Former non-executive directors of Equitable Life are claiming that the £1.7 billion lawsuit launched against them by the crisis-hit insurer was simply a way of getting into the "deeper pockets" of its auditors Ernst & Young.
As Equitable's lawyers began the painstaking task of presenting its highly-complex case to a High Court judge in London, defence lawyers made public an allegation that chairman Vanni Treves had said the current board had no wish to find scapegoats and the only basis for a claim against former directors would be "as a conduit to really deep pockets".
Mr Treves is alleged to have told one of the ex-directors, John Sclater, in May 2001 that the object of the court case was not to bankrupt or imprison him.
He told Mr Sclater the insurance society just wanted to see if there was "a deep pocket anywhere that could be made to pay up, for example E&Y", according to a written summary of part of the defence case on behalf of six of the exnon-executive directors.
Equitable Life is suing accountants Ernst & Young for £2.05 billion and claiming up to £1.7 billion against 15 former members of the Equitable board in the wake of the financial disaster which brought it close to collapse in July 2000.
The firm's downfall came after the holders of guaranteed annuity rate policies (GARs) won a test case against the society in the House of Lords.
The Law Lords ruled that the company acted unlawfully when, in response to substantial falls in interest rates and current market annuity rates, it reduced the terminal bonuses payable to GAR policyholders on retirement so as to be able to spread the available "pot" among non-GAR customers as well.
As soon as it lost the Lords case, the society admitted liabilities were in excess of £1.5 billion.
Equitable alleges E&Y was negligent and in breach of duty in failing to report that the society's accounts in 1997- 99 did not include proper provision for GARs and in failing to include a warning in the 1999 and 2000 accounts of the risk of losing the GAR case in court.
The former executive and non-executive directors sat on the board for all or some of the relevant years between 1996 and 2001.
They are accused of negligence and breach of fiduciary duty in failing to take legal advice before deciding on the differential terminal bonus policy which led to the GAR court case and in failing to mitigate the financial risk of losing the GAR litigation and to inform policyholders of the risk.
The allegations are emphatically denied.
E&Y says Equitable's claim against it is "misconceived and entirely without merit".
The hearing continues.
