The case, which is expected to last until Christmas, is likely to have a significant impact on the accountancy profession, the role of non-executive directors and Equitable’s policyholders.
Vanni Treves, chairman of Equitable Life, is understood to have made an attempt to get the troubled life insurer’s former auditors to enter into talks about settling the lawsuit ahead of the start of the High Court trial.
Equitable Life, the UK’s oldest mutual, started proceedings against Ernst & Young in spring 2002, claiming that under the society’s previous board the accounts were deficient from 1997 to 1999.
This was because, according to Equitable Life, they did not include proper provisions for guaranteed pension plans – called guaranteed annuity rates or GARs – and that Ernst & Young was negligent in not reporting this.
Equitable nearly collapsed after losing a House of Lords case five years ago and closed to new business after failing to sell itself.
The troubled life insurer is also making a ‘lost chance of a sale’ claim, which centres on the premise that if Equitable had known the true position it would have attempted to sell the company in 1998. The total claim had originally been for £3.3bn, but this was reduced in the first half of 2004.
Ernst & Young attempted to strike out the claim in 2003 but failed in the Court of Appeal. Equitable is also suing 15 former directors for £1.7bn.
Both the claims against Ernst & Young and against the former directors are strenuously denied.
Treves said Equitable did not want to break Ernst & Young. “We don’t want that at all, but we will if we have to,” he told a London newspaper.
“We have to pursue this case. Our legal advice says that it is our duty and we will do so because it is in our policyholders’ interests. Ernst & Young are taking a colossal gamble.”
Ernst & Young’s general counsel, Victoria Cochrane, accused the society of “wasting policyholders’ money by pursuing this case”.