E&Y claims victory in £350m case

Ernst & Young has claimed a final victory in its long-standing dispute
with lorry group Freightliner.

The House of Lords has rejected a petition for leave to appeal in the case,
meaning E&Y is now sure of avoiding a possible £350m liability.

Freightliner petitioned the Lords in December last year after it failed to
recoup losses from its auditors over work undertaken at its former subsidiary
ERF. It had been thought that the matter was all wrapped up when Freightliner
was refused leave to appeal. The failure of the petition to appeal marks the
absolute end to the action, it is understood.

The firm had audited ERF but a £100m hole was discovered in the company’s
balance sheet after it was sold to German truck maker MAN.

At the original trial in 2005, CFO Stephen Ellis made stark admissions that
he had concealed trading losses, deliberately misled E&Y and made several
false journal entries that gave rise to an £18m discrepancy. He also admitted he
continued to defraud the company for more than a year after it had been sold, by
which time E&Y was no longer the auditor.

MAN successfully sued Freightliner, ERF’s former owners, but Freightliner was
unsuccessful in action against its auditors, after the Court of Appeal upheld a
decision of the High Court, in September, that the firm was not liable for its
audit work at ERF.

The court did note that there was a potential issue about auditors signing
off accounts that a company hopes to use in order to sell a business.

Sources close to Freightliner said the Lords, who generally take up cases
which are of general interest to the public, did not give any reason for their
decision apart from their refusal to hear the matter.

‘Ernst & Young welcomed that decision,’ an E&Y spokesman said.

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