PwC says Quinn court case will cost it €30m
Accountancy firm is defending claim over its auditing of Quinn Insurance
PwC’s Dublin office. PwC was the auditor of Quinn Insurance Ltd for the years ending 2005, 2006, 2007 and 2008 and the administrators have alleged breach of contract and breach of duty in its auditing.
Accountancy firm Price WaterhouseCoopers has estimated it will incur legal costs of more than €30.1m in defending a claim for €800m brought against it over its auditing of Quinn Insurance Ltd (QIL).
The case arises from QIL being placed in administration in June, 2010 and the fact more than €1.2 billion has so far been drawn down from the State’s Insurance Compensation Fund (ICF) to meet the deficit between the firm’s assets and liabilities.
In a pre-trial application, PwC has expressed concern whether QIL can pay PWC’s legal costs if QIL loses and it wants court orders requiring QIL provide security for those costs.
QIL’s financial statements for 2014 showed a balance sheet deficit of €1.21bn and QIL entirely depends on the fund to continue as a going concern, PwC said in court documents.
The fund’s support depends on decisions outside QIL’s control, particularly by government and, even if the government continues to support the compensation fund, QIL is also dependent on a High Court judge allowing it to draw down additional monies from the compensation fund , PWC said.
In the QIL action, initiated by the administrators in 2012, 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.
PwC was the auditor of QIL for the years ending 2005, 2006, 2007 and 2008 and the administrators have alleged breach of contract and breach of duty in its auditing. 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, they claim.
PwC denies the claims and has filed a full defence. PwC contends it has no liability, that QIL’s directors were responsible for its management and strategy and that 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.
PwC’s security for costs application was mentioned before Mr Justice Brian McGovern at the Commercial Court on Monday and he agreed to list it on May 30th.
In court documents, PwC audit partner Paraic Joyce said, while the case was initiated in February 2012, the pleadings have yet to close due to the vagueness of the claims being made.
The fact some forty million documents were being reviewed for discovery underlined the complexity of this case, he said.
PWC wants security for costs because there was reason to believe QIL will be unable to pay PwC’s legal costs should QIL lose its case, he said. QIL’s financial statements for 2014 recorded the joint administrators had provided €6.3m for “legal provision”, a reduction from the sum of €13.9m in 2013.
It was “entirely unclear” whether PWC’s legal costs are included in thoss financial statements and, even if they were, PWC was concerned QIL may be unable to discharge them, he said.
His side had written to QIL seeking it would provide security for PWC’s legal costs but were told there was no basis for PWC being entitled to such an assurance. QIL’s solicitors later said any application for security for costs would be resisted on groudns including, if QIL’s financial condition was such as to warrant security, that condition would have been caused by PwC’s alleged wrongdoing.
PWC seriously apprehends the gradual disposal of QIL’s various assets and the transfer of certain insurance business to Catalina has hastended the prospect of it being wound up, Mr Joyce said. That woud leave PWC compromised in any attempt to recover its costs following a successful defence of the case.