We will press on with the bonus declaration claims... (which) allows a claim of hundreds of millions of pounds to be pursued against E&Y Vanni Treves, Equitable Life chairman

Two of the three claims against E&Y were dismissed, while the judge said Equitable needed to resubmit the third.

Equitable had accused E&Y of failing to give proper advice when auditing the society during the 1990s.

In 2000, Equitable came close to collapse after it lost a test case in the House of Lords, and was forced to meet financial commitments it could not afford.

Financial crisis

Equitable's problems stemmed from guaranteed annuity polices, which had promised to pay out a certain amount on retirement.

But Equitable tried to back out of its commitments when it found it could no longer afford to pay long-standing policyholders the pension they had been promised.

The policyholders took the company to the court and won, leaving Equitable with huge legal bills, besides forcing it to pay policyholders more than it said it could afford.

As a result, Equitable was forced to close to new business in December 2000, and in 2001 it sold part of its business to Halifax bank - now part of HBOS.

Lost opportunity

Equitable had claimed E&Y failed to warn it of the financial liabilities it faced from the guaranteed annuity products.

The judgment vindicates our belief that this claim was ill-conceived and bound to fail from the outset Nick Land, Ernst &Young UK chairman

If it had known what level of provisions it needed to have made, Equitable said it would not have declared the bonuses it did during the late 1990s.

It also said it would have put itself up for sale in 1998, obtaining a far higher price than later possible.

The claims over the lost chance of a sale were dismissed.

But the judge said he would allow Equitable to resubmit the claim over the bonuses even though "the present claim has been starkly exposed as seriously flawed".

He added the claim was "fanciful in approach and amount" and any new action would need to be "presented with a rigour and reality that is presently lacking".

Mixed reaction

Equitable's chairman Vanni Treves said the society would appeal against the decision by the court to strike out the lost sale claim.

And he added "we will press on with the bonus declaration claims and the preliminary advice we have received is that the judgement, as it stands, allows a claim of hundreds of millions of pounds to be pursued against E&Y".

But E&Y said the judge's decision justified its own actions.

"The judgment vindicates our belief that this claim was ill-conceived and bound to fail from the outset," said E&Y's UK chairman Nick Land.

"The judge has made clear that it cannot be said to be any part of the auditor's duty to protect the society against the fall in value of its goodwill.

"His comments have also delivered a serious blow to both the approach and the amount of the remaining claim in respect of bonuses.

"It is very hard to see how Equitable can resurrect what remains of the claim," Mr Land added.

"We are absolutely confident of defeating any restated claim that might emerge."