UK: Scottish & Newcastle continues the fight in PwC court case

Scottish & Newcastle (S&N) is to continue pursuing a damages claim against Big-Four accountancy firm PricewaterhouseCoopers (PwC) in the hope of winning tens of millions of pounds in financial compensation, Business Scotsman announced February 1.

The claim, filed last year, arose after PwC provided consultancy advice on the restructuring of supply arrangements at the Edinburgh brewer's Scottish Courage arm between 2001 and 2003. However, in early 2003, S&N rattled investors with a profit warning and an admission that its supply chain project had come unstuck, sending its share price to a two-year low.

Legal experts say the English high court claim is unusual in that most allegations of negligence arise from bread-and-butter audit work rather than consultancy advice, despite the latter being a massive growth area for the big accountancy practices. Such disputes are often resolved before reaching court.

Alayne Swanson, a specialist in commercial litigation at Scottish law firm Maclay Murray & Spens, said: "There are a large number of cases in the building industry where the engineers or architects are consultants, but it is unusual in relation to management consultancy work. Any case might also depend on what the contract between the parties actually said."

She added: "Most people would want to try and sort this kind of thing out before reaching litigation. In England they are required to say that they have tried to reach a mediated settlement and it hasn't worked before they can go forward with a case."

It is understood that the two parties in the dispute appeared in court last week for a brief hearing to address the mass of e-mails and electronic documents pertaining to the case.

Although any litigation is likely to be protracted, involving claims and counterclaims, S&N will feel it is a cause worth pursuing, with the legal costs paling alongside the potential scale of the damages.

A spokesman for the brewer, whose brands include Foster's, Kronenbourg and John Smith's, declined to elaborate on the case, while PwC said it would be "inappropriate to comment further".

According to court documents filed by S&N, the accountancy giant was first retained to provide consultancy advice on a major review of Scottish Courage's supply chain in the late 1990s. This led to proposals for a "radical restructuring" to be implemented over a four to five year period. S&N alleges that PwC "strongly and unequivocally recommended the strategy" and claims that it was told the shake-up would lead to annual savings of around £35m by year four.

The supply chain plans were designed to reduce stockpiling in S&N's warehouses, caused by a shift in the market from primarily cask beer to bottled beers. The group aborted the overhaul after the costs rocketed.

S&N shares, which have risen steadily since October 2004, dipped 8p to close at 543p.

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