Final curtain falls on a long-running legal fiasco

By Nikki Tait
Published: December 3 2005

The long-running and highly controversial litigation brought by Equitable Life against its former directors and auditors finally shuddered to a hat yesterday as the society agreed to pay legal costs incurred by nine of its former board members.

The deals bringing the legal fiasco to an end have been done sequentially over the past few days and were finally signed off yesterday morning.

Equitable first filed the multi-billion pound claims against Ernst & Young, its former auditors, and 15 former directors, in April 2002. Last night, it had nothing to show for its efforts but a bill for legal costs totalling £pound;45m.

Under the deals announced yesterday, the six non-executive directors who were represented by Allen & Overy, the law firm, on a success-related "conditional fee agreement" will get back £pound;5.2m. That, said their lawyers, was "exactly what we asked for".
Added to these directors' share of a £pound;5m pool paid from Equitable's legal costs insurance policy for its directors and officers, the deal should in effect allow the six to walk away from the litigation without financial damage.

The A&O group has included some of the best-known City names involved in the Equitable saga, such as banker John Sclater, former Schroders chairman Peter Sedgwick, former National Lottery regulator Peter Davis and David Price, Alan Tritton and Jonathan Taylor. Separately, in a deal with Fox Williams, another law firm, David Thomas, the society's former investment director and a board member from 1989 to 2001, will be paid his out-of-pocket legal costs.

The last two to settle were Jennie Page, another former non-executive director who is probably best known as ex-chief of the Millennium Dome, and Chris Headdon, the society's former chief executive and appointed actuary. Ms Page, also represented on a CFA by Simmons & Simmons, will have legal costs of £pound;3.04m covered by the society. That, too, repays her legal expenses in full.

Even so, Ms Page was clear that, given how far matters had progressed, she would have preferred to have seen a final judgment in the case and even in the final stages tried to negotiate for a statement in court at the very least.

"I'd have preferred that policyholders had had the opportunity of Mr Justice Langley saying something to mark the end of these proceedings, but the society refused to allow a hearing," she said.

Those views were generally echoed by Mr Headdon, who still faces the prospect of professional disciplinary proceedings. He, too, says he would have welcomed a final judgment, objectively weighing up the evidence.

"It is regrettable that policyholders have not had the benefit of hearing Mr Justice Langley's views," he commented.

Having acted as a litigant-in-person for much of the proceedings, and been obliged produce copious submissions and even prepare to cross-examine some witnesses, he will be paid £pound;450,000 by the society to cover legal and other costs.

The four new separate settlements come on top of the deals struck with E&Y and six other former directors in the autumn. Under these, the parties generally agreed to bear their own legal costs, although both E&Y and David Wilson, a former non-executive director, both got back small sums to cover specific legal expenses.

Of the society's final bill of £pound;45m, about £pound;35m represents its own costs. Add the legal expenses shouldered by other parties and the entire litigation has cost more than £pound;70m; all to no avail, beyond grief on all sides.

Not surprisingly, former directors, their lawyers and policyholders appeared united in a mixture of frustration, derision and deep unhappiness.
Philip Vaughan, Ms Page's lawyer, described the claim against the directors as "contemptible" and a "blatant attempt to use the former directors as a conduit to the deep pockets" of the auditors.
Tim House of Allen & Overy said it was very regrettable that people had had to face "ruinous litigation for four years to defend their reputations and that final vindication has come at the price of damage to their lives".

As for the former directors, the final act in the long saga was only just sinking in.
"It's been a long time and there's a lot of emotions," said Peter Sedgwick, adding that mystification and bewilderment were still high on the list. "It's sort of like a bad dream one's finally woken up from," he said.

There was widespread resentment that even the final stages of the negotiations had been painful and, at least in their eyes, needlessly prolonged. Had the parties not settled, they were due to go back to court on December 12 to make final submissions to the judge. Although negotiations had been under way for weeks, this meant that Equitable had to deliver its closing submission in early December, and the defendants a few weeks later. All that work was duly done before the final deals were struck and the entire effort made largely redundant. "Ever since the Ernst & Young settlement, this has been dragged out and dragged out," said one lawyer. And that, he pointed out, simply added to the costs bill which policyholders have ultimately had to shoulder.

