The Moore Stephens case: a sense of deja vu

Another year, another big audit claim. Moore Stephens is facing a £90m claim in the High Court from the liquidator of former client Stone & Rolls. The case is, many will have noted, being heard by the same judge who two years ago handled the Equitable Life claim against Ernst & Young.

The similarities do not end there. The case was rubbished in court when part of the claim was outlined, a battering not dissimilar to that handed out to Equitable’s QC Iain Milligan.

The case raises many of the same questions that the Equitable case raised, and may make insurers and auditors wonder whether playing for time, and exposing arguments, is a better strategy than settling out of court.

WHAT’S HAPPENED?

Moore Stephens is being sued by creditors who, with not enough cash to bring the case themselves, have the help of litigation funding. The use of a third party interest in the case has terrified auditors, who are seen as deep pockets.

But the case has started well for Moore Stephens. At the time of going to press, a judgment on the strike out claim was expected, but notwithstanding that, the judge had already weighed in to question part of the creditors’ claim, about compound interest.

‘The test for ordinary interest is discretionary, what you are seeking to claim are special damages, aren’t we in cloud cuckoo land here?’ Mr Justice Langley said.

Worringly for the creditors, the same judge never made any comments quite so scathing about Equitable Life’s case.

WHAT’S GOING TO HAPPEN

‘Auditors have been seen as deep pockets. Throughout the 90s, whenever there was a corporate collapse, there was a claim against the auditors’ says Jo Rickard, a litigation expert at law firm Shearman & Stirling.

The Equitable Life case, amongst others, has changed all that. What Ernst & Young achieved, in facing Equitable down and waiting for its claims to be exposed as flimsy in court, has encouraged insurers and auditors to stand their ground, she says.

But the uncertainty for auditors where litigation funding exists will remain. Whether or not the claims stand up, there look like being more of them.

The Moore Stephens case may prove an early test of that new climate for audit claims.