Petition to the European Parliament

PETITION TO THE EUROPEAN PARLIAMENT

Submitted by

DAVID H K MAINWARING

In relation to UK Government’s non implementation & enforcement of:-

First Non Life Insurance Directive 73/239.

UK Law Insurance Companies Act 1982 Lloyd’s Act 1982 Misrepresentation Act 1967

Re: Lloyds of London 1 Lime St London

1 CONTENTS

Header Page 1 Index Page 2

THE PETITION Page 3 - 8

Personal Details I – V Page 3 Subject of the Petition VI Page 3 The Petition VII Page 4 - 8 Petitioners questions VII. a – h Page 4 - 5 Complaint VII. I. - XV Page 6 - 7

EXECUTIVE SUMMARY Page 9

INTRODUCTION TO LLOYD’S OF LONDON Terms Page 10 - 14 Market description

PETITIONER’S COMMENTS

Comments and explanation Page 16 - 30

AUTHORITIES Page 31 - 65 Introduction Page 31 - 32 Legal Page 33 - 35 Evidence Page 36 - 65

Judiciary’s conflict of interest Page 66 - 67

THE FRAUD EXPLAINED Page 68 -121 Index Page 69

Section one The need for the explanation Page 70 - 71 Section Two Background Page 72 - 77 Section Three Sequence of Events Page 78 - 80 Section Four Human Nature in relation to dishonesty Page 81 Section Five Analysis & Conclusions Page 82 -119 Section Six. Finale Page 120 -121

2 THE PETITION

Personal Details

I. Name & Nationality of Petitioner

David Hugh Kynaston Mainwaring

British

II. Professional Qualification of Petitioner

Chartered Accountant

III. Address of Petitioner

59 New Street, Chipping Norton Oxfordshire OX7 5LL England

Address for correspondence

PO Box 552 Dubai UAE

[email protected]

Usual phone no. 00971 50 687 9403

IV. Representation

Acting on my own behalf

V. May the petition be made public

Yes, it may be heard in public

SUBJECT OF THE PETITION

VI. Member State and or Public Body who have not complied with Community Law.

a. H M Government. United Kingdom.

3 b. The Society of Lloyd’s, Lloyd’s of London, 1 Lime St London, as the regulator of the Lloyd’s market working on behalf of the British Government

THE PETITION

VII. This petition is new because it provides evidence that Lloyd’s of London continues to this day to be in breach of Directive 73/239. Commissioner Bolkstein refused to respond to my Complaint 2000/4837 on the grounds that Lloyd’s was fully compliant with the Directive after the introduction of the Financial Services Act 2000.

Through my petition I wish to ask the European Parliament the following questions:-

a. Is it acceptable to the European Parliament or to the European Commission that the British Government failed to implement Directive 73/239 on time and this failure has continued for more than 25 years?

b. Is it acceptable to the European Parliament or to the European Commission that the non enforcement of the Directive enabled Lloyd’s to defraud its investors of approx £8 billion, that the British Government knew, or should have known at the time, about the fraud and further that the British Government intervened to pervert the course of Justice?

c. Does the fact that previous petitions have been presented to the European Parliament and complaints made to Commissioner Bolkstein (relating to the non enforcement of Directive 73/239) and that no action has been taken against the British Government or Lloyd’s of London to date indicate that the European Parliament and or the European Commission condones the breaching of EU Directives by Member States?

d. Does the European Parliament and the European Commission believe that EU citizens should be compensated if they loose money as a result of fraud which was made possible to commit because a Member State failed to implement and enforce a Directive?

e. Is it acceptable to the European Parliament and the European Commission for Member States to pick and choose which Directives to implement and enforce and which ones to ignore? If the answer to this question is “no”, what action can citizens of the European Union expect the European Parliament or

4 European Commission to take when it is notified of blatant breaches of a Directive?

f. The Star Fruit 247/87 Case would suggest that the ECJ is drifting down a path to European disaster. This is because it will give the Commission the “green light”, to apply the law when it wants to, and, not to apply the law when it does not want to. Does the European Parliament agree that the European law does not offer choice, it is the law of Europe and must always be applied fairly and uniformly?

g. Does the European Parliament or the European Commission agree that if laws in a Federation of States are ignored and are un-enforced and or if Members of that Federation and the administration are able to pick and choose which laws to enforce and which to ignore then it that would usually indicate the beginning of the end of that Federation of States? If the answer to this question is “yes”, does this European Parliament and this European Commission wish to take responsibility for presiding over the beginning of the end of the European Union?

h. Does European law give the European Parliament, the European Commission or the European Courts discretion to overlook breaches of and non enforcement of European law if a possible judgement against a Member State could give rise to a substantial claim in damages against that Member State or the European Institutions?

I petition the European Parliament to investigate the following and to bring cases against the relevant parties in the European Court of Justice and or other Courts as is appropriate. Further to take action to assist the Petitioner and others to obtain the appropriate compensation from HM Government, the EU, Lloyd’s and or others to compensate them for the financial damage they have suffered as a result of the fraud and or misrepresentation which is outlined in this document. The fraud and or misrepresentation was made possible because the British Government did not enforce the requirements of Directive 73/239 which was transported into UK law through the Companies act 1982.

I complain because the British Government failed to implement and enforce all the Articles of the Directive on time and continues in that failure. However in this petition I concentrate only on the Directive’s following requirements because their non implementation has been proved in Court and or because failure to enforce them enabled Lloyd’s, with the knowledge of the British Government, to defraud about 27,000 investors of approx £8 billion. I therefore concentrate on the Directives requirements for:-

i. Annual Accounts, ii. Audit Requirements

5 iii. Solvency Certificates

I also cover the British Government’s perversion of the course of Justice in relation to the above

I submit this Petition because I genuinely believe that:-

I. That H M Government failed to implement Directive 73/239 by its due date in 1978 by which date investors in Lloyd’s (Names) should have been protected by its articles. (Relevant Articles of 73/239. Authority 1 page 25 & Authority 3 Page 27. Comment. 2 Page )

II. That H M Government and Lloyd’s of London failed to enforce all the requirements of Directive 73/239 as enacted in the Insurance Companies Act 1982 and the Lloyd’s Act 1982. (See Comment 2 )

III. That H M Government failed to enforce the requirements of Article 11 of Directive 73/239 until 2003 at the earliest.

IV. That various Secretaries of State conspired with various Chairmen of Lloyd’s to approve audit instructions which were contrary to Directive 73/239 and the Insurance Companies Act 1982. The degradation was so serious that the Court of Appeal in 2002 found “The Panel Auditors were not in fact charged with carrying out an audit at all” The use of the above audit instructions made the solvency certificate worthless (Comment 4 Below)

V. That various Secretaries of State conspired with various Chairmen of Lloyd’s to issue Statutory Instruments (or not rescind them) which enabled Lloyd’s to issue Solvency Statements which they knew or should have known did not comply with the requirements of Directive 73/239 or the Insurance Companies Act 1982. (See Comment 4 Below)

VI. That various Secretaries of State and various Chairmen of Lloyds allowed Lloyd’s to continue to trade when they knew or should have known that Lloyd’s was insolvent.(See Comment 4 Below)

VII. That various Chairmen of Lloyd’s continued to publish recruiting brochures claiming that Lloyd’s was subject to a rigorous audit which they knew was a misrepresentation. (Authority 20 Evidence )

VIII. That Commissioner Bolkstein received a number of complaints on the above subject from 1999 onwards but failed to answer them within the specified time limit and in

6 due course refused to answer them at all. His failure to answer the complaints on time is likely to have prejudiced the outcome of the Jaffray Case in the Court of Appeal in 2002 Laws & Others v Lloyd’s. That Commissioner Bolkstein refused to review past breaches of Directive 73/239 contrary to the precedent set in ECJ Case C-439/02. (Article 226 EC uses the past tense “has failed” which indicates that the Commissioner should investigate past breaches.

That the European Parliament voted in 2004 to take Commissioner Bolkstein to ECJ to require him to answer their question. To date this vote has not been acted upon. (See Comment 7 Below)

IX. That the Commission allows Member States to pick and choose which Directives to enforce and which ones to ignore thus bringing The European Union, European Law, and the European Constitution into disrepute. This Petition highlights this vital issue. (Comment 8 Below)

X. That Lloyd’s offered improper financial inducements to various MP’s and members of the House of Lords in this matter.

XI. That various UK Prime Ministers have brought influence to bear to prevent criminal charges relating to the above from being brought in various jurisdictions. (Comments 8 Below)

XII. H M Government’s failure to implement Directive 73/239 in 1978 and then by failing to enforce it for the next 25 years has seriously distorted the competition in the insurance industry in the EU. (see Comment 11 below)

XIII. That many Lloyd’s related trials have been heard by Judges who had previously been employed by Lloyd’s. The judiciary therefore had a conflict of interests which may have affected the manner in which some or all of the trials were conducted or their verdicts. It is possible that they may also have been the subject of political pressure. ( Judiciary’s conflicts of interest )

xix That the House of Lords failed to refer Lloyd’s related cases to ECJ as is mandatory under Article 177 (Now Article 234 EC)

This petition will show that when the British Government learnt that Lloyd’s was insolvent it decided that it was against the national interest to allow modify the Lloyd’s audit instructions which enabled Lloyd’s to breach Directive

7 73/239 to the extent that there was no audit at all. The Secretary of State issued Statutory Instrument 136 which allowed figures for unaudited liabilities to be included in the Solvency Certificate which made it meaningless. Therefore Lloyd’s, with the knowledge of the Secretary of State was thus enabled to continue trading while it was insolvent and to continue to recruit 27,000 innocent victims to pay for its unreserved liabilities. As the British Government decided that was in the national interest that Lloyd’s should continue to trade while it was insolvent then the consequential costs should be borne by the national exchequer.

I, the Petitioner, therefore rely on this petition to ascertain once and for all whether European Law and system of justice is superior to the law of Member States and whether the European Parliament, the European Commission and or the European Court of Justice have the will and the power to take action against Member States and or regulatory bodies who have knowingly and intentionally committed fraud to circumvent the requirements of a Directive which has made the massive fraud described later in this petition possible.

The Directive’s preamble states “Whereas it is important to guarantee the uniform application of coordinated rules and to provide, in this respect, for close collaboration between the Commission and the Member States in this field”. The Petitioner assumes that the Commission collaborated closely with the British Government over the enforcement of the Directive in UK. Therefore it is reasonable to assume that

a. The Commission knew of Lloyd’s insolvency in which case it collaborated in the fraud or b. The British Government deceived the Commission by withholding this vital information from it.

If a. above is true, the Commission should be liable in damages to Names. If b. above is true, the Commission should take legal action against the British Government. However a simple political solution to this particular problem would be for the European Parliament and or the Commission to insist that Lloyd’s and or the British Government should settle out of Court with those Names who participated in the Jaffray trial and have outstanding claims in order to avoid referral to the European Court of Justice. Such a settlement would be affordable. For the European Parliament to take no action, with all these facts available, would be colluding in fraud. Respectfully submitted by

David Mainwaring A Citizen of the EU Dated 24th Jan 2005

8 EXECUTIVE SUMMARY

This petition and the attached authorities and comments attempts to show how the Society of Lloyd’s, with the full cooperation of the the British Government defrauded about 27,000 Names of up to £8 billion. This would not have been possible if the British Government had implemented and enforced Directive 73/239 by its due date in1978. It implemented the Directive by way of the Insurance Companies Act 1982 but they failed to enforce it as far as Lloyd’s was concerned for at least the following 25 years. In principal, Lloyd’s did not maintain annual accounts. Its liabilities were not calculated in accordance with Directive 73/239. It did not have an audit and its solvency certificates were worthless.

It will be seen that in 1968 the Cromer Report warned Lloyd’s that it was under capitalized. Lloyd’s became aware of the Asbestos crisis facing it in the 1970’s. Its auditors advised Lloyd’s that it was insolvent in 1982 because it was impossible to quantify their outstanding liabilities.

Lloyd’s solution was to disguise their insolvency, hide the truth and recruit new investors to finance what turned out to be an approximate £8 billion deficit. The British Government knew the situation, decided that it was against the National interest to allow Lloyd’s to declare its insolvency. They failed to enforce Directive 73/239’s requirements which made the fraud described in this petition possible.

Thus approx 27,000 investors became innocent victims of the largest premeditated fraud in the EU which required collaboration between the British Government and its financial regulator, Lloyd’s of London.

(Unfortunately, at the time of the Jaffray trial, the exact nature and the details of the Lloyd’s audit fraud were not fully understood by the Names and their lawyers. Therefore the full nature of the fraud was only partially exposed at the trial. The Court of Appeal found that Lloyd’s had made misrepresentations to Names. It also found that the Names had failed to meet the very high standard of proof required to enable the Court to find that there had been fraud. (Therefore the Court did not find that there had not been fraud.))

