EQUITABLE LIFE MEMBERS

Equitable Settles Case with E&Y

Last Updated: Thursday, September 22, 2005 12:43 PM

Equitable Life’s litigation against E&Y settled

Equitable Life today (22 September 2005) announced that it has settled its legal claim against Ernst & Young, the Society’s former auditors, on the basis that the Society discontinues its claim and each side pays its own costs.

Mr Justice Langley, the judge hearing the claim in the High Court, was informed this morning by Iain Milligan QC, the Society’s lead counsel, that the claim against E&Y has been settled.  The claims against the 15 former directors continue.

Vanni Treves, Chairman of Equitable Life, said today:

“We launched this hugely technical and complex litigation after careful deliberation, having taken expert audit and actuarial guidance and having received clear legal advice. We had a duty to bring the claim against Ernst & Young. Not to have launched this action would have been a dereliction of our responsibilities to continuing policyholders.

“With great sadness and frustration, and following the receipt of firm advice from our legal team, the Board has decided that settling our claim against E&Y now on this basis is the appropriate course of action.

“We remained confident of proving that Ernst and Young’s audit was negligent; indeed, even its own independent financial experts (KPMG) were unable to fully support the basis of the audit.  But the evidence given by the former directors in Court has persuaded us that there is too great a risk that the Judge would find as a matter of fact that the former directors would not have done anything differently, whatever E&Y had done and said.  Or alternatively, that they would have taken steps to attempt to mitigate the problems but not ones which would allow the Society to claim losses from E&Y.  We have therefore concluded that the risk of establishing audit failure but not establishing a recoverable loss to the Society is too high to justify continuing the litigation.

“Of course, we are deeply disappointed that we have been unable to secure redress for our policyholders. But we cannot ignore the evidence, broadly given by all the former directors. We must recognise that if we had fought on and lost on the issue of causation, we would have had to pay very substantial costs to E&Y, as well as more costs to our advisers – additional costs which would have been borne by our policyholders.

“The society has not paid any contribution to E&Y’s costs.  As part of today’s agreement where each side meets its own costs, we have refunded a payment of £795,615.79 made earlier by E&Y in respect of our legal costs.

“The Board’s overarching duty is to act in the best interests of policyholders and the Board has concluded that settling the claim against E&Y on this basis is the only course open to us.  To carry on our claim against E&Y with such a high risk of not recovering any loss would be foolhardy.”

The new Board took office in early 2001 when the Society was on the brink of collapse.  Since then the Society’s finances have stabilised and at the end of 2004 it had free capital of £547m.  It will report further progress when it publishes its half year results (for the period ended 30 June 2005) on 29 September 2005.