A new battlefront opened up yesterday in the £1.7 billion (€2.5 billion) legal fight between Equitable Life and its 15 former directors, with allegations that a letter the society sent to its policyholders last week may have been in contempt of court.

In the letter, signed by Vanni Treves, Equitable chairman, and Charles Thomson, chief executive, the society set out its explanation for its decision to walk away from a £750 million negligence claim against Ernst & Young (E&Y), its former auditor, despite having spent about £30 million on the litigation.

Equitable said yesterday: "We are confident our letter is neither defamatory nor in contempt."

The letter referred in some detail to the evidence given in court by the 15 former directors, which Equitable is also suing for negligence and breach of duty. The authors said this evidence "frankly, took us aback" and suggested that it "undermined our case against E&Y".

The tone and content of the letter is understood to concern a number of the former directors, against whom the society says a £1.7 billion claim is continuing in spite of the E&Y settlement.

Peter Martin, one of the former non-executive directors, has written to Mr Justice Langley, the judge hearing the case, and Lord Goldsmith, attorney-general, questioning whether the letter may have been in contempt because of its impact on future witnesses.

If the trial resumes as scheduled next week, a number of accountants, actuaries and bankers would be called to give "expert evidence". Mr Martin suggests that an alternative course might be to warn these witnesses to put the policyholder letter out of their minds, but says that this is not a preferred course.

The latest furore comes as proceedings are adjourned, in the wake of the E&Y settlement deal, to allow the parties to work out how to reschedule matters.

Equitable said last week that the action against the 15 former directors would continue, but there has been speculation that a settlement will be arrived at.

The claims against former directors allege negligence and breach of duty in failing to take legal advice before deciding on the society's differential terminal bonus policy and for failing to take steps to mitigate the financial risk of losing a test case over this in the House of Lords. The claims are strenuously denied. - (Financial Times Service)