Slater & Gordon settles Watchstone fraud claim in UK for paltry $20m

The embattled law firm has walked away from a hoped-for $1.2bn payday against UK insurance group Watchstone for £11m ($20m).

Slater and Gordon has settled a fraud claim just hours before a High Court trial.

Former market darling turned embattled law firm Slater and Gordon has walked away from a hoped-for $1.2bn payday against British insurance group Watchstone in favour of a paltry $20m settlement over the group’s bungled Quindell acquisition.

An eleventh-hour deal on the courtroom steps has resulted in a £11m ($20m) settlement over alleged fraud relating to the Slater and Gordon’s ill-fated takeover of Watchstone’s professional services division in 2015.

However, the Australian arm of the class action specialist will unlikely see a cent of the settlement, despite expecting initially to receive $40m of any deal between Slater and Gordon UK and Watchstone.

READ MORE: Slater and Gordon seek $1bn for Quindell ‘fraud’

Quindell changed its name to Watchstone after Britain’s Financial Conduct Authority investigated Quindell’s profit figures amid concerns they were inflated. Britain’s Serious Fraud Office also opened an investigation after revelations in August 2015 that Quindell had overstated its profits and made a £375m loss.

Slater and Gordon, which listed in Australia in 2007, bought the professional services division from Quindell for $1.3bn in 2015 as the Australian law firm raced towards a $3bn market capitalisation.

However, Slater and Gordon soon imploded after concerns were raised in relation to its financial accounts, in particular overly optimistic work-in-progress revenue. Shares in the company have since sunk more than 90 per cent and the group has been forced to tap shareholders to raise funds to pay down debts and strengthen its balance sheet.

READ MORE: Slater and Gordon slips to first half loss

In March, Slater and Gordon secured a debt restructuring, where debt was sold at 20c in the dollar. The 80 per cent haircut for former debt holders Westpac, NAB, Barclays and Royal Bank of Scotland left a group of local and international hedge funds with control of the $730m debt pile.

Last-minute settlement

Following the collapse in the company’s value, Slater served a £637m claim against Watchstone in 2017, but the two settled just before the trial was due to start on Monday.

“Slater and Gordon does not expect to receive any payment from the settlement,” the law firm said in a short statement issued to the market.

“We believe that this result has no adverse accounting consequences for Slater and Gordon, as the company has never recognised the Watchstone entitlement as an asset on its balance sheet.”

Slater and Gordon had claimed that the value of Quindell was overstated during the sale talks in 2014, causing the group to lose more than £490m in the first six months of the 2016 financial year when UK regulators investigated Quindell’s profit figures.

Watchstone then countersued Slater and Gordon for £63m, alleging that business secrets had been “unlawfully obtained” by the law firm during the negotiations between the groups.

Undisclosed terms

Slater and Gordon chief executive David Whitmore said the two sides had settled the dispute on undisclosed terms. “We are pleased this matter has drawn to a conclusion,” he said.

Watchstone chief executive Stefan Borson said as part of the settlement, the company had dropped its £63m counterclaim launched in August and the settlement had been made without admission of liability by either party. Slater and Gordon has also withdrawn its claims of alleged misconduct.

The settlement means Watchstone will hand over £11m out of £50m being held in escrow and will take back the balance of £39m and accrued interest. No applications for costs are to be made by either party.

Investigation by Britain’s Serious Fraud Office is continuing.