9 AN INTRODUCTION TO LLOYD’S OF LONDON.

It is necessary to give a brief introduction to Lloyd’s of London for those readers who have no knowledge of its market and how the market works. It is hoped that the introduction will enable them to read and comprehend the remainder of this document. This section refers to Lloyd’s from the 70’s through to 1995 after which its capital structure changed. Before describing the workings of the market a brief description of the market groups, technical phrases and insurance information is provided below:-

1. The Society of Lloyds.

Lloyd’s of London is a Society in which individuals could participate in the business of insurance on their own behalf. A member of Lloyd’s was described as a Name. Prior to the Lloyd’s Act 1982 the Names elected a Committee, after the Lloyd’s Act 1982 a Council, which was responsible for the administration, and honest regulation of the market. For the sake of simplicity the Committee and Council will be referred to as the Council throughout this Petition.

2. Names.

An investor in Lloyd’s was called a Name. A Name was entitled to underwrite insurance business within the market provided that he followed the Lloyds rules and regulations (Bye laws), proved a certain level of wealth and placed the required financial deposit in the Lloyd’s Premium Trust Fund. He was not in or part of a company, partnership nor did he act as a sole trader but underwrote insurance risks on his own behalf as an individual within an annual Joint Venture. The business was conducted through a medium called a Syndicate. He was not responsible for losses of others. He personally received his share of the profit declared by any of his syndicates and was responsible for his share of any losses. When underwriting at Lloyd’s he committed himself to unlimited liability for his losses only.

3. Categories of Names

The Lloyd’s Act 1982 for the first time divided the membership into two categories. Working Names and External Names. Working Names were employed within the market. External Names usually had little or no knowledge of Lloyd’s and relied on their Members Agents and or the Council for their information and maybe visited Lloyd’s

10 occasionally. They did however rely heavily on UK laws and the EU Directives to regulate and monitor Lloyd’s.

There was little of communication between or exchange of news between External Names.

4. Members Agent.

Every Name at Lloyd’s was required to appoint a Member’s Agent to look after their affairs at Lloyd’s. The Agent was bound by the UK laws of agency and was required to work in the Names best interest at all times. The experience of many Names indicated that this was not always the case.

5. Managing Agent.

The Managing Agent also acted under the laws of agency. All the administrative, strategy and underwriting matters were looked after by the syndicate’s Managing Agent. The Managing Agent appointed the Active Underwriter who was responsible for all the day-to-day underwriting decisions. The Managing Agent was usually a company which owned a number of syndicates.

6. A Syndicate

A syndicate was the vehicle through which Names joined others to undertake an annual insurance underwriting joint venture. Each Name was usually a member of a number of Syndicates. It was normal for Names to continue their membership of a Syndicate for a number of years although a Name was able to leave one or more syndicates at the end of a year and join another or others.

7. Short Tail Syndicate

A short tail syndicate underwrote risks where the period of time between the acceptance of the risk and the payment of claims was normally short. Examples of short tail syndicates would be syndicates underwriting fire or motor risks.

8. Long Tail Syndicate

Long tail syndicates underwrote risks where the period of time between the acceptance of the risk and receipt of a claim and its payment was normally a long period of time. Examples of long tail syndicates would be syndicates underwriting pollution or environmental health risks where

11 the period between the acceptance of the risk and a receipt of a claim could be as much as 40 years.

9. Insurance Contract

A Contract of Insurance is meant to be one of the utmost good faith. The insurance broker is required to inform the underwriter of all material facts which may affect his decision to accept the risk or to adjust the rate of premium. If the broker fails to make full disclosure, the policy can be declared null and void.

10.Premium Income.

The volume of premium income (or the turnover) that a Name was allowed to underwrite depended upon his personal declared wealth and the amount of his deposit at Lloyd’s. Each Name allocated a proportion of his premium income to each of the syndicates that he joined.

11.Syndicate Premium Limit

The money paid by an insured to a syndicate for a contract of insurance is called the premium. The syndicate premium limit or the maximum amount that a syndicate was allowed to underwrite in any year was the sum total of the premium income allocated to it by each of its Names.

12.Reinsurance To Close (RITC) and Incurred But Not Reported (IBNR)

At the end of each year each syndicate calculated the amount of its total outstanding liabilities. The total was called Re Insurance To Close (RITC). It was transferred from the year to be closed to the following year in return for an equivalent premium. The closing year transferred assets from the closing year to the following year to pay that premium.

The syndicates’ RITC was the calculation of the total outstanding liabilities of the syndicate which included both the claims which had been made and the claims which had been Incurred But Not Reported (IBNR).

An example of an IBNR would be a individual who was insured against employers or product liability (the product being asbestos related) in say 1950 when asbestos particles may have lodged in his lungs. Asbestosis could be diagnosed in say 2010 and a claim made against the original policy. In the meanwhile inflation will have taken place so

12 that the claim will be made at 2010 prices. The members of the syndicate in 2010 will be responsible to pay the claim.

It will be seen therefore that the accuracy of the total outstanding claims liability (RITC) calculation is vital to both Names on syndicates’ closing year and to Names who would join the syndicate in the future. If the RITC figure was not high enough the profits declared in the current year would be too high and future years would be under reserved. Future years relied on the capital appreciation of the investment of assets transferred to cover RITC to meet future claims.

13.Lloyd’s Premium Trust Fund

All the deposits made by Names were held In the Lloyd’s Premium Trust Fund. All premiums received were paid into the Trust fund and all claims paid from it.

14.Lloyd’s Bye Laws.

The various Lloyd’s Acts entitled Lloyd’s to pass bye laws which were in effect the rules of the Society. All Lloyd’s Acts prior to 1982 gave every Name equal voting rights by which he could cast for or against the passing of a bye law further each bye law had to be approved of by the Recorder of London.

The Lloyd’s Act 1982 created two classes of Names, Working Names and External Names. It disenfranchised External Names in that they were no longer entitled to vote on matters relating to bye laws. They were not even circulated with wording of bye laws when they had been passed.

15.Statutory Instrument

Various Acts of Parliament are drafted in such a way that refinements may be added at a later date. The Statutory Instrument will have the same legal power as the original statute. The Secretary of state issued Statutory Instruments in relation to audit requirement and the content of the Solvency Certificates. A Secretary of State is not entitled to issue a Statutory Instrument which is contrary to the law. Statutory Instrument 139 fell well short of the requirements of Directive 73/239.

13 16.Audit Instructions

Lloyd’s were required to have two audits:-

i. The first was the audit of the syndicates. The instructions were drawn up by Lloyd’s and were approved by the Secretary of State and incorporated by Lloyd’s into the syndicate accounting bye law. They were the instructions to the Lloyd’s syndicate auditors which specified the manner in which the auditor should conduct the audit.

ii. The second was the solvency audit. The contents requirement, layout and audit certificate of the solvency audit were specified by the Secretary of State in Statutory Instrument 136.

Active Underwriter

The Active Underwriter is the person who is employed by a Managing Agent to conduct the underwriting affairs of the syndicate.

Reconstruction and Renewal (R & R)

R & R was the 1995 process by which Lloyd’s (using actuaries) calculated all syndicates pre 1982 outstanding liabilities. Those liabilities were then reinsured into a new company Equitas Ltd. The reinsurance premiums were allocated to each individual Name through their “finality statement”.

Equitas Ltd

Equitas was the company formed by Lloyd’s to re-insure all the Lloyd’s syndicates’ pre-1992 liabilities.

Open Years

If the Managing Agent decided it was impossible to quantify the outstanding liabilities of a syndicate, its accounts were not closed at the end of the third year. When this happened all Names on the syndicate were “locked into it” in that they could not resign from the syndicate which had serious negative implications.

14 Lloyd’s of London Lloyd’s is a unique British Institution. It is not a limited liability company, a partnership or a corporation but it is a Society through which investors (Names) were able to partake in the business of underwriting Insurance. Those who wished to join Lloyd’s were required to prove a certain level of wealth and make a substantial monitory deposit with Lloyd’s. They committed themselves to unlimited liability for any underwriting losses that they might incur and they agreed to abide by the Society’s rules. In return they were able to underwrite insurance business at Lloyd’s on their own account. The insurance business undertaken by Names was undertaken by them as an individual and all profits or losses relating to their underwriting were therefore to their personal account. They were not responsible for the profits or losses of others and vice versa. The volume of business that they were allowed to underwrite was dependant on the (verified) wealth that they declared and the size of the deposit they made with Lloyd’s. Directive 73/239 required that their financial strength should be confirmed annually by way of the audited solvency certificate. In 1968 the Cromer report advised that Lloyd’s was under capitalised Each syndicate had a large number of External Names ranging from a low of a few hundred to a high of a few thousand.

Depending on the wealth declared the Name would be entitled to underwrite a certain value of premiums in any one year. A small underwriter would underwrite a premium income of between say £100,000 - 300,000 a large underwriter would underwrite a premium income in excess of £1 million per year.

Each Name was advised by his Member’s Agent to join a number of syndicates, usually between 7 and 25. The Member’s Agent provided syndicate selection advice. Thus a Name underwriting £300,000 could allocate £20,000 of his capacity to each of 15 syndicates.

Each syndicate received a premium allocation from each of its participating Names the total of which was its annual premium limit. This figure was the maximum premium income the syndicate could underwrite in any one year.

15 PETITIONERS COMMENTS

Comment 1

The reasons why I submit this petition are because:-.

a. Lloyd's continues to be in breach of Directives 73/239, as evidenced in the letter sent by Christopher Stockwell to Commissioner Bolkstein dated the 14th of October 2004. Commissioner Bolkstein reason given to me and others for not replying to my complaint 2000/4837(and those submitted by others) was that Lloyd's were fully compliant with Directive 73/239 following the introduction of the Financial Services Act 2000.(See The Fraud explained Section Five xxix)

b. It raises serious EU constitutional issues which should be resolved and the earliest possible opportunity.

c. I point out that the British Government was fully aware of the situation at Lloyd's of London and decided not to enforce the requirements of Directive 73/239 because in their opinion it would be against the National interest to allow Lloyd's to declare its insolvency. (Comment 8.3 Below)

d. If it in the National interest to avoid Lloyds' insolvency then the cost should have been borne by the British Government. (Comment 8.3 Below)

e. Justice has not been done in this matter because the British Government has intervened to pervert the course of justice. (Comment 8. 2. Below)

f. I wish that those who committed suicide or died early due to the actions of Lloyd's of London and the British Government should be remembered.

In particular I would like to mention Carey Harrison, a descendant of a former President of the United States of America who gave his life, as a litigant in person, fighting for justice in the Jaffray trial.

g. On a personal note, I entered into an Individual Voluntary Arrangement (IVA under the UK Bankruptcy laws) and seek compensation for the consequential suffering that my family endured and compensation for the personal losses that I suffered due to the fraud which was made possible because the Directive 73/239 was not implemented on time and has never been enforced by the EU or the British Government

16 Comment 2.

I justify my complaint. re Petition at VII. i.

“That H M Government failed to implement Directive 73/239 by its due date in 1978 by which date investors in Lloyd's (Names) should have been protected by its Articles.” The British government had a treaty obligations to implement directive 73/239 by 1978 and to enforce it from that date. The commission recognised this obligation and commenced infringement proceedings at or about that time.

Comment 3

I justify my complaint. re Petition at VII. iii.

Directive 73/239 Article 11 states

2. ….With regard to Lloyd’s, the publication of the balance sheet and the profit and loss account shall be replaced by the compulsory presentation of annual trading accounts.

a. Article 11 Makes it quite clear that it is referring to Lloyd's of London. The authors of the Article in 1972 would have known that at that time Lloyd's kept its accounts on a unique three year accounting system whereby the syndicate accounts were closed in the third year.

b. The authors made it a legal requirement for that accounting system should be replaced by a compulsory presentation of annual trading accounts.

c. Lloyds of London did not comply with this requirement, the British government knew that Lloyd's were in breach of this requirement but did nothing to force Lloyd's to produce accounts.

d. It was the breach of this article which enabled Lloyd's to modify the audit instructions in such a way that in 2002 The Court of Appeal found that there was no audit at all.

Comment 4

I justify my complaint. re Petition at VII. iv.

“That various Secretaries of State conspired with various Chairmen of Lloyd’s to approve audit instructions which were contrary to Directive 73/239 and the Insurance Companies Act 1982. The degradation was so serious that the Court of Appeal in 2002 found “The Panel Auditors were not in fact charged with carrying out an audit at all” The use of the above audit instructions made the solvency certificate worthless

17 1. Lloyd’s had two audits.

a. The first was an annual audit conducted on its financial accounts, i.e. the syndicate accounts. It was conducted for national purposes and for the Names.

b. The second was an audit conducted on every Name to ensure that his assets were sufficient to meet the liabilities he had incurred at Lloyd’s together with a margin for solvency, i.e. the Solvency Certificate. The solvency certificate is required by Directive 73/239. The solvency certificate audit relied on the annual audit (a. above) which as shown below did not meet the specific requirements of the Directive.

