Barings mulls out-of-court deal as £1bn lawsuit gets under way

Liquidators to Barings Bank were exploring a possible out-of-court settlement to their £1bn lawsuit against its former auditors last night, after the twice-delayed case got under way in earnest at the High Court yesterday. If a settlement is not reached, the case is expected to be the longest and most expensive in British legal history.

Lawyers acting for KPMG, which represents Barings' main creditors, are thought to have been locked in talks with PricewaterhouseCoopers, the main defendant in the action. Deloitte & Touche, PwC's co-defendant, is not involved. KPMG claims that the firms failed to spot rogue futures trades, made by Nick Leeson, which brought Barings down in 1994 with losses of more than £800m.

"Everyone wants to settle this. There were lot of talks ahead of the hearing, which unfortunately didn't lead to anything," a source close to the talks said yesterday.

An out-of-court settlement reached with PwC in June later fell apart amid disputes among the creditors, principally holders of Barings bonds issued in 1986, over how to divide its proceeds. While creditors have since settled their differences, they are said to have regained their stomach for a lengthy court battle after appointing KPMG as liquidators in place of Ernst & Young. If yesterday's hearings are anything to go by, the creditors' patience will be tested. The morning session was given over to an explanation of the complicated group structure of the former Barings plc, and a description of the technicalities of futures and options trading.

Michael Brindle QC, for Barings Futures Singapore, a third party to the case, admitted that the explanations may be obvious to the judge, Mr Justice Evans-Lombe, who immediately agreed. Charles Aldous QC, for KPMG, told the court Coopers & Lybrand, which is now part of PricewaterhouseCoopers, had signed off accounts showing net profits of £78m and net assets of £153m at Barings in 1994, when the true position was a loss of £107m and a £53m assets shortfall. "If these basic audit failures had not happened, Barings would still be here today," he said. He also suggested that the auditors should have spotted doctored information supplied to Barings, which implied Mr Leeson had hedged his positions. Even a newly qualified accountant should have been able to spot the "flagrant window dressing" that had occurred, he said

"The failings of the auditors were in many respects elementary," he said. "However hard the auditors try to pin the blame on management, we must not forget what the auditors' duties were and to whom they were owed."