Parliamentary All Party Group AGAINST FINANCIAL EXPLOITATION -Annual General Meeting
22nd November 2006 Grimond Room Portcullis House Westminster
Presentation by Stephen Garside regarding Lloyds’ of London

Lloyds of London have deceived parliament in obtaining total immunity from legal action.

The Lloyds Act 1982 Section 14 this is still effective today and is preventing effective hearings before the courts into their wilful concealment of liabilities which lead to false accounting and 25,000 investors being ruined as a result. These problems were highlighted by the Treasury and Civil Service Committee in the session 1994 – 95 in their report:- Financial Services Regulation: – Self – Regulation at Lloyds of London. Their conclusion was full enquiry as the matters heard during their enquiry went beyond their remit but were of sufficient weight and concern that they have warranted further investigation. However, despite members of parliament requesting further investigation it has never been held. Further the Attorney General at the time of the collapse of Lloyds leading to the reconstruction and renewal in 1996 was himself a Name at Lloyds owing over £1.2m gross and should rightfully have called for a Public Enquiry; but due to a conflict of interest this never occurred. Similarly, during the passage of the Lloyds Act there were assurances given by the then Lord Chancellor that if there had been abuse of process a judicial review could have been held but when this was attempted those applications were denied. 

Actions

1. Support applications for the repeal of Section 14 of the Lloyds Act 1982. Ab initio on the basis that Parliament was deceived.
2. Ensure Lloyds complies with all the insurance directives from the European Union in terms of independently audited accounts which are true and fair and fairly assessed by an independent actuary reserving for all known and projected liabilities.
3. Order a Public Enquiry into the current Lloyds market which has some £5billion shortfall and an enquiry into the previous market which permitted false accounting and deception.

Background

1. After World War II, Lloyd’s of London was in poor shape and the traditional marine market was no longer the adequate basis for a successful business hence they turned to the USA for insurance business.
2. The USA business was reinsurance of companies on a long term basis. It is these long term liabilities which brought asbestos into the market with such ruinous effects.
3. There is now good evidence that five former chairmen and the inner group of working Names on the Council of Lloyd’s knew full well the extent of the problems. There is now evidence that Sir Peter Green first became aware of these asbestos problems on or around 1967 when the first legal case (Tomplait) was fought in the USA. Marsh McLennan, the main brokers also put together their “state of art defence” on or around 1958 when the first legal actions were being brought. This state of art defence has since been ruled as fraudulent by Judge Janice Jacks within the USA. There was fraudulent concealment of the true extent and knowledge of the asbestos claims.
4. Lloyds received advice and notifications from its US lawyers, Mendez and Mount together with advice from brokers and from their own actuarial projections it became apparent that serious losses were mounting. By 1973 there was the watershed judgement in the Borrell case in the USA. By 1979 the largest asbestos producer in the USA, Johns Manville, were filing for bankruptcy due to the massive claims on their company from injury to their workers and on product liability.
5. It was clear by the later 1970’s that all these insurance policies would be total losses and this was confirmed by Sedgwick (North America) Limited, the main broker in the London market who advised the underwriters that all policy lines would be total losses. The Chairman of that company was then David Rowland who later became Chairman of Lloyd’s.
6. The Financial Times article reported on 18/12/1980 an early projection for the 1979 year as being loss making of £74m by stockbrokers Laurie Milbank. However it was finally closed with a substantial profit!

