Financial Times editorial 1 October, 2005
Time for Equitable Life to call a halt

http://news.ft.com/cms/s/75c34b14-3218-11da-9c7f-00000e2511c8.html

Like a slow-motion train wreck, Equitable Life's legal action against those it blames for its near collapse five years ago is grinding to a halt. The mutual assurer has already abandoned its lawsuit against Ernst & Young, its former auditors, and there is speculation that it will settle its case against the 15 former directors. It should do so, rather than prolong the agony.

Trial proceedings against the former directors, due to restart on Monday, will now not resume until October 10. This delay is to provide more time to prepare for the expert witnesses after last week's ignominious end to the suit against the former auditors. Meanwhile, the two sides will return to court to argue over the legal bills the defendants were forced to run up during the battle with E&Y.

But the delay is also an opportunity to reach agreement with the former directors to end the suit. This is complicated, because it may not be possible for all the defendants to walk away from the case on the same "drop hands" terms agreed between Equitable and E&Y. Several would be unable to pick up their own legal costs in the same way that the accountancy firm did. Some may be unwilling to do so, or constrained by no-win-no-fee arrangements with their lawyers.

A settlement would therefore require Equitable to pick up at least some of the former directors' legal costs and abandon hope of recouping its own. This is not something the society is eager to do, especially after the lambasting it received from policyholders over the £30m of its own costs written off in the action against E&Y.

Yet continuing with the case makes no sense. The defendants have already incurred costs that could be as much as £15m, of which only £5m is covered by directors' and officers' insurance. If the case continues, the total will rise further - perhaps to more than £20m. Yet there is little prospect of extracting even a fraction of the £1.7bn damages claimed from defendants who are mostly not seriously wealthy.

The case against the former directors was seen by many as a way of stepping up the pressure on E&Y, which had much deeper pockets. But the settlement with the auditors leaves the case against the directors looking unlikely to be profitable - and potentially more costly than settling now.

None of this is good news for the policyholders, some of whom have called for the resignation of Vanni Treves, the present chairman, and other board members. Yet it is not clear what would be achieved by their resignation - especially given the indications that Mr Treves and Charles Thompson, the chief executive, will stand down later next year.

The decision to launch the lawsuits against E&Y and the former directors looks foolish with hindsight, though it was welcomed by many at the time. The outcome is a blow to the society and its recovery plan. But the present management has made good progress in whittling away the lawsuits and claims against Equitable. It has also been able to announce improvements in the solvency position, higher bonus rates and lower withdrawal penalties.

Meanwhile, there are still outstanding claims against the society to be resolved. The results of the second investigation by the parliamentary ombudsman into the government's regulation of Equitable is also due in the spring. Little would be served by the early departure of Mr Treves and the arrival of a new management team at this point in the Equitable saga.