2. I therefore attempt below to explain the audit regime

a. Commercial operations in the EU are required to have an audit of their annual financial accounts. The auditor is independent, reports to the investors and will not accept instructions from the management of the audited organisation. b. Throughout the EU, auditors are members of professional accountancy bodies and the conduct their audit is in accordance with national and or international standards. c. Actuaries are members of Actuarial professional bodies and undertake the work to their own national and or international professional standards. d. However, extraordinary though it may seem, Lloyds of London was a self regulatory organisation and was authorised by the British Government to issue its own audit instructions. Part of the audit instructions required the auditors to refer back to Lloyd's for guidance should any problems be encountered. e. Few External Names at Lloyd's knew that Lloyd's had this extraordinary power. f. On 24th February 1982, Neville Russell and the Company wrote to Lloyd's as follows:-

“The Audit Instructions (Clause 3) require that if there are any factors which may affect the adequacy of the reserves, then the auditor must report to the Committee and obtain their instructions before issuing his Syndicate Solvency Report. We consider that the impossibility of determining the liability in respect of asbestosis falls into this category and we accordingly ask for your instruction in this respect.” (The full letter is reproduced in the authorities 5)

18 g. It is reasonable to assume that if directives 73/239 had been implemented on time that the above letter would have been written to Lloyd's in 1978. The effect of the letter was to inform Lloyd's that, in the opinion of the auditors, Lloyd's was insolvent because it was impossible to certify that the assets (a known quantifiable figure) were sufficient to meet all Lloyd's liabilities (an unquantifiable figure) together with a solvency margin. h. 18th March Lloyd’s responded to Neville Russell & Co.

Lloyd’s response to the auditors was to issue new audit instructions which were a breach of the law. It stressed that the Council of Lloyd’s was not laying down a minimum reserving requirement for asbestos, despite their joint responsibility, with the DTI, under the Insurance Companies Act so to do. The letter contained the following broad principles:-

1. That the “underwriter should set the reserve”. It continues “ I should stress that the responsibility for the creation of adequate reserves (for both long term and short term liabilities) rests with the managing agents”

2. An Incurred But Not Reported (IBNR) claims “loading” should be carried for those claims not specifically advised but which could come to light in the years ahead”

3. The auditors and agents are advised that the reserves are to be calculated by adding up the specifically advised claims and applying a loading for the Incurred but Not Reported losses. i. The nature of these new instructions was inherently flawed because:-

1. the Insurance Companies Act 1982 which transported 73/239 into UK law required (for the purpose of solvency certificate) that the long term liabilities should be calculated by actuaries and the other liabilities by the auditors. Actuaries and auditors are independent of the insurance entity. The managing agents employed the underwriter and had a vested interest is reporting profits. If the reserve was too low the profit increases by the equivalent amount.

19 2. The auditors had already noted “[It is highly likely] (that) one of the carriers has losses going right through its insurance cover. That company’s share of the industry loss would then be apportioned over the remaining companies”. A prudent insurer, faced with such a situation, funds permitting, would assume a total loss on all asbestosis exposures, add up his exposure on a line by line basis, and apply an IBNR loading for other unforeseeable developments. j. Lloyd’s was required to obtain the approval of the Secretary of State to issue audit instructions. (Note the Secretary of State issued the new statutory instrument 83/224 on 22 March 1983 which was 4 days after Lloyd’s response to the Neville Russell letter) k. Due to the Lloyd’s three year accounting system, Lloyd’s did not require the balance sheet which included the RITC to be audited. (The RITC was the figure for the total outstanding liabilities.)

Syndicate Accounting Bylaw, No 7 of 1984, introduced the true and fair audit requirement relating to the annual reports sent to Names, and restricted to the profit and loss only, effective from year end 1985. The implication of the restricted scope of the audit opinion has never been explained to Names. l. Lord Neill’s report to the Secretary of State 1986 includes the following words.

“ the syndicate accounting bye law limits the scope of the true and fair requirement to the profit or loss of years of account which has been closed. Thus, there is no requirement for the auditors to express a true and fair view about open years, nor about the syndicate Balance Sheets since the latter does not incorporate provisions for outstanding claims in respect of open years”

Because this report was addressed to the Secretary of State he knew that the Lloyd’s audit instructions which he had approved were flawed. m. In 2002 the Court of Appeal found at:-

Paragraph 227 that:

“the panel auditors were not in fact charged with carrying out an audit at all” and “they did

20 not consider it part of their duty to audit the reinsurance to close."

Paragraph 315 ……

”In short a central representation in the brochure is that there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses.”…until 321

Paragraph 321 …..

The representations … were, during the relevant period, untrue.

Paragraph 375 …….

“many syndicates were shown to be massively under-reserved demonstrates that the system simply had not been producing reasonable estimates of outstanding liabilities over the years.”

Paragraph 376………

“the answer to the question posed in paragraph 344 above, Namely whether there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses, is no.” n. The Neville Russell Second Letter 1999

In 1999 a Mr. John Pascoe received a second letter from the Lloyd’s auditor Mazars Neville Russell. The salient part of it was published by the petitions Committee of the European Parliament as follows

Quoting from page 9 of the Petitions Committee’s Draft Report:

“ In January 1999 Mr. A M Blake of the accountants now Named Mazars Neville Russell, wrote a letter to one of the Names (John Pascoe), subsequently made bankrupt (by Lloyd’s) – with reference to the responsibility of auditors at Lloyd’s. In it he said, “It was not part of the auditors responsibility to calculate the value of the assets or the liabilities, nor would an auditor have signed a certificate certifying that… assets covered…..liabilities at Lloyd’s.” (See comment 4)

21 o. 'A View of the Room', by Ian Hay Davison. CEO & Deputy Chairman of Lloyds, 1986 pp. 53-54

[The "auditors"] did not consider it part of their duty to audit the reinsurance to close. p. To fully understand the effect to the audit instructions it is important for the reader to compare Cooper Lybrand’s six page qualification of the Equitas accounts (which were audited to the standard required by Directive 73/239 and the Insurance Companies Act 1982) with the bland audit report which resulted from Lloyd’s Instructions to Auditors. It must be emphasised that the Equitas audit covered the same liabilities which had previously been included in syndicate accounts to which this or similar audit certificates or “signing off” was attached. It is doubtful if any prospective Name would have joined Lloyd’s from 1978 if the majority of Lloyd’s syndicates’ audits carried such qualifications which they should have done. It is also important to note that the Equitas qualification was written after its reserves had been strengthened by over £8 billion! q. The British Government, Lloyd’s, the Managing Agents and the Members Agents all had vested interests in under estimating the outstanding liabilities for the RITC because :-

i. The British Government wished to collect the maximum tax. RITC under reserving falsely indicated a higher profit. ii. Lloyd’s wished to recruit new Names to finance the under reserving. RITC under reserving falsely indicated a higher profit thus attracting new investors. iii. Both the Managing Agents and the Members Agents wanted the highest syndicate profits to be declared because both their incomes were based on 20% of the profits. r. The Names and Directive 73/239 required an accurate estimate of the liabilities because:-

i. The Names wished to preserve the equity between the Names from one year of account to the next. They did not want inflated or deflated profits to be declared.

22 ii. The EU required accurate accounts to be declared to ensure that all insurance entities maintained their solvency.

iii. By 1995 the total liabilities at Lloyd’s were under estimated by approximately £8 billion. Previous profits therefore had been over declared by a similar amount. The Names had over paid Agents commission by (very approx) £5 billion and tax by £4 billion.

3. I now comment on the second audit, the solvency audit which required the solvency certificate.

a. I quote below from the Insurance Companies Act 1982 which transported Article 11 into UK law.

Insurance Companies Act 1982, s83 83. Requirements to be complied with by Lloyd’s underwriters (Names)(1)

The requirements referred to in section 15(4) above are as follows.

(2) Every underwriter shall, in accordance with the provisions of a trust deed approved by the Secretary of State, carry to a trust fund all premiums received by him or on his behalf in respect of any insurance business. (3) ...... (4) The accounts of every underwriter shall be audited annually by an accountant approved by the Committee of Lloyd’s and the auditor shall furnish a certificate in the prescribed form to the Committee and the Secretary of State. (5) The said certificate shall in particular state whether in the opinion of the auditor the value of the assets available to meet the underwriter’s liabilities in respect of insurance business is correctly shown in the accounts, and whether or not that value is sufficient to meet the liabilities calculated - (a) in the case of liabilities in respect of long term business, by an actuary; and (b) in the case of other liabilities, by the auditor on a basis approved by the Secretary of State.

b. I quote below from Statutory Instrument 83/224 and comment upon it

On 22nd March 1983 the Audit Certificate was changed by Statutory Instrument 83/224 as follows:

23 “In our opinion, the value of the assets, valued in accordance with the said instructions (in the case of each underwriting member’s Lloyd’s Deposit, as certified by the Council of Lloyd’s), available to meet each underwriting member’s liabilities, calculated in accordance with the said Instructions, in respect of his insurance business is correctly shown in the accounts and is sufficient to meet his liabilities in respect of that business.” The “said instructions” are “the current Instructions for the guidance of Lloyd’s auditors drawn up by the Council of Lloyd’s and approved by the Secretary of State”. This approval by the UK government now becomes the core basis of the charge that the UK government was a co-conspirator in the plan to change the audit and thus deceive Names. c. Thus the Secretary of State authorised Lloyd's to issue audit instructions which required the underwriters to calculate the outstanding liabilities which he and Lloyds knew would not be audited. Further the Secretary of State issued Statutory Instrument 83/224 which he knew was in breach of the Directive and the Insurance Companies Act 1982 d. In 1995 the Director of Lloyd’s Insurance Directorate at the Dept of Trade & Industry, stated that the DTI had been faced with the hard choice of whether or not to “impair insurance security” immediately, or to give (Lloyd’s) time to raise the reserves. (By allowing Lloyd’s to continue to trade while insolvent and defrauding Names who relied on accounts which both the Secretary of State and Lloyd’s knew were unaudited and under reserved) e. “In January 1999 Mr. A M Blake of the accountants now Named Mazars Neville Russell, wrote a letter to one of the Names (John Pascoe), subsequently made bankrupt (by Lloyd’s) – with reference to the responsibility of auditors at Lloyd’s. In it he said, “It was not part of the auditor’s responsibility to calculate the value of the assets or the liabilities, nor would an auditor have signed a certificate certifying that… assets covered…..liabilities at Lloyd’s.” f. 'A View of the Room', by Ian Hay Davison 1986 pp. 53-54

[The "auditors"] did not consider it part of their duty to audit the reinsurance to close….

(See Authorities 17-34)

24 (see Authority 33 to Compare the Equitas audit report with a syndicate audit report)

4. I believe that I have now justified the second paragraph of my Executive Summary which reads as follows:- “In principal, Lloyd’s did not maintain annual accounts. Its liabilities were not calculated in accordance with Directive 73/239. It did not have an audit and its solvency certificates were worthless.”

Comment 5 re Petition VII. vi.

“That various Secretaries of State and various Chairmen of Lloyds allowed Lloyd’s to continue to trade when they knew or should have known that Lloyd’s was insolvent.”

Please refer to (comment 4.2.f. above)

Comment 6. re Petition VII.vii.

“That various Chairmen of Lloyd’s continued to publish recruiting brochures claiming that Lloyd’s was subject to a rigorous audit which they knew was a misrepresentation.”

1. In support of the above I refer to the “Brochure for Applicants for Underwriting Membership,” December 1983 edition which was issued by the Council of Lloyd’s to prospective members and stated that the “rigorous” audit reserve calculation ensured reserves were sufficient to “wind up” the accounts, as follows:

“Audit Reserves: The amounts which at the 31st December of each year of underwriting must remain in credit against each main class of business transacted by a Name, to meet the estimated cost (based on the Lloyd’s Audit formula) of winding-up the Name’s Underwriting Accounts.”

2. I refer to the Court of Appeal finding quoted at Comment 4. 2,m. Above

Comment 7 re Petition viii

“That Commissioner Bolkstein received a number of complaints on the above subject from 1999 onwards but failed to answer them within the specified time limit and in due course refused to answer them at all. His failure to answer the complaints on time is likely to have prejudiced the outcome of the Jaffray Case in the Court of Appeal in 2002 Laws & Others v Lloyd’s.

That Commissioner Bolkstein refused to review past breaches of Directive 73/239 contrary to the precedent set in ECJ Case C-439/02

That the European Parliament voted in 2004 to take Commissioner Bolkstein to ECJ to require him to answer their question. To date this vote has not been acted upon.”

25 I make no comment on the above because it is a matter for the European Parliament, apart from referring to the Human Rights issue.

“Violation of Article 6.1 of the UK Human Rights Act, Eastaway Case

"the applicant's civil rights and obligations were not determined within a reasonable time".

In Eastaway, damages were awarded to the complainant.

Many Names have been in litigation on this matter for 12 years. The Petitioner joined the litigation in 2000.

The Commission took over four years to process Complaint Number 99/5049. I made a complaint to Commissioner Bolkstein but he declined to answer it. The reference number is 2000/4837. Violations of UK and EU law have been proven, yet no compensation has been awarded.

I believe that Article 6.1 of the UK Human Rights Act has been violated due to a case that has been recently decided in the ECHR styled Eastaway v. United Kingdom No. 74967101 where it was found that:

The Commissioners delay in replying to the first and subsequent complaints could have effected the outcome of the Jaffray trial and its various appeals.”

Comment 8. re Petition ix.

