Defending Ernst & Young against a £2.05 billion lawsuit brought against it by Equitable Life, lawyers representing the audit firm revealed that the 'audit failure' argument being put forward by Equitable's legal team as the reason for the insurer's near collapse was not mentioned in preliminary talks.
Equitable was brought to its knees in 2000 by an unexpected £1.5 billion liability on guaranteed annuity rate (GAR) pensions, and argued that E&Y should have warned the previous management team of the potential size of the GAR liability, which the organisation was unable to pay.
Counsel for Ernst & Young, Mark Hapgood, speaking in the High Court last week, argued that in an early meeting about the case, Equitable's CEO, Charles Thomson and the firm's lawyers, Herbert Smith had not cited failings in the audit practices employed by E&Y as one of the possible causes of the insurer’s near-collapse.
Quoting from the Equitable chief's notes from a meeting which took place on May 8, 2001, Hapgood observed that:
"There is no mention in this document either of E&Y or audit failure. This claim is very much the construct of lawyers and experts."
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