Anger and resignation as Equitable drops claim

By Charles Batchelor and Andrea Felsted
Published: December 3 2005
http://news.ft.com/cms/s/f1594840-63a1-11da-be11-0000779e2340.html

Equitable policyholders reacted with a mixture of anger and resignation yesterday to the news that the life assurer had abandoned its negligence claim against the last nine of its former directors.
The life assurer's announcement that it had received a number of unsolicited approaches to buy its assets - after weeks of denials - was dismissed as a smokescreen to cover the board's embarrassment over the failed legal action.

The ending of the legal claims leaves policyholders facing a choice between three main options over the future of the society. The annuity and with-profits funds could be sold; the with-profits fund could be unitised, creating tradeable securities; or the funds could be allowed to run off, paying policies as they mature over the next 30 to 40 years.

Paul Braithwaite, general secretary of the Equitable Members' Action Group, said: "The promise of billions in compensation, held out for four years, finally hit the rocks and still the society seeks to distract policyholders with more deplorable smoke and mirrors."

He dismissed the assertion by Vanni Treves, Equitable chairman, that the legal action had cost members £pound;75 each and that this was acceptable as"insulting".

Mr Braithwaite also took issue with Equitable's claims that policyholder action groups had backed it in the litigation.
"No we did not," he said.

He has written to the Financial Services Authority, the regulator, seeking an urgent meeting to discuss the stewardship of Equitable and the potential break-up.

Paul Weir, founder of the Equitable Late Contributors Action Group, which represents people who took out policies after 1998, said of the legal climbdown: "I am hardly surprised but equally I am appalled that they launched a legal action in the first place."

But having started the action, the society should have pursued it to its conclusion, Mr Weir said. "We have been denied the truth. By erring on the side of caution they have failed to land a punch. I thought there was a case to answer."

Ann Berry, a retired physiotherapist locked into a with-profits annuity that is paying much less than expected, said she was "disgusted" at the decisions both to launch and then drop the case.
One leading participant in the market for buying life assurance funds that no longer write new policies described the settlement as "another clearance" towards an eventual sale of the £pound;10bn closed with-profit fund. However, he said it did not change the fact that beginning a sale process would still be about nine months away.
He said the £pound;7bn annuity book, including some with-profits annuities, was likely to be the first asset to be sold.

Equitable climbdown leaves £pound;45m legal bill

By Nikki Tait and Andrea Felsted
Published: December 3 2005
http://news.ft.com/cms/s/fb2b3866-63a0-11da-be11-0000779e2340.html

Equitable Life policyholders were yesterday left shouldering a £pound;45m legal bill after the society's controversial High Court litigation against its former auditors and former directors finally ended.

The society agreed to reimburse about £pound;10m of legal costs after settling with nine former directors. This came on top of an estimated £pound;35m cost to Equitable of bringing the failed litigation against a total of 15 former directors and auditors Ernst & Young.

Settlements were reached this year with E&Y and six directors. E&Y's costs were put at about £pound;15-£pound;20m and the total costs of the litigation will easily top £pound;70m. Yesterday's deals bring to an end the multibillion negligence and breach of duty litigation first filed with London's High Court in April, 2003.

Equitable had originally sought £pound;3.2bn from the former directors and £pound;2.5bn from E&Y - alleging that they were negligent in the way they had dealt with the society's controversial stance on guaranteed annuities.

In an effort to placate policyholders, Vanni Treves, chairman, said the mutual had received a number of unsolicited offers to discuss the potential sale of the mutual's assets. He said the society was holding talks with "a significant number of very serious financial institutions".

But Resolution Life, a leading buyer of life funds that have closed to new business, indicated it was unlikely to be interested in Equitable's £pound;10bn closed with-profit fund, dashing hopes of a bidding war for the fund.

