PriceWaterhouseCoopers has failed to get court orders requiring Quinn Insurance Ltd to provide security for the estimated €30 million legal costs of PwC's defence of a claim for up to €900 million damages brought against it over its auditing of the insurer.
PwC claimed Quinn Insurance 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 Quinn Insurance’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, that Quinn Insurance had made out a prima facie case its inability to discharge costs that might be awarded to PwC flowed from alleged wrongdoing that is the subject of the case.
He was satisfied Quinn Insurance had made out a prima facie case of a causal connection between the alleged wrongdoing of PwC and the losses claimed by Quinn Insurance which, as currently pleaded, amount at their height to €900 million.
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 Quinn Insurance 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 Quinn Insurance 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 Quinn Insurance 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 Quinn Insurance 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 Quinn Insurance between 2005 and 2008. It arises after Quinn Insurance was placed in administration in June 2010 and because some €1.1 billion 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 Quinn Insurance’s claims reserves between 2005 and 2008, it would have been apparent to Quinn Insurance its business was in “a more parlous state” than it believed and certain actions would have been taken by Quinn Insurance 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 Quinn Insurance’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 Quinn Insurance’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 Quinn Insurance due to its continued trading were not caused by Quinn Insurance’s reliance on PwC but were due to decisions taken by Quinn Insurance itself and/or the actions of the administrators, particularly the latter’s approach to the handling of claims.