“That the Commission allows Member States to pick and choose which Directives to enforce and which ones to ignore thus bringing The European Union, European Law, and the European Constitution into disrepute. This Petition highlights this vital issue.”

1. As example the British Government prosecuted a small trader who did not mark and weigh his produce in kilos however the Commission and or the British Government appear to condone Lloyd’s breaches of Directive 73/239 and Serious Fraud Office continues to refuse to bring prosecutions. It is also an example of the British Government’s perversion of the course of justice. (See authority 11 & 12 for further factual and circumstantial evidence for perversion of the course of justice)

26 2. Telephone 0171 486 5582/3 3rd Floor Facsimile 0171 486 5584 25 James Street London WlM 5HY

Mr. John Taylor 3rd December 1997 Holly Tree House Sotherton Wangford Beccles Suffolk NR34 8AL

Dear Mr. Taylor Thank you for your letter of 23rd November. During my time at Lloyd’s and subsequently I had a series of lengthy interviews with the Serious Fraud Office concerning the various frauds. Regrettably, the Government, on policy grounds, decided not to prosecute any of those involved and no successful prosecutions were brought. I was, and remain, extremely indignant and disappointed at this. Yours sincerely

From Ian Hay Davison (Bank of England Appointee. Ex CEO and Deputy Chairman of Lloyd’s)

Comment 9 The following also demonstrates a Member States willingness to disregard the law for political purposes, in this care the British Government acting through the Dept of Trade & Industry. “The DTI also refer to the systemic risk that refusal to pay by Lloyd’s would pose for the London and US insurance markets.” This overstates by a substantial margin the importance of Lloyd’s and overlooks the other duties of the DTI, which are to protect Lloyd’s investors from frauds committed under ss47 & 133 of the Financial Services Act. (Reference from SIB available.) The distancing of the DTI from the problem is part of a double act with the SFO, the shortcomings of which have been documented and are available. If the risk of addressing this problem properly is too dangerous to the financial system then the cost of protecting the system is one which should be borne by that system and not by a relatively few, individual, deceived members of the public. In other words the total cost should be borne by the Nation, and therefore the Government. (Authority 35)

Comment 10 re Petition x

“That Lloyd’s offered improper financial inducements to various MP’s and members of the House of Lords in this matter.” (See Authority 15)

27 Comment 11 re Petition xii

“H M Government’s failure to implement Directive 73/239 in 1978 and then by failing to enforce it for the next 25 years has seriously distorted the competition in the insurance industry in the EU.” 1. One of the EU’s primary objectives is to ensure free competition, the free movement of good’s and free movement of capital throughout the EU.

2. Commissioner Bolkstein was concerned with the above issues.

3. If Lloyd’s had ceased to trade, competition within the insurance industry would not have been distorted

4. If EU citizens do not see justice being done in this matter, the free movement of capital will be restricted because it will have been shown that they cannot rely on Directives and that the EU authorities do not enforce EU law.

Comment 12 re Petition xiii “That many of the Lloyd’s related trials have been heard by Judges who had previously been employed by Lloyd’s. The judiciary therefore had a conflict of interests which may have affected the manner in which some or all of the trials were conducted or their verdicts.” (See Judiciary’s Conflicts of Interest)

The above together with Margaret Thatcher’s intervention to prevent fraud trials against senior members of the Lloyd’s community would suggest that there has been serious perversion in the course of justice in this matter.

Comment 13.

The problem at Lloyd’s was compounded because:-

1. The syndicate was an annual venture between from say 500 to 5,000 individual Names. Each year some Names joined the syndicate and some left it. At the end of the third year of the three year underwriting period the third year of account was closed, the total profit was divided among its Names (or losses collected from them). The account should have been prepared (and audited) to reflect the position “of winding up the account” on that date because the syndicate was an annual joint venture. Unlike Insurance companies, in order to maintain equity between Names it was essential that syndicates were neither over nor under reserved at the end of any one year.

2. Thus it was essential that the total of all outstanding liabilities should be calculated accurately and agreed independently by

28 an actuary and or the auditor. This was even more important where claims could be made many years after the premiums had been received.

3. Unless there was a rigorous audit there could be no equity between Names.

4. It has been described how Lloyd’s syndicates maintained a unique three year accounting system which prepared accounts annually. This is very different from preparing annual accounts as specifically required by the Directive.

Comment 14

The report encapsulates the reason why this Petition has been submitted

“Fifth Report

FINANCIAL SERVICES REGULATION: SELF-REGULATION AT LLOYD’S OF LONDON

VOLUME Report, together with the Proceedings of the Committee

Ordered by The House of Commons to be printed 17 May 1995

VI. CONCLUSIONS AND RECOMMENDATIONS

We have taken a great deal of evidence in the course of this inquiry, much of it extending well beyond the terms of reference of our inquiry into financial services regulation. The evidence suggests that there is a need for a wider investigation of events at Lloyd’s which would go beyond the order of reference of this Committee. [Their emphasis]

No enquiry, as recommended, has been undertaken; No judicial review, as promised, has been allowed; No audit, as endlessly promised to all, including the crown, has been undertaken prior to depriving Names of their homes, chattels and business assets; No prosecutions have been undertaken despite endless false statements upon which Names relied being approved by the highest authorities; (See Authority 36)

29 Comment 15.

Explains why the Names failed to win damages in the Jaffray trial.

When the Lloyd's Bill was passing through its committee stage many MPs were extremely concerned about the clause which was to grant Lloyd's immunity from suit except in the case of fraud. In order to solve the problem the Chairman of Lloyd's gave an undertaking to Parliament. The Lloyd's undertaking was that they would insist that all Managing and Member’s Agencies would protect Names against the wrongdoing through E & O Insurance.

However in the late 80's Managing and Member’s Agencies complained to the Council that they could no longer afford the E & O insurance premiums. The council's response was to withdraw the E & O insurance requirement from the agencies. Lloyds did not inform Names that they were no longer protected by this insurance.

More importantly Lloyds did not inform Parliament that they were in breach of the above undertaking, therefore Lloyd’s continued to enjoy their immunity through deceit. If the immunity had been removed, the Names could have sued Lloyd's for misrepresentation. Under those circumstances they would have won damages to compensate them for their losses because the Court of Appeal found that there was misrepresentation

30 AUTHORITIES

The Infringement of Community Law and its relevant UK Law together with various other authorities and/or evidence.

Introduction

My complaint alleges that the H M Government through various Secretaries of State conspired with Lloyd’s of London, to violate European Non-life Insurance Directive 73/239 which was enacted into UK law by way of the Insurance Companies Act 1982 and the Lloyd’s Act 1982.

Various Chairmen of Lloyd’s issued Audit Instructions to the auditors of the syndicate accounts which were authorised by various Secretaries of State. The instructions degraded the syndicates audits to such an extent that they could not comply with Directive 73/239 or the Insurance Companies Act 1982. (In 2002 the Court of Appeal found that there were “no (syndicate) audits at all”. )

Various Secretaries of State issued various Statutory Instruments which specified the content and format of the Solvency Certificates and the audit certificates which had to be attached to them. However the Statutory Instruments required the Solvency Certificate auditor to rely on the syndicate accounts which in turn relied on the degraded syndicate audits as described in the previous paragraph. The Solvency Certificates and their audit certificates therefore fell well below the requirements of Directive 73/239 and the Insurance Companies Act 1982.

H M Government through the actions of various Secretaries of State participated with Lloyd’s of London in the perpetration of the largest financial fraud and or misrepresentation ever to have taken place in the UK.

It would appear that all the relevant British Institutions wish to put the matter behind them because of the consequences of justice would be difficult to bear. It would appear that Lloyd’s and or HM Government have brought political pressure to bear on various EU officials or representatives to try to prevent any European litigation being taken against them.

This paper shows that H M Government has perverted the course of Justice by preventing the Serious Fraud Office from investigating and or bringing fraud charges against various individuals in 1986.

31 However failure to ensure that justice is done in this matter could have far reaching consequences for the EU and the EU Constitution and all Member States. Unless every EU law is applied equally in every Member State and is not the subject of political influence it signals the beginning of the end of the EU.

Citizens of many Members States have been defrauded by the non implementation and non enforcement of 73/239 by HM Government. They look to the European Parliament and European institutions to ensure that justice is done and is seen to be done.

32 RELEVANT AUTHORITIES CITED IN THE PETITION.

Authority 1.

EU DIRECTIVE

EEC First Non-Life Insurance Directive 73/239

Preamble

Whereas it is necessary that insurance undertakings should possess, over and above technical reserves of sufficient amount to meet their underwriting liabilities, a supplementary reserve, to be known as the solvency margin, and represented by free assets, in order to provide against business fluctuations. (Comments 4)

Whereas it is important to guarantee the uniform application of coordinated rules and to provide, in this respect, for close collaboration between the Commission and the Member States in this field. (Comment 15)

Article 11

3. ….With regard to Lloyd’s, the publication of the balance sheet and the profit and loss account shall be replaced by the compulsory presentation of annual trading accounts (Comment 3) covering the insurance operations, and accompanied by an affidavit certifying that auditors’ certificates have been supplied in respect of each insurer and showing that the responsibilities incurred as a result of these operations are wholly covered by the assets. These documents must allow authorities to form a view of the state of solvency of the Association. (Comments 4 )

Article 14

The supervisory authority of the Member State in whose territory the head office of the undertaking is situated must verify the state of solvency of the undertaking with respect to its entire business . The supervisory authorities of the other Member States shall provide the former with all the information necessary to enable such verification to be effected

33 Article 15

4. The supervisory authority of the Member State in whose territory the head office of an undertaking is situated shall verify that its balance sheet shows in respect of the technical reserves assets equivalent to the underwriting liabilities assumed in all the countries where it undertakes business.

Article 16

1. Each Member State shall require every undertaking whose head office is situated in its territory to establish an adequate solvency margin in respect of its entire business. The solvency margin shall correspond to the assets of the undertaking, free of all foreseeable liabilities, less any intangible items.

Article 19

1. Each Member State shall require every undertaking whose head office is situated in its territory to produce an annual account covering all types of operation, of its financial situation and solvency. (See Petitioners comment 27 Page )

Article 24

Member States shall require undertakings to establish adequate technical reserves to cover the underwriting liabilities assumed in their territories. (See Petitioners comment 28 Page )

There were many other breaches of Directive 73/239 but for simplicity’s sake this petition has used the above articles only to illustrate the breaches. The full text of Directive 73/239 is available on the internet.

Authority 2.

UK Law

The Misrepresentation Act of 1967 (b) Section 2(1) of the Misrepresentation Act 1967 “ Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable

34 ground to believe and did believe up to the time the contract was made that the facts represented were true.” (Comment 15)

The full text of the Misrepresentation Act is available on the Internet

Authority 3.

UK LAW

The UK Insurance Companies Act of 1982,

Section 83

83 Requirements to be complied with by Lloyd’s underwriters

(4) The accounts of every underwriter (Name) shall be audited annually by an accountant approved by the Committee of Lloyd’s and the auditor shall furnish a certificate in the prescribed form to the Committee and the Secretary of State.

(5)The said certificate shall in particular state whether in the opinion of the auditor the value of the assets available to meet the underwriter’s liabilities in respect of insurance business is correctly shown in the accounts, and whether or not that value is sufficient to meet the liabilities calculated –

(a) in the case of liabilities in respect of long term business, by an actuary; and (b) in the case of other liabilities, by the auditor on a basis approved by the Secretary of State. (Comment 4)

The full text of the Insurance Companies Act is Available on the Internet Authority 4.

UK law Lloyd’s Act 1982

The full text of the Lloyd’s Act 1982 is available on the internet

35 Authority 5 Evidence .

The 1st Neville Russell Letter 1982. (Neville Russell was the chairman of the Panel of Lloyd’s Auditors) “A substantial proportion of our syndicate clients have losses, or potential losses, arising from asbestosis and related diseases ………It appears…..they are unable to quantify their final liability with a reasonable degree of accuracy……”

“The Audit Instructions (clause 3) require that if there are any factors which may affect the adequacy of the reserves, then the auditor must report to the Committee and obtain their instructions before issuing his Syndicate Solvency Report.”

“We consider that the impossibility of determining the liability in respect of asbestosis falls into this category and we accordingly ask for your instructions in this respect.” (See Petitioner’s Note 30 Page ) Neville Russell Chartered Accountants

The Manager Our ref LLG/AMB/tcj Audit Department Your ref Lloyd’s Lime Street Date 24 February 1982 LONDON EC3

Dear Sir ASBESTOSIS We are writing this letter, not only on behalf of ourselves, but also on behalf of the following firms of panel auditors: Arthur Young McClelland Moores & Co. de Paula, Turner, Lake & Co. Ernst & Whinney Futcher Head & Gilberts Littlejohn & Co. A substantial proportion of our Syndicate clients have losses, or potential losses, arising from asbestosis and related diseases. It appears that although, in respect of direct insurance of the main carriers and reinsurance of American insurers, Syndicates have received some notification of outstanding claims, they are unable to quantify their final liability with a reasonable degree of accuracy for the following reasons: You have informed us that there have been approximately – 15,000individual claimants. Total exposure to the problem appears to be considerably in excess of this figure.

