Monday 9 December 2019

PWC fails to get €30m security for its costs defending Quinn Insurance case

The PWC offices at Spencer Dock, Dublin. Photo: Caroline Quinn
The PWC offices at Spencer Dock, Dublin. Photo: Caroline Quinn

Aodhan O'Faolain

PriceWaterhouseCoopers has failed to get court orders requiring Quinn Insurance Ltd to provide security for the estimated €30m legal costs of PWC’s defence of a claim for up to €900m damages brought against it over its auditing of the insurer.

PWC claimed QIL would be unable to pay costs if it lost the damages claim for reasons including its dependence on the State’s Insurance Compensation Fund which is subject to political control.

The insurer’s joint administrators claimed its insolvency arose from failures of PWC as auditors, including concerning evaluation of QIL's reserves, and was not a basis to grant security for costs.

In a 90 page judgment on Tuesday refusing security for costs, Mr Justice Robert Haughton said he was satisfied, for the purpose of this application, QIL had made out a prima facie case its inability to discharge costs that might be awarded to PWC flowed from alleged wrongdoing of PWC subject of the case.

He was satisfied QIL had made out a prima facie case of a causal connection between the alleged wrongdoing of PWC and the losses claimed by QIL which, as currently pleaded, amount at their height to €900m.

This was no "run of the mill" professional negligence case and it raised issues of "great public interest and exceptional public importance" as well as significant points of law relating to the regulatory framework and obligations of auditors of insurance companies, he also said.

There was "undoubtedly a significant public interest" in ascertaining why QIL collapsed, resulting in the administrators having to seek some €1.1 billion from the State's Insurance Compensation Fund (ICF) and a 2 per cent continuing insurance levy on motorists.

The public interest extended to how QIL could collapse notwithstanding the regulatory system, the role of the financial regulator and the need for public confidence in the “proper regulation” of the insurance industry in the future.

While he accepted a defendant is entitled to expect to recover costs should they successfully defend a case, and it would be unjust to suffer a financial burden in defending a claim, there was no "absolute right" to such costs, he said

While PWC argued QIL is dependent on the ICF for funding, and was therefore in a similar position to a State body, that failed to take into account the exceptional and ongoing public impact of the QIL collapse and the issues of exceptional public importance identified by the court, he added.

The case against PWC was initiated in 2012 and concerns its auditing of QIL between 2005 and 2008.

It arises after QIL was placed in administration in June 2010 and because some €1.1bn is expected to be drawn down from the ICF to meet the deficit between the firm's assets and liabilities.

It is alleged, had PWC identified problems with QIL's claims reserves between 2005 and 2008, it would have been apparent to QIL its business was in "a more parlous state" than it believed and certain actions would have been taken by QIL and/or the financial regulator. 

The administrators have alleged breach of contract and breach of duty in PWC's auditing and contend PWC should have known QIL's relevant financial statements and regulatory returns did not truly reflect the state of the company's affairs for those years.

PWC denies the claims and has filed a full defence. The firm contends it has no liability, that QIL's directors were responsible for its management and strategy and the company failed to provide PWC with complete and truthful information.

It also claims any losses incurred by QIL due to its continued trading were not caused by QIL's reliance on PWC but were due to decisions taken by QIL itself and/or the actions of the administrators, particularly the latter's approach to the handling of claims. 

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