Equitable sues for ?3.7bn over 'negligence

One of the biggest courtroom dramas in British corporate history will begin on Monday when Equitable Life takes on the accountancy company Ernst & Young and 15 of its former directors.

Equitable Life is making a negligence claim for just over £2bn against E&Y and for a further £1.7bn against the former directors of Equitable Life. Legal experts estimate that the total costs could hit £100m, making it one of the most expensive corporate legal battles in history.

E&Y revealed yesterday that it had already spent £20m on legal fees, while Equitable Life said at the end of last year that its bill had reached £22m and that it expected it to rise to £35m. The case is expected to continue until Christmas, which means that policyholders are unlikely to gain from any verdict until next year at the earliest.

If Equitable wins, any money obtained will almost certainly be used to bolster the insurer's long-term funds rather than be paid out as an immediate bonus to policyholders. Former policyholders who have fled the insurer will see no benefit whatsoever.

Hopes for a last-minute set tlement at the courtroom door are fading fast. Ernst & Young said yesterday that it was confident that the insurer's case would be discredited upon close examination.

It accused the insurer of trying to blame others for its own misfortunes as well as wasting millions of pounds of policyholders' money.

An E&Y spokesman said: "Our positions are too far apart for any sensible settlement discussion to take place."

An Equitable Life spokesman said: "We have a very strong case and we will see them in court on Monday. We have always said that we would not rule out a settlement but any offer would have to be serious and substantial."

Equitable's board is suing E&Y for alleged professional negligence, claiming it failed to give proper advice while it was the firm's auditor during the 1990s.

The insurer's new management, led by its chairman, Vanni Treves, alleges that the accounts were deficient between 1997 and 1999 because they did not include proper provisions for guaranteed annuity rates (GARs).

It was the House of Lords ruling in favour of claims by GAR holders that precipitated the closure of Equitable Life in 2000. Equitable is also claiming that because it had not known its true financial position earlier it lost the chance to sell the company.

If Equitable's claim against the former directors is successful it will almost certainly lead to "ruin or near-ruin" of the individuals involved, and will have major ramifications for the role and responsibilities of non-executive directors in Britain's boardrooms.

The 15 former Equitable directors include Jennie Page, the former Millennium Dome boss; Peter Sedgwick, the former chairman of the fund management group Schroders, and Jonathan Taylor, the former chairman of Booker. It also includes David Wilson, who in 2004 was named as Britain's 97th richest man, with a fortune of £410m.

Others named in the action include Roy Ranson, the one-time chief executive of Equitable Life. The official inquiry into Equitable carried out by Lord Penrose found that the previous management had engaged in a series of "dubious" financial practices, many of which were concealed from policyholders, regulators and its own directors.

Much of the blame was heaped on Mr Ranson, who was described by Lord Penrose as "manipulative", "autocratic" and "aggressive" in his dealings with regulators.