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‘Biggest climbdown in legal history’ costs Equitable Life 30m

Equitable Life has dropped its 700m High Court claim against its former auditor Ernst & Young and faces a 30m legal bill.

In what E&Y barrister Mark Hapgood called “the biggest climbdown in English legal history”, Equitable dropped its claim – originally for 2.6bn – after the evidence of former directors blew the society’s case out of the water.

Equitable chairman Vanni Treves says he offered to resign but neither he nor any the board executives’ heads will roll and Treves insists the firm did not “cave in” but was avoiding the risk of being saddled with E&Y’s 25m-30m legal costs.

E&Y says it did not push for costs because it wants to draw a line under the case and says its reputation is intact.

The claim, which cost Equitable policyholders 30m, fell apart when Equitable’s legal team realised it had little chance of proving the former directors would have taken preventive action if the audit had been accurate – a key strand of its case.

Equitable is continuing its 1.7bn action against 15 former directors. It will continue to use lawyers Herbert Smith for this action and Treves says Equitable will not sue the firm for giving the legal advice in the E&Y case.

E&Y and Equitable were unable to agree on how the costs were settled. E&Y says Equitable made a token payment of 795,000 towards its 25m-30m legal bill while Equitable says this was merely money refunded to E&Y which it had received from the accountant for its costs earlier.

Treves says: “If we had lost, we would have had to pay E&Y’s legal costs which would have been up to another 30m. The evidence from the former directors was not something that we believed we would receive. The litigation was very risky but we had no choice.”

Hapgood says: “This very long, costly, utterly pointless litigation has culminated in the biggest climbdown in legal history. There is a salutary lesson to be learned for those thinking of suing auditors and it is simply this – bringing a hugely inflated claim for blood- curdlingly amounts of money in the hope that the sheer scale of the claim will force the defendant in making a substantial cash payment is misconceived.”

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