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Documents: 04/02/2005 - Paul Braithwaite's Court Report
p> ELAS vs E & Y and ELAS vs 15 former directors
The final case progress review meeting:

4 February 2005
Before The Honourable Mr Justice Langley

(PB: This document is written by a lay observer, without the advantage of copies of documentation available to the parties. It is impressionistic and may contain unintended inaccuracies.)

It was a difficult, frustrating day to witness, not least because of very variable degrees of audibility.

There must have been 40 lawyers and barristers present (including EIGHT silks) for the two and three quarter hour morning session. In the afternoon, which was concerned only with ELAS/E & Y, there were perhaps 25 - including nine for ELAS.

Already representing themselves as Litigants in Person were Chris Headdon and Peter Martin, the wittiest speaker of the day (bar the Judge). Alan Nash, was reported by his clearly disappointed advocate, is to go the same way shortly.

The morning was taken up being fair to everyone, about the timetable which the Judge clearly intends now to have now been agreed. Langley J. was at pains to insist that ALL, positively ALL, new witness statement must be lodged in court by Feb 18. Further, he instructed that the final written skeletons from E & Y and ELAS must be to him by March 11 and everyone else's by 24 March, so Langley J. can read them pre the trial commencement on 11 April.

This means that legal bills all around are been notched up at a rate that would melt a taxi-meter, right NOW.
The timetable:

Note that the court will NOT sit on Fridays, at all:

11 - 29 April: Opening statements

3 - 12 May: Charles Thomson (ELAS), Leslie and McGeough (DWS ex-solicitors for ELAS)

16 May - 3 June: Ranson, Nash and Headdon

7 - 12 June: Bowley and Kinnis

13 June - 7 July: Sclater, Sedgwick, Tritton, Taylor, Davis, Price, Martin, Page and Wilson

11 - 25 July E & Y witnesses: Bannon and Combes - then Edey, Jackson, MacNamara, Patrick, Roff, Stewart

Summer recess, through ALL legals involved should NOT take holiday in second half of September as Langley J. reserved the right to reconvene two weeks early.

3 - 13 Oct: Auditor experts
17 Oct - 3 Nov: Actuarial experts and investment bankers
11 Nov - 4 Dec: Preparation of written closing statements
5 Dec to Xmas: - Oral closing

Langley J. pointed out the timetable was at fault in that it provided the parties with three whole weeks to prepare their final written submissions but only allows him one week to read them.
Money:

It is extraordinary to note that thus far ELAS has produced six generations of its claim against E & Y, which currently stands at 2,050m. The ELAS claim against 15 former directors currently stands at 1,700m.

The journal "The Lawyer" estimates the trial cost, if it proceeds, could total 100m in legal fees. It has been revealed that E & Y anticipates a total cost of 29m.

ELAS's cost could conceivably approach double that, IMO. Only two numbers did I hear in court. Ex-Sales and Marketing director, Kinnis, who departed ELAS in July 1997 has, according to his barrister Mary Stokes, "a mere 200,000" (set by insurance cover) to spend on representation with his East Anglian solicitor, Metcalfe Copeman.

The other legal cost quoted, for the wealthy builder David Wilson who is represented by Jules Sher QC (who does need lessons in voice projection) was a breathtaking figure for ONE individual of 8,500,000.

The court bundles containing 100,000 documents are to cost 9,000 (plus VAT) per set and most of the former directors would, it was suggested, need three each (for court, for solicitor and for themselves). They will be supplied by Herbert Smith. Wisely IMO, Peter Martin asked only for a CD digitised disk. The daily transcription costs will cost each ex-director 3% of the bill.

A whole lotta silks going on!

To be expected, the smoothest performances came from Iain Milligan, Mark Hapgood and Jules Sher - all silks. But there were other QCs: Laurence Rabinowitz, who was impressive, for six of the non-execs (Sclater, Sedgwick, Tritton, Taylor, Price, and Davis), Peter Leaver, for Jennie Page and Christopher Symons for Roger Bowley and David Thomas.

Additionally, two more silks are retained but did not speak: Robert Miles for ELAS and Johnathan Gaisman for E & Y.

A young barrister, David Mumford, spoke firmly and extremely well for Roy Ranson.

The unexpected star performer was Peter Martin, who spoke succinctly and with erudition on his own behalf. Chris Headdon, nervous, not a solicitor, and speaking for the first time in Court, far less so.

Simon Adamyk, for Alan Nash, who is soon to be dropped by his client, tried tortuously and unsuccessfully to argue on Mr Nash's behalf that despite the fact that he had qualified as an actuary, and from 1997 he held the formal title of "The Actuary" and had signed and initialed multiple documents as "The Actuary" - in fact, he did NOT practice at any time as an actuary!
This did not play well.
Big Issues:

Penrose:

Langley J. asked if he should read Penrose, because he had found it difficult, though the appendices were, he said, more digestible. Opinion was divided. Hapgood said definitively NO. Sher disagreed. Penrose was treated with deplorable disdain. Langley J. said, technically quite correctly and as a matter of fact: "It is of no evidential significance". But so much for 3m and 30 months work by a truly independent High Court Judge!