The Concealment

1. Lloyd’s of London was a flagship corporation in the City of London and essential for the good reputation of London as a financial centre. If Lloyd’s had collapsed there would be serious knock-on problems not least to the 55 MPs who were Names at that time.
2. The European Union had been taking enforcement proceedings against British government for failure to transpose EU directives effectively into English law in relation to Lloyd’s. The law had already changed for the UK insurance companies but Lloyd’s was receiving separate treatment.
3. Lloyd’s started its negotiations for the Lloyd’s Act 1982 from late 1980 and the matter was hotly debated with numerous amendments and changes being made. However the advent of the Falklands War from March 1982 diverted attention of Parliament and Lloyd’s Act was passed on the 23rd July 1982.
4. The known losses from asbestos coming through to the market could not be reported correctly as Lloyd’s would have had to leave their accounts open due to uncertainty. This is the inevitable conclusion of the Neville Russell letter written on the 26th February 1982 where they refer to the "impossibility of determining the liability in respect of asbestosis".
5. However, rather than leaving the accounts open as would be normal acceptable procedure, the 1979 year was closed (with the 3 year accounting rule) in 1982 with a very good profit.
6. This was only possible by shifting Lloyd’s off audit and on to self-certification. This was achieved by the Statutory Instrument 1982 No 136 which was made on the 8th February 1982 coming into operation on the 8th March 1982. This moved the obligations from the auditors and independent actuaries to determine liabilities and moved the responsibility onto the underwriters of the syndicate to determine his own liability. Clearly the underwriter had a massive conflict of interest as the continuation of his own syndicate depended on it showing a successful profit. Also his profit commission share was directly linked to the profits shown. If he left the year open he would not receive a profit commission share and he would also lose the support for the syndicate. Clearly with such a massive conflict of interest the underwriter would only reserve sufficient to allow for a good profit and not reserve correctly as had previously been the case. Statutory Instrument 1982 No 136 was the single most damaging move and went totally against the law and the spirit of the EU directive 1973/239.
7. If the syndicates published under reserved accounts then these were deliberately false accounts. Lloyd’s then went on a massive recruitment campaign and some 25,000 people invested in Lloyd’s based upon these false accounts and profit distributions. Lloyd’s global accounts are an aggregation of the syndicate accounts and once again must have been knowingly fraudulent to the Council of Lloyd’s, however they were content to allow for several years of fraudulent accounts to be published and making false representations to new investors whilst giving time for the insiders to rearrange their affairs so they no longer carried these old liabilities. A false market had been created with the sanction of the government and it is a disgrace to the operation of self-regulation within the UK and all the investor protection laws.

Boydell Undertakings

1. During the passage of the Lloyd’s Act the Counsel to the Treasury Select Committee, Mr Boydell QC made some critical undertakings on behalf of the Council of Lloyd’s to effect improvements and changes within the system in Lloyd’s. Parliament has at no time monitored the enforcement of those undertakings; none of which has been fulfilled.
2. Parliament is weak if it is unable to check that undertakings given to it during the passage of a bill are followed through and undertaken. Given that none of these undertakings have been done demonstrates the bad faith surrounding the passage of the Lloyd’s Act 1982 and is grounds for revoking, ab initio, the immunity from legal action which that act granted. Such immunity has prevented effective legal action through the UK courts which has lead to a denial of justice for the defrauded investors.

Statutory Instrument 2005 No 1998

Insolvency, The Insurers (reorganisation and winding up) (Lloyd’s) Regulations 2005

1. The above Statutory Instrument was laid before the House of Lords on 20th July 2005 just before the Summer recess. The UK government needed to enact the European Directive 2002/83/EC. They had previously enacted this for UK insurance companies and this was enacting it for Lloyd’s. So far, no objection. However, there is the "gold plating" attached to this Statutory Instrument which makes it offensive. In part two of the Statutory Instrument Section 3 (2) there is a provision for persons to be excluded from the effects of the Statutory Instrument in accordance with Regulation 7. Information has not been forthcoming as to who may obtain these exclusions but it is believe that those people who obtain a special deal at the R&R settlement in 1996 have subsequently obtained this special deal under these regulations.
2. This Statutory Instrument covers all former Names as well as the current market and removes all legal protection as the Lloyd’s Market Reorganisation Officer may determine what the debt is and then takeover the individual investors assets to settle those liabilities without any recourse to justice. This conflicts with other statute, in particular the Enterprise Act 2000 which would stipulate that a bankruptcy would be closed within 12 months. Lord Ahmed filed a prayer within the time limits to have the Statutory Instrument debated and his prayer was arbitrarily removed from the list with no explanation given.
3. The House of Lords Merits of Statutory Instruments Committee’s eighth report of session 2005/2006 drew special attention to this Statutory Instrument calling for it to be examined and debated. Once again, the matter was railroaded through with no debate.
4. The Treasury has admitted that it has breached the Cabinet Office guidelines as far as consultation is concerned and has passed a Statutory Instrument which amounts to sequestration of assets without any legal recourse.
5. This may all become academic if Equitas is allowed to reinsure itself into Berkshire Hathaway which is projected for 2008. However it does demonstrate that Lloyd’s still has an unhealthy control of the passage of any legislation which may affect it whereas the investors affected by the legislation are not even properly consulted. This is a failure of government which should be addressed by Parliament.
6. The continuing Lloyd’s market today still has numerous open syndicates and an estimated liability of £5billion. The market still has a massive problem hanging over it and this should be of current concern to Parliament that the accounts are still un-audited and still in breach of EU Directives and still the investors are vulnerable to sharp practice. There has been a failure of regulation within the UK and failure of Lloyd’s to self-regulate and a current failure of the FSA to bring the matter under control. Is a future collapse awaiting Lloyd’s ?

by STEPHEN GARSIDE