36 (i) The Courts have not yet finally decided on whether the exposure or manifestation basis is applicable. The losses are being apportioned over carriers on an “industry” basis. If one of the carriers has losses in excess of its insurance cover (as seems likely) then it could go bankrupt. It appears that its share of the industry loss could be apportioned over the remaining companies. (ii) Most Syndicates are not very certain of their reinsurance recoveries (iii) Most Syndicates will incur losses on their own writings of reinsurance business. Very little of this has been advised so far. The Audit Instructions (Clause 3) require that if there are any. factors which may affect the adequacy of the reserves, then the auditor must report to the Committee and obtain their instructions before issuing his Syndicate Solvency Report. We consider that the impossibility of determining the liability in respect of asbestosis falls into this category and we accordingly ask for your instruction in this respect Yours faithfully

Neville Russell & Company (Comment 4)

Authority 6 Evidence

The Neville Russell Second Letter 1999

In 1999 a Mr. John Pascoe received a second letter from the Lloyd’s auditor Mazars Neville Russell. The salient part of it was published by the petitions Committee of the European Parliament as follows

Quoting from page 9 of the Petitions Committee’s Draft Report:

“ In January 1999 Mr. A M Blake of the accountants now Named Mazars Neville Russell, wrote a letter to one of the Names (John Pascoe), subsequently made bankrupt (by Lloyd’s) – with reference to the responsibility of auditors at Lloyd’s. In it he said, “It was not part of the auditors responsibility to calculate the value of the assets or the liabilities, nor would an auditor have signed a certificate certifying that… assets covered…..liabilities at Lloyd’s.” (See comment 4) I regret that I do not have a full copy of this letter to hand. However it has been made available to the Petitions Committee in an earlier Petition.

37 Authority 7. Evidence.

On 26 July, 2002 the UK Court of Appeals decision in the (Laws & others v Lloyd’s of London)

Found at paragraph 227 that: “the panel auditors were not in fact charged with carrying out an audit at all” and “they did not consider it part of their duty to audit the reinsurance to close."

Paragraph 315 ……

”In short a central representation in the brochure is that there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses.”

Paragraph 375 …….

”many syndicates were shown to be massively under-reserved demonstrates that the system simply had not been producing reasonable estimates of outstanding liabilities over the years.”

Paragraph 376………

“the answer to the question posed in paragraph 344 above, Namely whether there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities, including unknown and unnoted losses, is no.”

Paragraph 587…….

” There was a representation in the 1981 brochure that there was in place a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses.

(Paragraph 321)”………..

v. The representations in i) and ii) were, during the relevant period, untrue. (Paragraphs 375 and 376)” (comment 4)

The full judgement is available on the Internet

'A View of the Room', by Ian Hay Davison 1986 pp. 53-54

[The "auditors"] did not consider it part of their duty to audit the reinsurance to close….

A view of the room should be available at good public libraries.

Authority 9 Evidence.

The New York Insurance Commissioner’s report in 1995.

“Further, as of January 1,1994, the effective date of new regulation No.41, the deficiency in the (Lloyd’s)Trusted Surplus amounts to $18,479,853,922.00”

Available from the office of the New York Insurance Commissioner.

Authority 10. Evidence.

Hansard’s

In 1982 during the presentation of the Lloyd’s Bill to Parliament, Lloyd’s failed to disclose the existence of the Neville Russell letter, asbestos liabilities and the Lloyd’s then current insolvency. (See comments 4 ) Hansard available from House of Commons.

Political interference to prevent criminal fraud trial. The evidence is available in UK by way of a note of the meeting. It is not immediately available) In 1985, Mr. Ian Hay Davidson, the former Chief Executive of Lloyd’s had a meeting with Mrs. Margaret Thatcher, then Prime Minister of the UK, and requested her permission to report the wrongdoing within Lloyd’s to the Serious Fraud Office. She vigorously objected to Mr. Davidson from making such a report. The letter below quotes the Government on policy grounds. (See Petitioners comment 35 Page

39 Telephone 0171 486 5582/3 3rd Floor Facsimile 0171 486 5584 25 James Street London WlM 5HY

From Ian Hay Davison (Bank of England appointee. Ex CEO & Deputy Chairman of Lloyd’s) (comment 8)

Further specific evidence relating to Mrs Thatcher’s intervention is available from Mr Taylor.

Political interference to prevent a criminal fraud trial in USA. Circumstantial evidence.

There is circumstantial evidence that Commissioner Bolkstein through Tony Blair brought pressure to bear on President Bush which resulted in criminal charges against certain Chairmen and or executives of Lloyds being withdrawn from the Courts in USA. The following is the text of an email I have received from USA. “Twice the Bushes, father and son, have cancelled federal investigations of Lloyd’s. I was quite familiar with the second investigation. An enormous amount of effort went into that investigation and the Feds were about to bring perjury

40 charges against 15 Lloyd’s executives. The Lloyd’s guys had already hired the top15 criminal attorneys in New York to defend themselves. On a day in November 2001, Commissioner Bolkestein visited London to give a speech. While there he visited Tony Blair. The next morning the investigation was cancelled.” The source of this email has not been disclosed in this document because this petition may come into the public domain. (The source will be made known to the Petition Committee if required but it is not for general release.) (Comment 8) Comment 14 The following also demonstrates a Member States willingness to disregard the law for political purposes, in this case the British Government acting through the Dept of Trade & Industry. “The DTI also refer to the systemic risk that refusal to pay by Lloyd’s would pose for the London and US insurance markets. This overstates by a substantial margin the importance of Lloyd’s and overlooks the other duties of the DTI, which are to protect Lloyd’s investors from frauds committed under ss47 & 133 of the Financial Services Act. (Reference from SIB available.) The distancing of the DTI from the problem is part of a double act with the SFO, the shortcomings of which have been documented and are available. If the risk of addressing this problem properly is too dangerous to the financial system then the cost of protecting the system is one which should be borne by that system and not by a relatively few, individual, deceived members of the public. In other words the total cost should be borne by the Nation, and therefore the Government”

Alleged attempt to corrupt Members of Parliament and or Members of the House of Lords by Lloyd’s. (The source of this evidence has not been disclosed in this document because this document could be made public.)

A number of MPs and Members of the House of Lords were Names at Lloyd’s.

At the time of “Reconstruction and Renewal” of Lloyd’s in the 1995 all Names were issued with their “finality statements” which specified the amounts of outstanding liabilities which was required to be paid to Lloyd’s.

It has been suggested that a number of MPs who were members of Lloyd’s would have been unable to pay their liabilities in full and therefore, in line with others, would have been bankrupted by Lloyd’s. If this had happened it is suggested that a number of Conservative MPs would have had to resign their seats due to bankruptcy. If this had happened it could have forced a General Election.

41 However Lloyd’s made private secret arrangements whereby some or all of the Names who were Members of Parliament or Members of the House of Lord’s settled their debts in full at a substantial discount (reputed to have been approximately 90%).

As I do not know which MPs were Lloyd’s Names I have not been able to check whether this financial benefit was disclosed in the Register of Members’ interests.

Violation of Article 6.1 of the UK Human Rights Act, Eastaway Case

Many Names have been in litigation on this matter for 12 years. The Petitioner joined the litigation in 2000.

The Commission took over four years to process Complaint Number 99/5049. I made a complaint to Commissioner Bolkstein but he declined to answer it. The reference number is 2000/4837. Violations of UK and EU law have been proven, yet no compensation has been awarded.

I believe that Article 6.1 of the UK Human Rights Act has been violated due to a case that has been recently decided in the ECHR styled Eastaway v. United Kingdom No. 74967101 where it was found that:

The Commissioners delay in replying to the first and subsequent complaints could have effected the outcome of the Jaffray trial and its various appeals.

Lloyd’s have been exempt from significant regulation since 1909.

Lloyd’s is only exempted from regulation because the Auditors are/ have been required by statute to calculate the reserves. When, in 1982, the Auditors stated that it was impossible to calculate the outstanding liabilities in relation to asbestos, Lloyd’s, with the approval of the Secretary of State modified the audit instructions. The modified instructions degraded the audit to such an extent that the Court of Appeal found there was no rigorous system of audit in existence.

42 Exemption from Regulation The audit, was initiated in 1908 by the Non-Marine Market, as an emergency marketing measure. It established the assets and liabilities of the underwriters (Names) and was given statutory form in 1909 as the price for the exemption of Lloyd’s Underwriters from all subsequent UK insurance company regulation. “The institution of the audit, and of the system of guarantees in respect of non-marine risks, came precisely at the moment when the Assurance Companies Act was in the course of preparation. The promoters of that Act were supposed to be far from friendly to Lloyd’s, and in some quarters, hopes were cherished that the enactment might be turned into an engine for the elimination of Lloyd’s as a market for non- marine risks. In dealing with this critical situation Sir John Luscombe, Sir Raymond Beck, and Mr. Cuthbert Heath, together with Sir Henry Johnson, the Solicitor to Lloyd’s, were eminently successful. It was, of course, no part of Government policy to stifle competition, and when the able officials in charge of the Bill were convinced of the sufficiency of the safeguards offered by Lloyd’s, the difficulties attendant on the passing of the Act were removed. The Insurance Companies Act, advocated by some with the object of destroying Lloyd’s as a non-marine market, has, in fact, tended to establish the security offered at Lloyd’s on a still sounder foundation.” “And the crowning mercy was its audit. If there had been no audit in being at the start of 1909 Lloyd’s would not have secured the treatment that it got in the Insurance Companies Act of that year...”

The Exemption Insurance Companies Act 1982, s 15

PART II

REGULATION OF INSURANCE COMPANIES

Preliminary

15 Insurance companies to which Part II applies

[(I) Subject to the provisions of this section, this Part of this Act applies to-

43 (a) all insurance companies, whether established within or outside the United Kingdom, which carry on insurance business within the United Kingdom; and (b) all UK companies which carry on business in a Member State other than the United Kingdom. (4)This Part of this Act does not apply to a member of Lloyd’s who carries on insurance business of any class provided that he complies with the requirements set out in section 83 below and applicable to business of that class.

Conditions for Exemption Insurance Companies Act 1982, s83 83. Requirements to be complied with by Lloyd’s underwriters (Names)(1)

The requirements referred to in section 15(4) above are as follows.

(2) Every underwriter shall, in accordance with the provisions of a trust deed approved by the Secretary of State, carry to a trust fund all premiums received by him or on his behalf in respect of any insurance business. (3) ...... (4) The accounts of every underwriter shall be audited annually by an accountant approved by the Committee of Lloyd’s and the auditor shall furnish a certificate in the prescribed form to the Committee and the Secretary of State. (5) The said certificate shall in particular state whether in the opinion of the auditor the value of the assets available to meet the underwriter’s liabilities in respect of insurance business is correctly shown in the accounts, and whether or not that value is sufficient to meet the liabilities calculated - (a) in the case of liabilities in respect of long term business, by an actuary; and (b) in the case of other liabilities, by the auditor on a basis approved by the Secretary of State.

The original exemption from regulation in 1909 was based on the superlative quality of the audit reserve calculation: “During all [his underwriting the Name’s] accounts will be subjected to a rigorous audit; not an audit in the

44 ordinary sense, which merely implies accurate accounts, but an audit designed to ascertain that, at each accounting period, the assets are sufficient to meet the liabilities, actual and prospective. So stated this may seem to be simple enough, but the tests applied are of a very searching nature and involve the most careful analysis. If the requirements are not met, the underwriter must cease business.”

Role of Auditor in Audit Reserve Calculation.

The audit certificate prescribed by regulations issued in 1974 Act was as follows: “In our opinion, so far as the assets and liabilities shown in the Books are concerned, the assets shown in the Books and those deposited with the Committee of Lloyd’s and those since provided belonging to each Underwriter are correctly valued and sufficient to meet the liabilities as therein shown, and to wind up the Underwriting Accounts current as at 31st December, 19 .”

As stated in May 1980 by the Working Party into Self Regulation at Lloyd’s, chaired by Mr. Justice Fisher, at paragraph 23.13:

“The Act thus places a responsibility on the Auditor to satisfy himself on the valuation of the assets and liabilities and this will include the provision the Underwriter has made for his reinsurance to close (RITC).”

The Fisher report also stated at paragraph 23.12:

“We consider that the auditor has a responsibility towards the Committee (of Lloyd’s) to exercise proper care and skill, though his primary responsibility is to the Names who employ him”.

Direct reliance by Names on the Audit Reserve Calculation. Names were aware that they could rely upon the Audit Reserve Calculation. The December 1983 edition of the Brochure for Applicants for Underwriting Membership was still being issued by the Council of Lloyd’s to prospective members and stated that the “rigorous” audit reserve calculation ensured reserves were sufficient to “wind up” the accounts, as follows: “Audit Reserves: The amounts which at the 31st December of each year of underwriting must remain in credit against each main class of business transacted by a Name, to meet the estimated cost (based on the Lloyd’s Audit formula) of winding-up the Name’s Underwriting Accounts.”

