance
to reduce bonuses to shore up its financial position. The lost sale claim
related to the lost chance to sell off back-office functions at Equitable, again
to shore up its position.
E&Y withdrew its audit and actuarial partners as witnesses to the claim
last week, which Equitable is attempting to capitalise on by claiming it is a
tacit acceptance of ‘negligence’.
Iain Milligan, for Equitable, told the court that ‘it is unprecedented for
professional people charged with negligence not to be allowed to defend their
professional conduct in court, where that conduct remains a key issue.’
Vanni Treves, the Equitable chairman, said in a statement: ‘Last Thursday was
a turning point in our claim against E&Y and we are now focusing our
attention on E&Y’s audit failure and our bonus claim. We believe that it
does not weaken the overall claim value that we expect to receive at the end of
‘Even though E&Y has tacitly accepted that their audit was negligent, it
appears from the evidence given by the former directors that, although the old
Board should have sold the business to raise capital, they would not have done
‘Pulling out the E&Y partners from defending their professional conduct
and reputations is unprecedented in a negligence claim. The move is intended to
avoid their work being publicly ridiculed in cross-examination. E&Y must now
recognise that their defence to this allegation is bleak, fruitless and doomed
to failure and we call on them to admit negligence.’
Treves also drew attention to expert testimony from KPMG, which came out in
earlier hearings, suggesting that KPMG would not have signed off Equitable’s
accounts in the way that E&Y did.
E&Y has yet to comment on Equitable’s move.
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