The ongoing Slater and Gordon (S&G) saga shows no sign of abating, as the Watchstone Group (formerly Quindell) in October denied fraudulently misrepresenting itself over the sale of its professional services arm to the beleaguered law firm.
The £637m buyout in May 2015 proved to be the beginning of a downward spiral for S&G as, following the deal’s completion, the Serious Fraud Office launched a probe into Quindell’s accounting practices. As a result, S&G’s shares tumbled.
S&G served a claim for the purchase price of Quindell on Watchstone earlier this year, accusing the company of being dishonest during the transaction. Court documents reveal that S&G is alleging Watchstone misrepresented its dilution rates, described as ‘the expected rate at which cases accepted by Quindell would fail’.
According to S&G’s claim form, during its due diligence Watchstone had advertised its average dilution rate for road traffic accident claims at 11.2%. S&G says this is despite an April 2015 independent review of Quindell’s accounting policies from PwC showing that the dilution rates were ‘somewhat aggressive’ and ‘at least 5% too low’ – a report S&G claims was not disclosed to the firm.
However, Watchstone’s recently-filed defence refutes these statements, arguing that S&G has wrongly conflated two different concepts to arrive at the stated dilution rate. S&G had allegedly confused dilution rates in Quindell’s management accounts with rates that featured in a PowerPoint presentation prepared by Quindell for illustrative purposes only.
Watchstone argues that S&G in any case did not rely upon financial information supplied by Quindell, rather it ‘boasted publicly that they had carried out their own calculations and made their own judgements based on their comprehensive due diligence’. Watchstone alleges that the due diligence cost S&G £31.7m.
Watchstone also states that for many months following the buyout, S&G ‘told the market, and its investors, that it was happy with its purchase, and with the thoroughness and reliability of its due diligence’. The defence states: ‘All of the matters which S&G now claims are evidence of fraud were known to it at or shortly after completion yet no claim was brought until over 24 months later.’