Central Control over the Audit Reserve Calculation. Since 1908 the Committee of Lloyd’s has instructed auditors to calculate the reserves on behalf of Names in accordance with an annually updated guide - the Instructions for Guidance of Lloyd’s Auditors issued by the Committee of Lloyd’s and approved by the Secretary of State (The Audit Instructions). The degree of control vested in Lloyd’s is illustrated by clause 3 of the version in use in 1982: “...If there are any other factors which may or may not affect the adequacy of reserves, then the auditor must report to the Committee and obtain their instructions before issuing his syndicate solvency report”.

Audit Certificate: 1950 – 1982 (8th February) Reference to the basis of calculation of the liabilities was not included in the opinion itself and the auditors had to certify that the assets were sufficient to “wind up” the accounts.

46 Authority 25. Evidence

Audit Certificate: 18th March 1982 - March 1983 “..In our opinion, the value of the assets, valued in accordance with the said instructions.. available to meet each Underwriters’ liabilities in respect of his insurance business is correctly shown in the accounts and is sufficient to meet his liabilities in respect of that business”.

Authority 26. Evidence

Emergency Debasement of the Audit Reserve Calculation.

On 24th February 1982, Six auditing practices invoked clause 3 of the Instructions for Guidance of Lloyd’s Auditors stating “the impossibility of determining the liability. See the 1st Neville Russell letter (Evidence 5 above. Page ) The response by Lloyd’s dated 18th March contained new instructions signed by the Chairman of the Audit Committee, a Deputy Chairman of Lloyd’s, as follows: “I should stress that the responsibility for the creation of adequate reserves rests with Managing Agents..”. This was directly contrary to Directive 73/239 and the statutory provision of Insurance Companies Act 1982 (s83(5)(a & b) that the liabilities must be calculated by the Actuary/Auditor- (Section 3 xii 4 Page )

The debasing of the audit reserve calculation was planned and deliberate The Fisher report of 1980 stated at 23.22(a) as follows: “..we recognise that many auditors think that it is increasingly difficult to confirm that, in the auditors’ opinion, the accounts give a “true and fair view” because of the central importance of the adequacy of the Reinsurance to Close (RITC) and the difficulty that an auditor has in confirming what is essentially an underwriting judgment.” A letter dated 15th March 1982 to the signatory of the new Audit Reserve Instructions just prior to its signature, stated: “Ultimately the (active) Underwriter is surely the best judge through his knowledge and experience”

Fraudulent instruction In addition to problems already raised the Audit Reserve calculation Instructions included the following: “One of the main reasons why the Committee does not feel it is appropriate to lay down a specific IBNR loading factor is that in a number of cases syndicates will have reserved up to the maximum of policy limits and a substantial IBNR loading, in addition to this figure, might be regarded as excessive.” This instruction was fraudulent because:

(1) Adding a percentage amount to specifically advised claims, as a method of determining the reserves required on winding up, should only be used when the pattern of future development of incurred but not reported (IBNR) claims is highly predictable. However the asbestos claims which were coming from the United States were not predictable.

Authority 29.Evidence.

Debasement of the Audit was authorised by H M Government by the Secretary of State. It was not legal because the authorisation was in breach of Directive 73/239 which is the superior law.

On 22nd March 1983 the Statutory Instrument required the opinion, which did not meet the requirements of Directive 73 239, which reads as follows: “In our opinion, the value of the assets, valued in accordance with the said instructions (in the case of each underwriting member’s Lloyd’s Deposit, as certified by the Council of Lloyd’s), available to meet each underwriting member’s liabilities, calculated in accordance with the said Instructions, in respect of his insurance business is correctly shown in the accounts and is sufficient to meet his liabilities in respect of that business.”

The above certificate is worthless because:-

1. The Member’s Lloyd’s Deposit should have been valued and certified by the auditor. 2. “Member’s liabilities, calculated in accordance with the said instructions” were worthless because they were calculated by

48 the Members Agent/Underwriter and not an Auditor/Actuary as required by the Insurance Companies Act 1982. 3. “is sufficient to meet his liabilities in respect of that business.” Is worthless because the auditors had informed Lloyd’s that it was impossible to quantify the outstanding liabilities. It therefore was impossible to know what assets were required because the size of the liabilities was unknown.

H M Government admits fraud.

In 1995 the Director, Lloyd’s, at H M Government’s DTI Insurance Directorate stated that the DTI had been faced with the hard choice of whether or not to “impair insurance security” immediately, or “to give time to raise the reserves.”

True & fair audit

Restricted scope of “true and fair” opinion Syndicate Accounting Bye law, No 7 of 1984, introduced the true and fair audit requirement which was restricted to the profit and loss only, effective from year end 1985. The implication of the restricted scope of the audit opinion has never been explained to Names.

Implications of the restricted scope of the audit opinion Best summarised by Lord Neill, (now Commissioner for Standards in Public Life): (Lloyds Act Names did not see or vote on the introduction of or modification to bye laws due to clauses in the Lloyd’s Act 1982)

The true and fair view

5.7Lloyd’s operate on the basis of a three year accounting system under which each calendar year of account is normally left open for a further two years and the profit or loss determined at the end of the three year period. The justification for this procedure is that it is not practicable within a shorter timescale to estimate accurately the total outstanding claims in respect of risks signed in the year of account and, therefore, to determine the outcome of the underwriting. (The reinsuring of outstanding risks into a future year of account is dealt with in paragraphs 5. 10 to 5.14.) In consequence of the inbuilt delay in measuring outstanding liabilities the Syndicate Accounting Byelaw limits

49 the scope of the true and fair requirement to the profit or loss of years of account which have been closed. Thus, there is no requirement for the auditors to express a true and fair view about open years, nor about syndicate balance sheets since the latter do not incorporate provisions for outstanding claims in respect of open years.

5.8On one level this limitation raises the question of whether Lloyd’s are right to retain a three year accounting regime. It has been argued very strongly in evidence to us that they are right to do so, given the nature of the business and the difficulty of making a fair and accurate determination of the profits for distribution to Names at any earlier stage. We are not in a position to challenge that view. We have felt able, however, to address the narrower question of the presentation of information about open years of account. Some open year figures are prepared for the purposes of the annual solvency test and are audited in the context of establishing minimum solvency cover in line with the instructions for the guidance of Lloyd’s auditors as approved by the Secretary of State under the Insurance Companies Act, 1982.The general view we have heard from the market professionals is that this information is not sufficiently precise to be capable of being audited to a true and fair standard in the syndicate accounts. Nevertheless, we doubt whether the drafting of the Syndicate Accounting Byelaw and the accompanying explanatory notes goes far enough to ensure that Names receive a reasonable assessment of outstanding liabilities before the account is closed. It is a requirement of the Byelaw that the underwriter’s report should contain a review of each open year of account (paragraph 10 and Schedule 8, paragraph (c)), but paragraph 79 of the explanatory notes refers only to the possibility that it may include comments as to the expected outcome. We think that all accounts should contain a commentary on the open years, quantifying so far as possible the anticipated out-turn particularly where a loss is anticipated. We recommend that Lloyd’s implement this proposal.

Authority 31 Evidence.

Relevance of Neill Report This is best described by Lloyd’s: MINUTES OF EVIDENCE TAKEN BEFORE THE TREASURY AND CIVIL SERVICE COMMITTEE Page 81

50 MONDAY 6 FEBRUARY 1995

Members present: Sir Thomas Arnold, in the Chair

Ms Diane Abbott Mr. Barry Legg Mr. Nicholas Budgen Mr. Mike O’Brien Mr. Matthew Carrington Mr. Giles Radice Mr. Quentin Davies Mr. Brian Sedgemore Mr. Nigel Forman

Memorandum submitted by Lloyd’s of London

7. Exclusion of Lloyd’s from the FSA was on the basis of compliance (fully implemented within two years) by Lloyd’s with the recommendations of the Committee of Inquiry into Regulatory Arrangements at Lloyd’s chaired by Sir Patrick Neill, QC in December 1986.)

Contemporary evidence that the Syndicate audits amounted to deception.

In 1985 Ian Hay Davison, the then CEO of Lloyd’s commissioned “A Survey of Lloyd’s Syndicate Accounts 1985” from Professor MacVe. Prof MacVe quotes:

CCAB Auditing Standard on Audit Report (April 1980): “As a general principle the auditor issuing an unqualified opinion should not make reference to specific aspects of the financial statements in the body of his report as such a reference may be misunderstood as being a qualification”.

Thus indicating that an unqualified true and fair audit can only be issued on the whole of the financial statements, or not at all.

Example 1. Correct method of qualifying audit report which complies with Directive 73/239 and the then current international audit procedures

Coopers and Lybrand rightly chose not to accept the accounting policies without comment. Although they state the accounts of Equitas Holding Ltd are true and fair, this is only after four pages of an auditors’ report making crystal clear that the opinion is subject to major qualifications, and the implications and possible

51 effects of those qualifications are spelt out in full in the opinion itself. The Equitas Ltd audit report has been reproduced in full because it provides evidence in relation to quality of the syndicate accounts and syndicate records from which Equitas reinsured its risks as part of the R&R process. The quality of syndicate accounts etc would have been influenced by the lack of audits. In the petitioners opinion the majority of syndicate accounts should have carried similar qualifications from 1978 if they had been audited as required in Directive 73/239. If they had been so qualified it is highly unlikely that Lloyd’s would have been able to recruit any new Names.

EQUITAS HOLDINGS LIMITED REPORT OF THE AUDITORS TO THE MEMBERS OF EQUITAS HOLDINGS LIMITED 1 We have audited the financial statements on pages 25 to 42. Respective responsibilities of directors and auditors 2 As described on page 20 the company’s directors are responsible for the preparation of financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you.

Basis of opinion 3 We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board, except that the scope of our work was limited as explained below. Furthermore in the light of the exceptional circumstances of the Group described below, our opinion is qualified in respect of the uncertainties. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and ‘judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group circumstances, consistently applied and adequately disclosed. 4 We planned our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material mis-statement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

52 Uncertainties and limitations in our audit of claims outstanding, reinsurers’ share of claims outstanding and reinsurance recoveries Work of the Reserving Project 5 The Equitas Group was established as part of the Lloyd’s Reconstruction and Renewal plan to reinsure 1992 and prior liabilities of syndicates at Lloyd’s, other than life syndicates. As explained on page 38 of the Report and Accounts, the provision for claims outstanding, the reinsurers’ share of claims outstanding and reinsurance recoveries are based upon the work conducted by the Reserving Project which was established by Lloyd’s in connection with that plan. 6 The Reserving Project estimated the liabilities to be reinsured by the Group relating to asbestos, pollution and health hazard (APH) claims by means of exposure based analyses of global insurance claims arising from these causes and the Lloyd’s market share of such claims. This involved the use of many assumptions which have a significant effect on the quantification of the provision for claims outstanding and related reinsurance recoveries. The estimation of provisions for such claims is inherently uncertain. EQUITAS HOLDINGS LIMITED REPORT OF THE AUDITORS TO THE MEMBERS

OF EQUITAS HOLDINGS LIMITED (continued) 7 Reinsurance and claims data which was collected from syndicates was not subject to an independent audit for the purposes of the Reserving Project. For the majority of non-APH claims categories, the Reserving Project estimated the liabilities to be reinsured by the Group by assessing the appropriateness of the reserving methodologies and quantification of claims outstanding of individual Lloyd’s syndicates, using the results of independent actuarial reviews which were performed for many syndicates and by establishing benchmarks for comparison with syndicates’ estimates of these liabilities. Where the quality of the syndicates’ data was inadequate, or the reserving methodologies were inappropriate, judgments were required in determining the appropriate level of claims outstanding and reinsurers share of claims outstanding. Uncertainties 8 As described in note 14 to the financial statements, there are significant uncertainties as to the accuracy of the provision for claims outstanding of £14,757 million, reinsurers’ share of claims outstanding of £4,285 million and reinsurance recoveries of £l,523 million included in debtors arising out of reinsurance operations. Future claims experience is likely to differ from the estimated liability, potentially to a material degree, because the ultimate liability will be influenced by future events which cannot be predicted with certainty. A significant proportion of claims outstanding,, in particular those in relation to APH, is not expected to be settled for many years and the uncertainties relating to these liabilities are consequently greater. In forming our opinion, we have considered the uncertainties relating to the provision for claims outstanding, reinsurers’ share of claims outstanding and reinsurance

53 recoveries where future experience may show material adjustments are required, particularly with regard to the matters set out below: (a) As described in paragraphs 6 and 7 above, the estimation of the provision for claims outstanding and reinsurers’ share of claims outstanding has relied on ‘judgments in selecting assumptions and in relation to the appropriateness of reserving methodologies and the reliability of underlying syndicate data; (b) Uncertainty is further increased because of the potential for unforeseen changes in the legal, judicial, technological or social environment, which might increase or decrease the cost, frequency or reporting of claims, and because of the potential for new sources or types of claim to emerge; (c) The Group has discounted its provision for claims outstanding and reinsurers’ share of claims outstanding, based on assumptions about expected investment yields and the timing of claims settlements and related reinsurance recoveries. There is uncertainty as to whether actual investment yields and the actual timing of claims settlements and reinsurance recoveries will match those assumed; and (d) Assumptions have been made in determining the reinsurers’ share of claims outstanding. There are uncertainties in estimating the provisions against amounts due from reinsurers where they are, or may become, unable or unwilling to settle their liabilities when due.

