Slater & Gordon UK hit with a counterclaim by Watchstone Group

Slater & Gordon UK hit with a counterclaim by Watchstone Group

Once a prized acquisition of law firm Slater & Gordon (ASX: SGH) and now an aggrieved respondent, Watchstone Group has launched its own counterclaim against the separate UK law firm.

The professional services business, formerly known as Quindell, was acquired for $1.3 billion by Slater & Gordon in 2015.

It was the beginning of a painful period for the law firm which separated its UK business from its Australian business in 2017 after posting two major full year losses in a row.

The takeover did not go to plan, and in 2017 Slater & Gordon UK brought a claim for £637 million against Watchstone after they were hit with an $880 million impairment charge, which S&G attributed to the Quindell acquisition.

Slater & Gordon is suing Watchstone for breach of warranty and fraudulent misrepresentation over the sale of the division

Watchstone has now been granted permission from the UK High Court to bring a £63 million counterclaim.

The counterclaim is for exemplary damages, interest and costs for breach of confidence including breach of contract, and unlawful means conspiracy.

Watchstone says the counterclaim arises from its discovery of an illicit back channel that Greenhill & Co (a corporate finance adviser to Slater & Gordon) procured during the period of due diligence and negotiation with Watchstone's restructuring and technical accounting adviser, PricewaterhouseCoopers (PwC).

The UK professional services firm says that at Slater & Gordon UK's request Greenhill established a back-channel with PwC by a series of secret meetings between representatives of Greenhill and PwC at which it unlawfully obtained confidential information about Watchstone's wider group.

The firm then alleges that Slater & Gordon then factored that confidential information into its tactics and strategy for the negotiations with Watchstone leading to the acquisition of the group's professional services division.

Ultimately, Watchstone says Slater & Gordon UK used this information to acquire the professional services division at a lower price than it would otherwise have had to pay.

"S&G thereby planned to, and did cause, Watchstone to suffer significant loss," says Watchstone.

Watchstone's counterclaim is to be heard at the same time as the trial of Slater & Gordon's claims against Watchstone, beginning 21 October 2019.

The Watchstone counterclaim comes as Slater & Gordon Australia has posted its FY19 financial results.

The law firm continues to improve its financial position in FY19, posting a NPAT of $31.3 million, positively impacted by the requirement to recognise a deferred tax asset of $37.6 million.

This compares to the FY18 profit of $113.7 million, which was impacted by discontinued operations, and the one-off gain of $211.7 million on the disposal of the company's UK operations.

The group's revenues were down 1.25 per cent to $159.5 million.

Group chair James Mackenzie says the results reflect the improvements made over the last 12 months.

"The work that we have undertaken to stabilise and transform the company is delivering results and we are now firmly focused on the future," says Mackenzie.

"Our focus now is on looking forward and working together to build the firm of the future and continue our legacy of delivering affordable, high quality legal services for the thousands of Australians who need our help."

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