Pensions: counsel for Ernst & Young calls withdrawal 'biggest climbdown in legal history'

Equitable Life's £700 million negligence action against its former auditor Ernst & Young (E&Y) should never have been allowed to get so far, the solicitor for the accountancy giant claimed this week after the insurer abandoned its case in the High Court.


Clare Canning, a partner and head of litigation at City firm Barlow Lyde & Gilbert, which advised E&Y on its defence, said: 'It is interesting that the case was struck out at first instance, only to have the Court of Appeal insist that the claim have its day in court.'


She argued that the Court of Appeal's view that the evidence had to be heard and the procedural approach taken did not sit easily with Lord Woolf's reforms of the civil justice system, which were designed to reduce the adversarial approach, time and costs and increase judicial management and proportionality.


Ms Canning said: 'It is a clear example of claimants getting a bit carried away with the idea that something may have gone wrong and that a professional party is to blame, without making a legal case on causation. The claimant here failed to establish either liability or causation.'


She added that it highlighted a common misconception regarding the auditor's role - 'They are not there to give professional advice on how to manage a business.'


Equitable, the world's oldest mutual insurer, claimed that E&Y had been negligent and failed to give proper advice when it audited the company's accounts in the late 1990s.


The case followed a House of Lords' ruling in 2000 that Equitable had to meet guarantees offered to holders of guaranteed annuity rate pensions in full, which left a £1.5 billion hole in its finances.


Last Friday, five months after the case began, Equitable threw in the towel after accepting that its case against E&Y had been undermined by evidence given in court by its former directors, and that the risk of the judge finding against it was too great.


Both sides are to pay their own legal costs, estimated at £30 million for Equitable and £20 million for the auditors. Mark Hapgood QC of Brick Court Chambers, counsel for E&Y, described the move as 'the biggest climb-down in legal history.'


Vanni Treves, chairman of Equitable, said: 'To carry on our claim against E&Y with such a high risk of not recovering any loss would be foolhardy.'


However, he added that the insurer had a duty to its continuing policyholders to bring the claim, and it had done so after receiving clear legal advice.


Equitable's £1.7 billion action against 15 of its former directors is continuing.



A spokesman for Herbert Smith, which represented Equitable, said it was precluded from commenting on the matter by those proceedings.