EQUITAS HOLDINGS LIMITED Limitations 9 As a result of the circumstances in which the Equitas Group was established, the quality and completeness of data was such that the evidence we considered necessary for our audit is not wholly available in respect of the following: (a) The provision for claims outstanding and the reinsurers’ share of claims outstanding in respect of non-APH liabilities; (b) Reinsurance in respect of APH claims and on certain run-off reinsurance contracts purchased by syndicates; and (c) Exposure to individual reinsurers and consequently the appropriate level of bad debt provisions.

10 In addition we did not receive access to available information on certain major insurance claims which are the subject of actual or potential litigation because of the risk of breaches of legal privilege.

Consequences of uncertainties and limitations

54 11 The uncertainties described in paragraph 8 above may result in material increases or decreases to the provision for claims outstanding, reinsurers’ share of claims outstanding and reinsurance recoveries. Had we been able to obtain all the evidence necessary to satisfy ourselves in respect of the matters described in paragraph 9 and 10 above, we might have concluded that material increases or decreases are required to the provision for claims outstanding, reinsurers’ share of claims outstanding or reinsurance recoveries. Such adjustments, if adverse in the aggregate, could be material enough to exceed the amount of the shareholders’ funds at 4 September 1996 of £588 million. 12 If at any time the Directors determine that there are insufficient assets to meet liabilities in full then, under the contract by which the Equitas Group reinsured the 1992 and prior liabilities, the Directors may implement a proportionate cover plan under which the Group will then be entitled to pay claims at a reduced rate, and liabilities under the reinsurance contract will be restricted in aggregate to assets available such that shareholders’ funds would not become negative though they may be reduced to nil. Qualified opinion arising from uncertainties and limitations in our audit 13 In respect alone of the limitations on our work relating to the provision for claims outstanding, reinsurers’ share of claims outstanding and reinsurance recoveries, as described in paragraphs 9 (which result from the circumstances in which the Equitas Group was established) and 10 above: (a) We have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and (b) We were therefore unable to determine whether proper accounting records had been maintained.

EQUITAS HOLDINGS LIMITED

REPORT OF THE AUDITORS TO THE MEMBERS

OF EQUITAS HOLDINGS LIMITED(continued) 14 Except for material adjustments in respect of the matters described in paragraphs 8 to 12 above, which may ultimately be required to the provision for claims outstanding, reinsurers’ share of claims outstanding, reinsurance recoveries and consequent adjustments to shareholders’ funds and the surplus for the period, in our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 4 September 1996 and of the surplus and cashflows of the Group for the period then ended and have been properly prepared in accordance with the Companies Act 1985.

Coopers & Lybrand Chartered Accountants and Registered Auditors

55 London 19 March 1997

Example 2. A typical example of an audit report for the accounts of a syndicate’s which was prepared in accordance with Lloyd’s audit instructions as approved by the Secretary of State. The accounts contained outstanding liabilities which were later included in the above Equitas accounts. Unlike the Equitas accounts this audit certificate did not contain any qualifications.

Accounts 31st December 1985 Non-Marine syndicate 126 Report of the auditors To the members of the syndicate 126.

We have audited the annual report at the 31st of December 1985 set out on pages one to 14 and the personal accounts relating thereto in accordance with the approved auditing standards.

In our opinion a. The annual report, which has been drawn up on the basis of the accounting policies shown in notes one to six, had been properly prepared in accordance with the requirements of the Lloyd’s syndicate accounting rules; and b. The personal accounts have been properly prepared in accordance with the Lloyd’s syndicates accounting rules and give a true and fair view of each members’ net result.

London Littlejohn de Paula 30th of May 1986 Chartered Accountants

i. The audit difficulties continued and that the solutions to those problems did not comply with Directive 73/239’s requirement for a rigorous audit. (Colfox Ibid: Pages 210-212)

In 1985 auditors experienced the following difficulties in applying the “true and fair” audit requirement to Lloyd’s syndicates accounts:

56 The RITC is very uncertain The records are inadequate “In principle, if adequate records are kept at the box of all signings and claims notifications it should be possible to trace through to see that they are fully and accurately reflected in the accounts of the relevant underwriting years. There is, however, considerable difference of opinion among auditors not only as to how far this is possible at present (given that the rules on accounting procedures and records have only come into force from 1 January 1985), but also as to how far it can ever be possible.” Therefore - auditors cannot confirm the underwriter’s calculation of the RITC. (c) “While the three year accounting helps by allowing time for transactions to be completed, the particular problem in relation to audit arises with regard to the reinsurance to close and in tying up the underwriter’s statistics on premiums and claims development with the accounting figures. “ Balance Sheets are not true and fair (d) “Some auditors consider that the requirements for a true and fair view on the closed year should be seen as only a stepping stone to requiring a true and fair view on the accounts as a whole. This extension would raise a number of additional problems:

“The amounts in the balance sheet for the open underwriting years do not normally include any provision for outstanding liabilities on these years… If “true and fair” implies “comparable with a company’s balance sheet” disclosure of this situation would not be regarded as sufficient, and it would be necessary to form a view of any necessary provision. While this is done already for “solvency” purposes the emphasis is different - on ensuring the amount available is at least enough rather than that it is a fair estimate”; … Deficiencies are largely off balance sheet. (i.e. undisclosed) (e)There would be technical accounting difficulties in regard to any provision for deficiencies on the open underwriting years as Names would not have provided (and not necessarily be required to provide) extra funds to the syndicate at that time. Their assets to cover deficiencies are largely off balance sheet.”

57 ii. Resolution of Audit Difficulties by Amendment of the “true and fair” opinion The lack of records was resolved by reference to the opinion being on the basis of the accounting policies - i.e. the policy that “there should be records at syndicate level”. “ … In this regard one may note: (b) “that three firms of auditors normally expressed their opinion on the closed underwriting year of account in terms that it gave a true and fair view of the result “on the basis of the accounting policies” (ninety reports, being 20% of all 1984 reports, received this form of audit opinion…).” The entry relating to the RITC premium on the balance sheet was solved by restricting the scope of the audit opinion to the profit and loss alone. “The Institute of Chartered Accountants in England & Wales (ICAEW) Insurance Industry Sub-Committee and the APC’s (Auditing Practices Committee) draft Audit Brief on Syndicate Audits have suggested a suitable form of audit report in the following terms (although alternative wordings would be acceptable): REPORT OF THE AUDITORS TO THE MEMBERS OF SYNDICATE XXX We have audited the annual report set out on pages ( ) and the personal accounts relating thereto in accordance with approved Auditing Standards. In our opinion: the annual report, which has been drawn up on the basis of the accounting policies set out in note ( ), has been properly prepared in accordance with the requirements of the Lloyd’s syndicate accounting rules and gives a true and fair view of the profit/loss of 19xx closed year of account; The entry relating to the RITC premium on the profit and loss account was solved by instruction from Lloyd’s; as Neill has it (5.7): “…We recognise that there are limitations on the auditor’s ability to form a view about the underwriter’s judgment on the precise figure [for the RITC]. What he can do, however, is to satisfy himself that the provision lies within a range of reasonable values..” Thus, in times of extreme uncertainty, a range of RITC premium between a nominal and infinite amount could be considered to be within a “range” of “reasonable” values and the normal test of “materiality” of possible variation has been over-ridden.

iii. Statutory Statement of Business (Solvency audit return signed by Lloyd’s Chairman)

58 Auditors reporting to the Lloyd’s Council and Secretary of State knew, from 1982 onwards, that large areas of the Lloyd’s market (i.e. many syndicates) were insolvent. Neville Russell in their second letter (1999) advised that from 1982 onwards an auditor would not have: “signed a[n annual] certificate certifying that …[the] assets covered … [the] liabilities at Lloyd’s…”, of each member; nor was it considered by auditors to be part of their responsibility to calculate the liabilities”; But the Chairman of Lloyd’s, a Deputy Chairman, and the Secretary General certified annually to the Secretary of State, in the Statutory Statement of Business (SSOB), that the auditors had submitted certificates, pursuant to s83(4), which complied with s83(5); and thereby gave the impression that there were sufficient assets to cover all known and foreseeable liabilities in respect of every member of Lloyd’s - an impression which they could not honestly have believed. This continued breach of the law wrongfully presented Lloyd’s as an organisation that was rigorously audited annually and that investors would be protected by an audit regime - better than the law demands . These misleading statements (SSOB) were made recklessly as to whether they may induce members of Lloyd’s or their agents to enter into (inherently disastrous and potentially illegal) insurance contracts.

iv. True and Fair Audit Opinion The opinion sent to Names expressed by their syndicate auditors on the financial statements of each syndicate universally is hedged from 1985 onwards by restriction of the scope of the audit opinion to being: On the basis of the accounting policies; and Expressed only in respect of the profit and loss shown in the statements.

Public policy

Lloyd’s is still heavily influenced by the large US brokers, who provide much of the ongoing premium income and the DTI in interpreting their duty to protect policyholders have supported on trading in the USA, which also supports these (compromised) brokers. The DTI have tried to state that the decision whether or not to pull out of America is a decision for Lloyd’s.

59 This stance was compromised in a series of Amicus Curiae briefs submitted by the DTI in the US court hearing Allen Vs Lloyd’s which resulted in a last minute, short lived injunction of R&R. The DTI justify their policy by referring to the Balance of Payments statistics, showing substantial benefit to the UK provided by the Lloyd’s Market. These statistics have been challenged. The DTI also refer to the systemic risk that refusal to pay by Lloyd’s would pose for the London and US insurance markets. This overstates by a substantial margin the importance of Lloyd’s and overlooks the other duties of the DTI which are to protect Lloyd’s investors from frauds committed under ss47 & 133 of the Financial Services Act. (Reference from SIB available.) The distancing of the DTI from the problem is part of a double act with the SFO, the shortcomings of which have been documented and are available. If the risk of addressing this problem properly is too dangerous to the financial system then the cost of protecting the system is one which should be borne by that system and not by a relatively few, individual, deceived members of the public.

In other words the total cost should be borne by the nation, and therefore the Government

HOUSE OF COMMONS SESSION 1994-95 TREASURY AND CIVIL SERVICE COMMITTEE

Fifth Report

FINANCIAL SERVICES REGULATION: SELF-REGULATION AT LLOYD’S OF LONDON

VOLUME I Report, together with the Proceedings of the Committee

Ordered by The House of Commons to be printed 17 May 1995

VII. CONCLUSIONS AND RECOMMENDATIONS

We have taken a great deal of evidence in the course of this inquiry, much of it extending well beyond the terms of reference of our inquiry into financial services regulation. The evidence suggests

60 that there is a need for a wider investigation of events at Lloyd’s which would go beyond the order of reference of this Committee. [Their emphasis]

No enquiry, as recommended, has been undertaken; No judicial review, as promised, has been allowed; No audit, as endlessly promised to all, including the Crown, has been undertaken prior to depriving Names of their homes, chattels and business assets; No prosecutions have been undertaken despite endless false statements upon which Names relied being approved by the highest authorities;

Authority 37.Evidence

Opinion of Mr Advocate General Lenz delivered on 14 December 1988. Star Fruit Company SA v Commission of the European Communities. Action for failure to act brought by an undertaking - Failure by the Commission to commence proceedings under Article 169 of the EEC Treaty. Case 247/87.European Court reports 1989 Page 00291

Opinions of the Advocate-General ++++ Mr President, Members of the Court, 1 . The case on which I deliver my opinion today essentially concerns the question whether traders may bring proceedings against the Commission if, in spite of requests to do so, it has not commenced proceedings against a Member State for failure to fulfil its obligations . A - Facts 2 . This case also concerns the importation into France of bananas in free circulation in a Member State . The applicant is a company having its registered office in Brusels whose business is inter alia trading in fruit ( and which incidentally must be the main supplier of the applicant in Case 206/87 ). 3 . The applicant maintains that it has repeatedly received orders from French customers but has not been able to export the required goods to France . Its lorries have been repeatedly turned back at the frontier ( only twice was it possible to effect imports in this way ) and in import allocations its French customers have not managed to obtain licences from the French authorities since these have been systematically allocated to the groupement d' intérêt économique bananier ( which also figured prominently in Case 206/87 ) since this body has undertaken to observe a particular price discipline .