Paul Braithwaite, general secretary of the Equitable Members' Action Group, condemned the outcome of the litigation as "deplorable". He said Mr Treves and Charles Thomson, chief executive, were "totally discredited". The litigation had collapsed from "a shambles into a monumental climb-down" and non-executive directors should seek Mr Treeves' removal from the board.

Mr Braithwaite also attacked Equitable's claims to have received approaches for its assets as "just smoke and mirrors. This is not a bidding war. This is vultures picking over a cadaver".

Mr Thomson said Equitable was "bitterly disappointed" but insisted it had had a duty to pursue the claims. Mr Treves said he and Mr Thomson took responsibility for the outcome, but neither would resign.

Tim House at Allen & Overy, acting for six former non-executives, said the case "graphically demonstrates the folly of looking for a scapegoat for every disaster".

Equitable: one hope abandoned, another flickers

By Martin Dickson
Published: December 3 2005
http://news.ft.com/cms/s/be9a7d60-63a2-11da-be11-0000779e2340.html

Case against directors dropped

Equitable Life yesterday finally bowed to the inevitable and abandoned its negligence claim against the last of its former directors - bringing to an end an appallingly misjudged legal foray.

Its pursuit of those it blamed for its near collapse five years ago - the former directors and Ernst & Young, its former auditor, have involved the mutual in £pound;45m of costs, including a £pound;10m contribution to the legal expenses of the directors, for absolutely no benefit to policyholders.

Vanni Treves, the chairman of Equitable, has defended the actions on the grounds that legal advice gave it a duty to follow them through, but legal advice does not absolve a board of making rounded business judgments.

The board combined yesterday's defeat with news that it had received a number of bid approaches for all or parts of its business.

Is it too cynical to wonder whether the directors might be hoping that members' fury over the abandoned lawsuits might be assuaged by the knowledge that a marked improvement in the solvency position has made Equitable a more attractive takeover proposition?

But as Mr Treves notes, this is all at a very early stage, and none of the deals may be better than allowing the society to run off its obligations. Already one potential purchaser of the closed with-profits book, Resolution Life, appears to be backing away. That may be gamesmanship. But after the high hopes Mr Treves once held out for his foolish legal action, members should not get their hopes up too high.

Treves refuses to go after Equitable Life drops £pound;3.2bn claim

• Chairman says no regrets about suing ex-directors
• Prospect of sale fails to deflect criticism

Patrick Collinson
Saturday December 3, 2005
The Guardian
http://www.guardian.co.uk/frontpage/story/0,16518,1656924,00.html

Vanni Treves, Equitable Life's chairman, was under intense pressure last night to resign after the society abandoned claims of negligence against nine former directors and conceded total defeat in its four-year blockbuster £pound;3.2bn legal action to obtain compensation for policyholders.

But Mr Treves said he retained the full support of the board and instead tantalised policyholders by confirming that Equitable was in talks with "unsolicited third parties" about a sale and break-up of the business. A deal to transfer Equitable's £pound;7bn non-profits annuity business to Prudential could be wrapped up by Christmas, paving the way for a trade sale of the with-profits fund next year.

Article continues

A two-way battle is now emerging between Resolution Life (which has already bought Royal & SunAlliance's with-profits business) and Hugh Osmond's Life Company Investment Group (which bought Pearl Assurance) after another contender, Royal London, said that it would not be pursuing its "initial consideration".

But the prospects of a sell-off failed to deflect criticism over the £pound;45m cost to Equitable's 700,000 policyholders of the failed court action against the former auditors, Ernst & Young, and 15 directors. Yesterday it emerged that the insurer will pay £pound;10.2m to the former directors to cover much of their legal expenses.

The last defendants to settle - Jennifer Page, a former non-executive director of Equitable and one-time boss of the Millennium Dome - will be paid just over £pound;3m while Chris Headdon, Equitable's former chief executive, will get £pound;450,000.

Mr Headdon said: "This litigation has always been entirely pointless ... As clearly emerged at trial, the root causes of the society's difficulties were the combination of the judgment of the House of Lords in [Equitable v] Hyman closely followed by a severe and prolonged bear market in equities. The whole board should at last do the decent thing and offer their resignations to the members."

