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Miners and accountants squabble.

In ongoing legal squabbles from 1992 to 1996, Ernst & Young, an accounting firm, and Butte Mining plc (Butte), have carried their battles from Montana (United States) to Great Britain in four separate court actions.

On May 20, 1992, Butte initiated an action in the U.S. Federal District Court of Montana against the Arthur Young firm (later becoming part of Ernst & Young), who were the reporting accountants for Butte's October 1987 flotation of stock on the London Exchange and for a second stock flotation in April 1988 for the acquisition of another English company, North Butte Investments Ltd. Butte brought the action in the U.S. court under the Racketeering Influenced and Corrupt Organizations Act (RICO), relying on alleged fraud charges contrary to the U.S. Securities Exchange Act, 1934. Under RICO, treble damages were available.

On May 26, 1992, Ernst & Young, plaintiff, commenced an action in England against defendant Butte Mining claiming about [pounds]315K, plus interest, in unpaid professional fees for its work as auditor and accountant for Butte's flotation of stock. Shortly after the fees action started, Ernst & Young was enjoined by the Federal District Court in Montana from taking any further action. The injunction was upheld by a U.S. Court of Appeals and was continued until January 31, 1995, when it, along with Butte's action, was dismissed for lack of subject matter jurisdiction.

Shortly after the Montana actions failed in February 1995, Ernst & Young filed an action in the Commercial Court in England to restrain Butte from pursuing an appeal in the Montana action. In March 1995, plaintiff Ernst & Young entered a motion for judgment in the fees action in Butte's default of a defense.

On July 21, 1995, Butte commenced an action in the Chancery Division in England claiming damages from Ernst & Young as their accountants and auditors in connection with its acquisition of Gramcol Zircon Ltd. in 1989.

With reference to the plaintiff s motion for judgment, defendant Butte, in support of its subsequent application to set aside the judgment, filed an affidavit exhibiting a draft defense and counterclaim for [pounds]1.9M, alleging breach of duty, including conspiracy, in connection with its earlier acquisition of another company. Butte filed a further affidavit showing a fuller defense and counterclaim for [pounds]100M.

The parties' solicitors later conducted (without prejudice) discussions for setting aside the default judgment on terms. On January 31, 1996, the court sealed a consent order setting aside the default judgment and providing that the defendant Butte "be at liberty unconditionally" to serve its defense and counterclaim on Ernst & Young.

The plaintiff's solicitors received notice of carriage of the court order just after midday, February 1, 1996, and immediately notified defendant's solicitors by fax of both the court order and a notice of the plaintiff's discontinuance in the hope of beating, and thereby defeating, the defendant's solicitors' filing of the counterclaim. The fax notice was followed by personal service on Butte's solicitors. However, by mid-afternoon of the same day, the defendant's solicitors had served the counterclaim on the plaintiff, simultaneously applying to set aside the service of the notice of discontinuance as an abuse of the process of court.

In Ernst v. Butte Mining (Robert Walker, J) [1996] 2 All ER 623 ChD, the court held that (1) Butte did not, before or on the making of the consent order, have a subsisting counterclaim that would survive the plaintiff's notice of discontinuance under RSC Ord.15, r2(3); (2) the service of notice by the plaintiff was an abuse of process and must be set aside; and (3) Butte's defense and counterclaim stand, subject to possible attack on other grounds.
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Title Annotation:Assays from the Legal Vein
Author:Aston, R. Lee
Publication:E&MJ - Engineering & Mining Journal
Date:Jun 1, 1997
Words:609
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