A High Court bid was launched on Monday by E&Y to strike out a damages claim worth £2.6bn from the new board of its former audit client Equitable.
E&Y is asking the court to rule that the insurer’s claim that E&Y failed to give proper advice during its time as Equitable Life’s auditor in the 1990s has ‘no reasonable prospect of success’, and should be struck out without the need for a full trial.
Counsel, Mark Hapgood QC, said what had gone wrong with Equitable ‘is something for which it is very difficult to see any responsibility can lie with Ernst & Young’.
The Equitable Life board hope to pursue the claim to a full trial, in which it will seek damages for Ernst & Young’s handling of its affairs prior to the troubled period in which Equitable – the world’s oldest life assurer – came close to collapse as a result of defeat in a House of Lords test case over its stance on guaranteed annuity policies.
Equitable maintained up until the defeat that it faced an exposure of only £50m as a result of the guaranteed annuity problem and had provided for up to £200m in its balance sheet. But when it lost in the House of Lords, it admitted its liabilities extended to more than £1.5bn. In its claim against E&Y the new Equitable board claims the auditor knew of this high-risk exposure and should not have signed off a number of accounts.
Roland Foord, litigation partner at Stephenson Harwood, which acted for the Joint Disciplinary Scheme in the recent case against E&Y, said the case should be of special interest to auditors. ‘The industry will be interested in the outcome in what it has to say about the division of responsibility between the board of directors and auditors,’ he said.
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