Paul Braithwaite, of the Equitable Members Action Group (EMAG), said the promise of billions in compensation, held out for four years, had finally hit the rocks and Equitable's board was just distracting policyholders with "deplorable smoke and mirrors" about the prospects for a sale.

"For four years, Vanni Treves rejected every EMAG initiative in holding the government to account, in favour of ill-conceived litigation - with grandstanding promises of illusory billions. Litigation isn't a strategy: it's a rich man's game that policyholders couldn't afford ... Vanni Treves is shown up to be a waster who can't be trusted with the society's future."

But Mr Treves said that while "enormously disappointed", he had no regrets about the case. "The decision ... was made on strong advice. We were advised in particular that we had a duty - linger on that word - a duty to take the action that we did. The board took the decision unanimously. It wasn't Treves off on a frolic."

He said he had offered his resignation formally once and informally several times but said the board was unanimous that he should continue. "I have always made it clear that if at any time I am asked to go, I would do so immediately. Have I ever had a sleepless night about this? No, I haven't ... [It] is not a job that I am hanging on to by my fingertips."

He said £pound;35m of the £pound;45m cost of the litigation had been provisioned for, and that the total was only £pound;75 per policyholder. "If we asked members four years ago that if it were all to go wrong, it will cost you £pound;75 each, do you want to go ahead, I suggest they would have said, go ahead."

Despite the cost of the long legal battle, Mr Treves said yesterday that the group's "free assets" rose by £pound;166m in the first half of this year and that the volume of customers transferring out slowed markedly.

"We are at a pivotal moment ... We are in a much more stable position than we have been for five years and there is a real sense that there is money in the bank."

He did not name potential bidders for the with-profits fund but said: "A substantial number of offers have emerged from unsolicited third parties. All the discussions we have started have been in the last two months."

Equitable drops the last of its £pound;3.75bn legal claim

By Christine Seib, The Times
http://www.timesonline.co.uk/newspaper/0,,175-1901908,00.html

JENNIE PAGE, the former Millennium Dome boss, yesterday called for greater protection for non-executive directors, after Equitable Life dropped its £pound;1.7 billion case against her and eight other former directors of the troubled mutual.

Meanwhile, furious policyholders called Vanni Treves, Equitable’s chairman, a “waster” after he admitted that the failed four-year legal action would cost members £pound;45 million.

Paul Braithwaite, general secretary of the Equitable Members’ Action Group, said that Equitable’s non-executive directors should act to remove Mr Treves and Charles Thomson, the chief executive. “The litigation has collapsed from a shambles into a monumental climbdown, leaving policy- holders with shattered dreams,” he said.

The mutual will pay the combined £pound;10 million costs of Ms Page, Chris Headdon, the former Equitable chief executive, and eight other former directors, including David Wilson, the property millionaire. Mr Wilson, founder of Wilson Bowden, the building group, settled with Equitable last month and agreed to cover his own costs — but included a clause that he be reimbursed if the mutual ended up paying other directors’ costs.

Equitable sued 15 of its former directors and its former auditors, Ernst & Young, for £pound;3.75 billion, alleging that they were negligent in allowing the mutual to come to the brink of collapse in 2000. The High Court action started in April, but the mutual dropped the last of its £pound;2.05 billion claim against E&Y two months ago and settled with six former directors, who agreed to cover their costs.

Ms Page, a former civil servant who also served on the board of troubled Railtrack and was sacked from the Millennium Dome in 2000, will receive from Equitable £pound;3 million to cover her legal costs and the time that she spent defending herself. She said that the Companies Act offered “no protection at all” even if non- executives acted fairly and reasonably.

“It’s very difficult to think the circumstances of non-executives is well-defined or well-protected in this day and age,” she said. “You can lose four years of your life, not be found guilty and still have absolutely no redress. If a climate of litigation by boards against their predecessors becomes a generality, you can see how being a non-executive could be a very dangerous thing to be.”

Mr Treves and Mr Thomson yesterday described themselves as “bitterly disappointed” by the decision to drop the legal action, but said that it would cost each member only £pound;75 each.