Mike Arnold, expert actuary for ELAS

There are two statements from Arnold and Hapgood criticized numbers in the documents, which conflict with no explanation (791m vs 520m). Three sum large numbers were quoted in court. IMO it is likely that Arnold's statement run contrary to the papers currently presented by ELAS to the FOS on the subject of "over-bonusing".

Arnold argues that E & Y should have insisted in 2000 that ELAS did what it did do in July 2002 and impose a Maturity Value Adjuster (in 2002 of 10% - subsequently consolidated in April 2003 as a permanent devaluation). Hapgood understandably scorned this, saying that it was only possible in a closed fund, not least because PRE by then had been totally undermined, but to have done it in 2000 would have had a devastating affect on the going concern.

KPMG for (or against?) E & Y

Equally, Milligan for ELAS became very animated in the afternoon session about E & Y's own auditor expert witness statements from KPMG , which apparently say that any auditor should have qualified ELAS's 1999 accounts. This will certainly not help E & Y in the Institute of Chartered Accountants' JDS which will follow the trial. Milligan tried unsuccessfully to get prospective new and late witness statements (post KPMG) by E & Y partners excluded.

Charles Thompson of ELAS can't be relishing the prospect of E & Y's actuarial expert witness Mike Ross, his old boss from Scottish Widows, giving evidence for E & Y in October.

WPWM

It is apparent that the E & Y case will lean on the joint paper "With Profits Without Mystery" (WPWM), written by Ranson and Nash in 1989. This paper described a new hybrid business model for a With Profits fund, which post rationalized why ELAS had no "estate". (This is thoroughly explained: http://www.investorsassociation.org/forums/showthread.php?s=&postid=45092#post45092)

The Headdon side letter:

Sher will be at pains to hold Headdon accountable for the side letter on re-insurance. Sher argued that the secret letter had the effect of setting a cap at 100m and had its existence been disclosed, thus arguing as to contributory negligence, "the balloon would have gone up".

Hapgood took the fight to the current board:

I detected a very interesting strand of attack by E & Y: Hapgood made reference to a question from ELAS's new auditors PWC in October 2001 which suggested the accounts for 1999 should be re-issued.

Not unreasonably, E & Y have demanded ALL internal ELAS papers on how that suggestion was handled by ELAS, be it board minutes or papers from the new ELAS audit committee. Incredibly, ELAS has reported to Court that it simply cannot find any relevant papers. Hapgood said that it wasn't good enough and proposed, instead of a digital word search, a paper search should be conducted. Langley J. agreed.

All the while, long-serving ELAS executive and actuary Alistair Dunbar (with Tony McGarahan and director of ELAS Fred Sheddon) sat near me. Dunbar probably knew all the answers (and where all the papers are or were). The re-issuing of 1999 accounts proposed by PWC must have been a very hot potato and policyholders are now entitled to ask why PWC's proposal was not actioned by the current board.

As with the Penrose Inquiry, this board seems to display reluctance to divulge ANY papers from its own period of stewardship, post 1 March 2001. The significance of this is that during the autumn of 2001 PWC were prepared pivotal half-year accounts to 30 June 2001 as the very foundation for the compromise section 425 agreement. If the 1999 accounts HAD been reissued at that time, it could well have had an destabilizing affect on the compromise. It is to be hoped that ELAS will now find said papers. Milligan argued that what happened in 2001 was irrelevant but Langley J. rebutted:

"It must be relevant."

Paul Braithwaite
18th February, 2005
E & O E: If any reader who was in Court believes this report contains materially incorrect information, please Email: paulbraithwaite@yahoo.com


Appendix: This write-up in The Lawyer is particularly helpful at putting which names to which solicitors.

http://www.thelawyer.com/cgi-bin/item.cgi?id=113936&d=122&h=24&f=46

Equitable Life v Ernst & Young: good, old-fashioned litigation
Equitable and E&Y may want closure, but as Joanne Harris reports, the lawyers are loving this one

Equitable Life v Ernst & Young is one of those pieces of litigation that has been rumbling on for what seems like forever. But this year it finally reaches the High Court in a full-blown, six-month trial, beginning on 11 April.

April's trial is, of course, not the first time the various parties in the litigation will have faced each other in court. Since Equitable launched its giant 2.6bn negligence claim against former auditors Ernst & Young (E&Y) in 2001, following it up in 2003 with a civil suit against former executive and non-executive directors, there have been several sizeable pre-trial hearings.

2005, though, sees the culmination of years of rumours about potential settlements, strike-out applications and Court of Appeal decisions.

