Collapsed claim against E&Y was 'blood-curdling'

The epic multibillion pound High Court legal battle between Equitable Life
and Big Four firm, Ernst & Young, came to an abrupt end this morning.

Mr Justice Langley, who has been hearing the action since February, was told
that Equitable was dropping its claim against former auditors Ernst &
Young.

This morning’s landmark development has been estimated at leaving both sides
facing legal bills of in the region of £30m. However, the £1.7bn claim against
15 former Equitable directors continues.

Announcing in court this morning that the claim against Ernst & Young was
being dropped, Ian Milligan QC, counsel for Equitable told the judge: ‘I would
like to inform you that the claim by the Society against Ernst & Young has
been settled on terms of the claim being discontinued and each party bearing its
own costs.’

He asked for the hearing against the directors to be adjourned to ‘take
stock’ of the now shortened proceedings, which will involve less witnesses.

Mark Hapgood QC for Ernst & Young said in court that the move to drop the
case was ‘the biggest climbdown in English legal history’.

Branding the case an ‘utterly pointless piece of litigation’ he said the
attempt to bring the claim against Ernst & Young involving ‘blood-curdling
amounts’ had not worked.

In a statement, he said: ‘At the end of this very long and costly and utterly
pointless piece of litigation, which has culminated in the biggest climbdown in
English legal history, there is a salutary lesson to be learned for those
thinking of suing auditors.

‘It is simply this: bringing a hugely inflated claim for blood-curdling
amounts of money in the hope that the sheer scale of the claim will force the
defendant into making a substantial cash payment is misconceived.

‘It has not worked against Ernst & Young in this claim and it will not
against Ernst & Young in the future.’

The announcement came four days after resumption of the case following a
break in proceedings during the High Court’s summer vacation. The case had been
expected to run into next year.

The claim against the accountants had already been watered down in July when
Equitable dropped the £1.3bn ‘lost sale’ part of the case.

When the case began, Equitable’s claim against Ernst & Young was that
accounts were deficient in 1997-1999, because they did not include proper
provisions for guaranteed annuity rates, and that the auditors were negligent
and in breach of duty in not reporting that.

It was also alleged they were negligent in failing to include a warning in
the accounts in 1999 and 2000 of the risk of losing a legal battle over
guaranteed annuity rates in the House of Lords in 2000.

And in the ‘lost chance of sale’ claim Equitable alleged that if they had
known of the true position they would have attempted to sell the company in
1998.

Ernst & Young who had failed to strike out the claim back in July 2003
had always maintained, however, that Equitable’s allegations were misconceived
and entirely without merit.

In a statement immediately after this morning’s hearing, Nick Land chairman
of Ernst & Young said: ‘Today’s news is a complete vindication for us. This
was an ill-conceived and badly prepared action, which we have said all along
should never have been brought.

‘We have been confident in the strength of our case from the very beginning
and the trial continuously exposed the weaknesses of Equitable’s case.

‘The past four years since the legal proceedings began have been a scandalous
waste of time, money and resources for all concerned.

‘The management of Equitable Life’s sole strategy has been to bully Ernst
& Young into settlement by bringing a hugely-inflated claim against us. Its
attempt to pin the blame for Equitable’s problems on anyone with deep enough
pockets was a disastrous misjudgement, which has wasted tens of millions of
pounds of policyholders’ money.

‘Similarly, the claim against the former directors has caused considerable
and unwarranted distress and cost to a group of individuals who were seeking to
discharge their responsibilities in a conscientious and responsible way.’