Equitable Life has dropped its High Court action against Ernst & Young, the Society's former auditors.
Both sides have agreed to walk away from the case in a deal in which they will cover their 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 against15 former directors of the Society continues.
In a statement issued this morning Vanni Treves, chairman of Equitable Life, says: “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.”
For its part Ernst & Young says it is "please but not surprised" that Equitable Life has abadoned it case.
Nick Land, Chairman of Ernst & Young, says: “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.”
Victoria Cochrane, General Counsel of Ernst & Young, adds: “I hope that this humiliating climb down by Equitable will deter similar opportunistic claims in the future and will reinforce the Government’s commitment to allowing auditors to limit their liability to discourage deep pocket litigation.”
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