The cast list of barristers and solicitors is enormous, such is the size and significance of this case. Herbert Smith is leading for Equitable, with Julian Copeman and Charles Plant in charge. The firm is instructing 20 Essex Street's Iain Milligan QC, a silk with vast experience in financial litigation and professional negligence.
Up against Milligan is Brick Court's Mark Hapgood QC, instructed by Barlow Lyde & Gilbert (BLG) litigation partner Clare Canning. E&Y's decision to instruct Canning in 2002 was a sign of the respect in which she and BLG are held in the professional negligence field, but nevertheless the win was, and remains, a coup.

Several BLG partners are involved in the case. Estimates of E&Y's legal fees have reached 29m, which placed against BLG's 2003-04 turnover of 78.2m show just how important this case is for the firm.

The other defendants - 15 former Equitable executive and non-executive directors - have selected a variety of solicitors. Allen & Overy (A&O) has the lion's share, defending six non-executive directors. Fox Williams has two executive directors, but Baker & McKenzie, Fishbu-rns, Ince & Co and Simmons & Simmons are also involved. The final firm to appear is an oddity in the line-up of well-known insurance and litigation specialists - East Anglian 14-partner outfit Metcalfe Copeman & Pettefar. Metcalfes is instructed by a director who chose to go for solicitors local to him.

Mr Justice Langley's courtroom will be busy come April. Although Equitable brought its claims against E&Y and the directors separately, the litigation is being treated as one action and all the parties will be in court together. Luckily, the judge has a lot of experience in managing complex litigation.

Judge Langley oversaw various interlinked film finance disputes during 2002 and 2003, with the final settlements coming last year, the last being the 'Paramount One' and 'Paramount Two' cases. Case conferences for that litigation were reportedly chaotic, with packed courtrooms and barristers clamouring to put their cases. Judge Langley needs to manage the Equitable trial "like a football referee", as one commentator put it.

And what a match it will be. When she was instructed, Canning told The Lawyer: "It's important for people to realise that this isn't an Enron and Andersen situation." But there is still a lot of money at stake.
Judge Langley's judgment, when it comes, is bound to be scrutinised eagerly. During the attempts in 2003 by the non-executive directors to have the claims against them struck out on the grounds that as non-executives they were not liable for the negligence and breach of fiduciary duty that Equitable is claiming, he delivered a judgment casting doubt on the rights of non-executives.

On the strike-out application, he said: "I've concluded that Equitable's claims against the non-executive directors aren't ones of which it can be said that they have no real prospect of succeeding. I should stress that this conclusion does not mean that I think Equitable's case is right, or even probably right."

The judgment means that, contrary to the way the Companies Act is usually defined, non-executive directors can be held liable for claims against the company. If Judge Langley finds for Equitable, there could well be a renewed reluctance on the part of potential non-executives to take up the role.

So far his handling of the case has been praised. On Friday (4 February) he held a pre-trial case management conference in court, to determine the order of cross-examination and other such apparently mundane, but crucial, matters. Ensuring that every party receives a fair hearing is always paramount, but this is particularly important with so much at stake.

As ever, the real winners in a case such as this are the firms and chambers involved. Whatever the outcome for the client, the exposure and experience is welcome. On the barristers' side, One Essex Court has done particularly well, scoring instructions from three parties, including roles for two silks - Laurence Rabinowitz and Peter Leaver. 3 Verulam Buildings also has three barristers involved.

At the trial's conclusion, the legal fees (in addition to E&Y's 29m) could hit 100m, making the case the most expensive civil suit in history. For claimant and defendants, Equitable is a burdensome nightmare. For the lawyers, it will have been a profitable return to good, old-fashioned, large-scale litigation.

Who's acting for whom?

For Equitable Life: Julian Copeman, Charles Plant (Herbert Smith); Iain Milligan QC, Guy Morpuss (20 Essex Street), Robert Miles QC (4 Stone Buildings)

For Ernst & Young: Clare Canning (Barlow Lyde & Gilbert); Mark Hapgood QC (Brick Court), Jonathan Gaisman QC, James Brocklebank (7 King's Bench Walk), Cyril Kinsky (3 Verulam Buildings)

For six non-executive directors: Tim House (Allen & Overy); Laurence Rabinowitz QC (One Essex Court), Richard Handyside (Fountain Court)

For executive directors Roger Bowley and David Thomas: Gavin Foggo (Fox Williams); Christopher Symons QC, Sonia Tolaney (3 Verulam Buildings)

For executive director Shaun Kinnis: David Rutter (Metcalfe Copeman & Pettefar); Mary Stokes (Erskine)

For executive director Alan Nash: Andrew Davis (Fishburns); Simon Adamyk (New Square)

For non-executive director Jennifer Paige: Philip Vaughan (Simmons & Simmons); Peter Leaver QC (One Essex Court)

For executive director Roy Ranson: David Fraser (Baker & McKenzie); David Mumford (Maitland)

For non-executive director David Wilson: Bob Deering (Ince & Co); Jules Sher QC, Rupert Reed (Wilberforce)

Christopher Heddon (an executive) and Peter Martin (a non-executive) are litigants-in-person