Do you have the “Victory” a chance to succeed in court with BCG

With high probability, the same fate awaits the dispute “Victory” with BCG. It can be assumed that the lawsuit filed by the airline in order to negotiate with the consulting company on the best terms. But whether the “Victory” a chance to win, if the agreement does not work?

One of last loud disputes with participation of such companies was the court at the request of the Federal Corporation of insurance of deposits (FDIC) of the United States to PwC. Before the financial crisis of 2008 PwC a few years was the auditor of the Colonial Bank Group (the parent company of Colonial Bank) and did not see fraud involving a Bank and one of the leading mortgage underwriters in the United States – Taylor, Bean & Whitaker.

It turned out that TBW for several years exceeded Bank credit to cover the shortage of own funds. And in return sold Colonial Bank’s mortgage bonds has already been sold to other investors. Auditors PwC was unable to identify these violations. In the result of Colonial Bank went bankrupt, and the FDIC losses totaled $3 billion In July 2018, U.S. district court has ordered PwC to pay FDIC compensation in the amount of $625,5 million

March 30, 2018 Ukrainian PrivatBank filed a lawsuit against the Cypriot and Ukrainian companies, PwC. PrivatBank requires damages of $3 billion because of the poor quality of audit by a consultant for many years. The review of financial statements traditionally have not been identified in the Bank fraud. However, when in December 2016 PrivatBank became the property of the state, a hole in his capital exceeded $5.5 billion.

However, the claims against the consulting companies is rather the exception. Even if a dispute with such a company goes to court, it is resolved most often outside its walls. If we analyze the data of electronic base of the Russian legal disputes on more than 20 cases against large consulting companies, it turns out that most cases are dismissed as a result of the rejection of the claim – most likely, the plaintiffs are doing it after reaching mutually beneficial agreements with the consultant. In rare cases, the dispute comes before the court, however, it is during the closed court session. For example, in the case of the Federal passenger company against KPMG 2017 to claim free repair of the defects in the services (case A41-58708/2017) were classified all of the text of judicial acts

In November 2017, in an open competition, in which participated also Bain and McKinsey, “Winning” chose BCG, to enter into a contract in the amount of 58 million rubles. BCG was to develop the low-cost airline business strategy, analyzing trends in the industry low-cost air travel, identifying the main competitors, target customer groups, the development of the route network and aircraft fleet and installing of operational and financial guidelines.

The results of the airline was not satisfied, and she went to court with the requirement to terminate the contract. The reason for this was named for two reasons. First, the consultant violated the terms of preparation of the strategy, presenting the project for six months after the deadline. Second, the document was “not carrying any value” for “Victory.” In the lawsuit the airline noted that business strategy is not analyzed the cost of implementation and economic effect from realization of services not estimated the impact of the value-added services, especially baggage fares flights. The strategy was not clearly structured route network with the introduction of new directions and concomitant costs. There was also no justification for the aggressive growth of its aircraft fleet for a five-year period.

For the court decisive in establishing the validity of these claims will be the language in force between the parties to the contract, and evidence.

Speaking of deadlines, then a substantial violation really gives the customer the opportunity to cancel the contract. However, such a violation could have been the fault of the customer, for example, if he hadn’t provided the necessary baseline information for the development of the strategy.

As for the evaluation of the quality of advice, it is, as well as the topic of the responsibility of the consultant (responsible for the Council), has long been a problem in judicial practice. This type of contract as consulting services, even if those services are bulky and expensive, usually do not draw up a detailed specification (e.g. for construction work) and do not prescribe detailed and detailed requirements for the result (the outcome document-the report, strategy, etc.).

As we can see in practice, sometimes even legal qualification of such a contract is not always true. Suffice it to recall the recent court cases in which consulting services have turned into real estate management. As it happened, for example, in the fall of 2017 in a court dispute where the tax authorities reclassified the services that “VTB Capital”, had Luxembourg Finnist of the Advisory services are exempt from VAT, the services of property management, from the cost which you should pay VAT at the rate of 18%.

In this regard, the court is quite difficult to establish the quality of services performed and whether the outcome document of the aims and objectives of the customer, which he pursued at the conclusion of the contract. In this case to help the court usually visited by experts on the basis of conclusions which the court makes a final conclusion about the quality of services and value delivered to the customer result. Most likely, we should expect such a turn of events and in litigation at the suit of the airline “Victory”.

It is also interesting that the airline may terminate the agreement in connection with the “poor quality” advice only in two cases: if deficiencies are significant or fatal or if they were not corrected by the contractor within the prescribed period. The first case is unlikely to apply – disadvantages of the strategy document can typically be corrected. Remains the second case. If “Victory” hurried from the claim without first giving BCG time to correct deficiencies, the court will likely deny review of the case.

The details of the case should become clear, if the dispute is still to be considered by the court. In any case, the lawsuit “Victory” promises to be a loud and interesting. And as any precedent, it may be crucial for the formation of new legal approaches to disputes about the quality of consulting services.

Leave a Reply

Your email address will not be published. Required fields are marked *