Poland’s Emperia sues Ernst&Young over losses

One of Poland’s largest trade companies, Emperia, sued the world’s class auditor Ernst & Young and demands PLN 400 mln indemnification.

“We decided to file a law suit against Ernst & Young and demand for indemnification because as an immediate result of the auditor’s decision last year we suffered measurable losses, which we estimated at PLN 430 mln,” Emperia’s CEO, Artur Kawa told the newspaper, as cited by the Polish daily Rzeczpospolita.

The issue is liked tolast year?s sale of Emperia’s subsidiary, Tradis, to Eurocash. Both sides contracted Ernst & Young to calculate the sales value of Tradis. Emperia claims that the auditor accepted estimation procedures proposed by the company and Eurocash.

“Unexpectedly, after a few months, being already seriously behind on the deadline, the auditor demanded that it be completely exempted from the responsibility for the effects of its work,” Zbigniew Drzewiecki, partner at law firm Drzewiecki, Tomaszek & Wspolnicy, which represents Emperia, told Rzeczpospolita. “The auditor further demanded to be paid more than twofold in relation to the originally agreed salary. Additionally, it wanted that the two companies agree that it followed its own procedures while estimating the sale value of Tradis.”

Emperia and Eurocash did not accept the proposed changes and as a result, the two companies remained with their own estimates: Emperia’s estimate totaled PLN 1.12 bln while Eurocash valued Tradis at PLN 920 mln. The ensuing conflict took the two companies to an arbitration court and ended by finally reaching a compromise, which, according to Emperia’s CEO, cost the company measurable financial loss. Ernst & Young refuted the accusations saying they have no legal grounds and are not fictitious.

The enormous PLN 430 mln of indemnification which Emperia demands come from: the difference between the sale value actually paid by Eurocash and its value if the auditor had followed the estimation procedures originally agreed by the three parties (some PLN 70 mln), legal assistance expenses related to the arbitration case with Eurocash (PLN 2 mln), and the difference between the current and Eurocash’s share price stipulated originally in the agreement, which Emperia would have taken over should the original agreement have not been breached (some PLN 360 mln).