Equitable Life unlikely to win E&Y battle, say experts.
Legal experts have given Equitable Life little chance in its negligence claims against Big Four firm Ernst & Young, as the two firms prepare for a court battle late next year.
Link: Equitable report may not appear in full
Central to the case is whether it was within E&Y’s scope of duty to warn Equitable Life of the financial repercussions of losing its House of Lords Hyman case in July 2000, which revealed the life assurer had liabilities of more than £1bn.
Paul Redfern, a partner dealing with professional negligence in accountancy at law firm Beachcroft Wansbroughs, believes it was not. ‘I’ve looked at this quite closely and my view is that it is outside their scope,’ he told Accountancy Age.
Redfern believes there are many respected law academics who agree with his position. ‘I suspect it will go for another six months and then will settle for a substantial, but not crippling sum,’ he continued, before adding a possible figure of ‘tens of millions’ of pounds.
Roland Ford, partner at law firm Stephenson Harwood, agreed saying it is ‘quite hard to see that it was the auditors’ job’ to warn Equitable Life of any liability arising from the case.
Despite Redfern’s belief that E&Y will settle, publicly the firm is determined to see the case through, with an Equitable Life spokesman describing the two positions as ‘poles apart’. ‘It doesn’t look like there is any basis for settlement. We are confident to take this to trial,’ he said.
E&Y confirmed it would not attempt to appeal against last Friday’s Court of Appeal decision at the House of Lords, which reinstated claims of negligence on two counts.
The appeal court said that Equitable’s loss of sale claim should be restated to a ‘loss of chance of sale’. Equitable contends that if it had known of its financial position, it would have sold its business and assets in 1998.
The bonus declaration claim states if E&Y had advised directors of the need for technical provisions in the 1997, 1998 and 1999 accounts it would not have declared the bonuses that it did.
Vanni Treves, chairman of Equitable said he was ‘pleased but not at all surprised’ at the appeal court decision.
Should the case go to trial, legal fees have been estimated to rise to £6m for each side.