61 4 . Consequently, on 17 April 1987, the applicant approached the Commission and reported the conditions on the French banana market ( already described in detail in Case 206/87 ). In the applicant' s view, the conduct of the French Republic is contrary to both Article 30 of the EEC Treaty and Article 2 of the Lomé Convention of 28 February 1975 and it is therefore obliged to compensate it for loss of business in the period from October 1986 to October 1987 . It formally requested the Commission to bring proceedings under Article 169 of the EEC Treaty for the purpose of : ( i)having it declared that the French Republic had failed to fulfil its obligations under Article 30 et seq . of the EEC Treaty and Article 2 and Protocol 6 of the Lomé Convention; ( ii ) requiring the French Republic to abolish the quotas which it applies to bananas originating in or coming from the European Economic Community or Associated States and to bananas originating in non-member countries in free circulation in the Community; ( iii ) requiring the French Republic to compensate the applicant for losses amounting to BFR 87 451 400 incurred in respect of certain non-deliveries . 5 . In response the applicant received only a letter from a Head of Division in the Commission dated 4 May 1987, notifying it that the competent departments of the Commission would take the necessary measures and inform the applicant thereof; consequently, the applicant brought this action by application lodged at the Court Registry on 14 August 1987 . 6 . In its application, which is based on Articles 173 and 175 of the EEC Treaty, the applicant seeks a declaration that the Commission failed to reach a decision against the French State in respect of the applicant' s request of 17 April 1987 ( which it repeats verbatim in the application ). 7 . The Commission and the French Republic, the intervener, consider that this application is also inadmissible . The Commission' s response was therefore merely to raise an objection of inadmissibility under Article 91 of the Rules of Procedure . B - Analysis My views on the question of the admissibility of this application, which is the only matter to be considered today, are as follows : 8 . 1 . It is quite clear to me that the reference in the application to Article 173 of the EEC Treaty is irrelevant . There is no ground for an action for annulment in this case since the applicant has not specified any act of the Commission which could possibly be annulled . After this was pointed out it appears that even the applicant realized this fact since it responded simply by saying that it was leaving the question of the admissibility of its application under Article 173 for the Court to determine . 9 . Consequently, the admissibility of the application has to

62 be considered only with reference to the third paragraph of Article 175, according to which any natural or legal person may, under the conditions laid down in the first and second paragraphs of that article, complain to the Court of Justice that an institution of the Community has failed to address to that person any act other than a recommendation or an opinion . 10 . 2 . Following objections made by the Commission to the third and fourth points of the application, that is to say the claims that the French Republic be required to abolish the quotas and to indemnify the applicant, it was made clear that these were not independent claims but were to be regarded as linked to the first heads of claim and examined in the same way . 11 . We do not therefore need to dwell on the Commission' s view that such applications are not admissible because they are not provided for in the system of legal protection established by the Treaty, which is undoubtedly true . Rather, the question is whether natural and legal persons may bring proceedings under Article 175 of the EEC Treaty with the aim of causing the Commission to commence proceedings under Article 169 of the Treaty for breach of obligations . 12 . 3 . That proposition raises serious doubts . ( a ) In saying that I am not thinking so much of arguments that might be obvious having regard to the wording of Article 175 of the Treaty (" address to that person any act ") on which great stress was laid by the Commission which observed that the procedure under Article 169 concerns only acts to be addressed to the Member State concerned ( and not therefore acts which by their nature and purpose are addressed to a private applicant ) and does not concern binding acts in the nature of decisions ( which Mr Advocate General Gand, in his Opinion in Case 48/65, regarded as essential for the purposes of Article 175 ). ( 1 ) 13 . In reply it might, however, be pointed out that under Article 169 ( which is the key provision ) the Commission may certainly take actions which produce legal effects, since the procedure often ends in an action being brought before the Court in order to obtain a binding ruling . It might also be pointed out that militating against a narrow interpretation relying heavily on the wording (" address to that person any act ") is the fact that, according to that view, the only purpose which actions for failure to act may have is to obtain the adoption of administrative acts favourable to the applicant, not of certain specific acts detrimental to a third party, in which an interest might obviously exist . 14 . ( b ) However, I see considerable objections in two other respects . 15 . Under the system of judicial protection instituted by the Treaty private individuals clearly have no general right of action but only a limited right depending on their individual

63 interests . As regards actions for annulment, Article 173 expresses this principle by the requirement of direct and individual concern . The criterion "address to that person any act" in Article 175 should be understood in that sense, that is to say it may only involve acts in which the applicant has a particular interest but in no case acts with a general scope . ( As Daig states on p . 239 of his book Nichtigkeits - und Untaetigkeitsklagen im Recht der europaeischen Gemeinschaften, it is not sufficient that an applicant is collectively concerned together with other persons belonging to a group identified by general characteristics . The measures concerned must be measures which relate specifically to the person or to the position of the applicant ). 16 . In the final analysis, Article 169 proceedings, which is what the applicant envisages when seeking a declaration that France has acted in breach of Article 30 et seq . of the EEC Treaty and the Lomé Convention, undoubtedly involve ( if we bear in mind the consequences which the French Republic would have to draw following the judgment sought by the applicant ) an act of general scope, namely a modification of the current import system which restricts intra-Community trade . As Mr Advocate General Roemer pointed out in his Opinion in Case 103/63, ( 2 ) private individuals can hardly be allowed to pursue such a goal . 17 . Perhaps still more compelling points are that, under the system instituted by the Treaty as discernible from Articles 169 and 170, only the Commission and the Member States have the power to bring the matter of a breach of the Treaty by a Member State before the Court, that discretionary power plays an important part in this regard ( as Mr Advocate General Gand emphasized in his Opinion in Case 48/65 ) and that it is also necessary to observe a pre-litigation procedure which allows the Member State to bring its law and practice into conformity with the Treaty without the institution of legal proceedings . 18 . It would scarcely be compatible with those requirements to allow a private individual to require the Commission to instigate proceedings for failure to fulfil obligations and, in the event of its refusal, to bring the matter before the Court . An important condition laid down in Article 175 of the EEC Treaty - failure to reach a decision in breach of the Treaty - is not met precisely because the Commission is not obliged to instigate such a procedure but has a discretion in this regard . Furthermore, if the Commission did not see any reason for commencing proceedings, the disputed conduct of the Member State would in a way directly become the subject-matter of judicial scrutiny ( in an action brought so as to compel the Commission to bring proceedings in which action the question whether there was sufficient evidence of a breach of the Treaty would at

64 least be considered ). That means that the Member State concerned would not have the opportunity provided for in Article 169 to submit its views beforehand and to remedy the alleged breach of obligations . In his Opinion in Case 48/85 Mr Advocate General Gand made the same point and, as Daig points out at p . 240 op . cit ., this is the predominant view . C - Conclusion 19 . 4 . In the light of the foregoing considerations, it can only be concluded that the Star Fruit Company' s application must be dismissed with an order for it to pay the costs, except for those of the intervener, which have not been asked for . (*) Original language : German . ( 1 ) Judgment of 1 March 1966 in Case 48/65 Alfons Luetticke GmbH and Others v Commission (( 1966 )) ECR 19 . ( 2 ) Judgment of 2 July 1964 in Case 103/63 Rhenania, Schiffahrts - und Speditionsgesellschaft mbH and Others v Commission (( 1964 )) ECR 425, at p . 433 .

65 Judiciary’s Conflicts of Interest

Mr. Richard Southwell QC (Now President Lloyd’s Appeal Tribunal) also conducted the Alexander Howden Enquiry for Lloyd’s - co-head of chambers with Sir Patrick Neill QC, who was hired by the DTI to investigate investor protection and whose recommendations have not been carried out, even though he mistakenly testified to the Treasury Select Committee that they had been carried out.

Judge Thornton. Almost uniquely this judge declared his conflict of interest instantly having worked for Lloyd’s in similar capacities to all the above Judges. However he did not declare that he was himself a Member of Lloyd’s.

Mr. Justice Mance. Unfortunately this judge declared the wrong type of conflict of interest, stating that he had been counsel to Gooda Walker Action Group. In fact his wife, now Lady Justice Mary Arden, is a Member of Lloyd’s, and his father was Chairman of Lloyd’s 1969-72, who received the Cromer Report. Although this judge is highly thought of by Names it is considered disquieting that he did not disclose his real interest in being asked to judge matters relating to a contract in which his wife had an interest.

Mr Justice Rix. He declared that his wife was a Name, and by consent heard a case in which he refused Lloyd’s summary judgement against a Name on a point based on the fundamental law of agency. However no win by Names against the Society of Lloyd’s has yet been sustained at full trial.

Mr. Justice Colman (if he is Mr. A D Colman QC) - employed by Lloyd’s as chairman of one of the PCW Disciplinary Enquiry which reported in mid 80’s to Lloyd’s. He also, it seems, acted as Counsel for the Warrilow underwriting agency. (Copy of enquiry report available from Lloyd’s Disciplinary Department to all members of Lloyd’s). He also acted as one of the two inspectors appointed by Lloyd’s into the Fidentia fraud. Mr. Justice Colman is now being asked to admit that his previous investigation on behalf of his client Lloyd’s failed to uncover the fraud committed by Lloyd’s, and in fact by throwing up a cloud of smoke in the wrong direction assisted in covering it up. Mr. Justice Colman held that Lloyd’s is entitled to judgment against Names even if they have been defrauded by Lloyd’s.

Lord Justice Tuckey... appointed by Sir Peter Green to investigate Sir Peter Green’s conduct in the infamous Unimar Enquiry. Per Ian Hay Davison, Tuckey held that Green had not overlooked dishonesty, a finding later over- ruled by the DTI inspectors1. Also was in charge of the PCW enquiry. When

1 Mr Justice Tuckey was challenged by petition read into the record in open court. He denied the findings detailed in Ian Hay Davison’s book. He said he did find dishonesty. Therefore: if he found dishonesty he was compromised as he had been previously retained by the dishonest plaintiff (Lloyd’s); if he did not find dishonesty his memory is seriously faulty on a material and extremely controversial issue.

66 challenged in Court presiding over debt collection attempts by Lloyd’s he refused to stand down.

His apparently odd findings (in these summary proceedings2) are as follows: a. Names unconnected to previous proceedings could not raise points already raised in those proceedings3. b. Despite admitting that he did not understand European Law, he refused a reference from these summary proceedings to the European Court of Justice (ECJ) concerning the meaning of the references in Directives to solvency and audit. Following appeal to the House of Lords, it appears that his was the court from which there was no appeal, in which case a reference to the ECJ is mandatory. However as there is no appeal (leave having been refused by the Court of Appeal and House of Lords) the only further action that can be taken is to set aside his judgment.

Lord Justice Brooke (if he is Mr. H Brooke QC) likewise conducted the Alexander Howden Enquiry for Lloyd’s - He alone took the judicial review hearing into R&R. Prior to the judicial review he was hired by Lloyd’s to arbitrate on stop loss disputes within the R&R process, which was a process he declined to judicially review. His brother is a former Tory Minister who stood to benefit from his refusal to grant a judicial review, and who is MP for the City of London and Westminster South, with by far the largest number of electors who are Lloyd’s members with by far the biggest losses.

Lord Phillips. The Secretary to Sir Patrick Neill QC’s committee of enquiry was called Jonathan Phillips. Lord Phillips’ foreName is Nicholas. He heard the negligence case against Lloyd’s Members’ and Managing Agent - Gooda Walker - resulting in an approximately £1billion unsatisfied damages award in favour of Lloyd’s Names.

Lord Millet. Following objections his Name did not appear on a decision from the House of Lords in Lloyd’s v Pascoe, he actually having considered the petition seeking leave. Lord Millett is a Member of Lloyd’s, but this has not stopped him awarding himself security for costs in Parimtree Ltd vs various Lloyd’s Underwriters as a Name on one of the defendant’s syndicates.

Lord Steyn - conducted the Alexander Howden Enquiry for Lloyd’s and was also one of the Court of Appeal Judges who with “diffidence, reluctance and regret” found in favour of the Names in Clementson’s European points.

It is not known whether Lloyd’s offered R&R discounts to Judges as they did to various Members of the House of Lords and the House of Commons.

2 Lloyd’s vs Fraser & Others (application by Pascoe to House of Lords - not admissible) 3 This would not fairly apply to the litigants in person who were not represented at all in the previous case: Lloyd’s vs Leighs & Others.

67 THE FRAUD EXPLAINED

This section does not point out or explain

the breaches of Directive 73/239

which have been covered in previous pages.

However it does explain the consequence of the British Government’s failure to implement and enforce Directive 73/239 on its due date. It also explains how the Lloyd’s fraud, with the Government’s knowledge, flowed directly from that failure

A summary of the history of the alleged premeditated

£8 billion fraud perpetrated by

Lloyd’s of London

with the knowledge of the British Government

& support of the European Commission

on approximately 27,000 members of the Society.

1970’s – 1990’s

68 INDEX

THE FRAUD EXPLAINED Page 68 -121

Index Page 69

Section one The need for the Explanation Page 70 - 71

Section Two Background Page 72 - 77

Section Three Sequence of Events Page 78 - 80

Section Four Human Nature in relation to dishonesty Page 81

Section Five Analysis & Conclusions Page 82 -119

Section Six. Finale Page 120 -121

69 SECTION ONE. The Fraud Explained

1. The need for the explanation.

i. The purpose of this document is to try and explain in layman's language the background and details of the alleged premeditated fraud which was perpetrated on approximately 27,000 Names of Lloyd’s of London between 1976 and 1995. There is clear evidence that The British Goernment conspired with Lloyd’s to make the fraud and continuation of the fraud possible. The EU commission has co- operated with Lloyd’s & the British Government to cover up the deceit. It is the largest fraud to have been committed in the EU. It occurred because Directive 73/239 was not implemented by its due date nor was it enforced by the British Government and or the EU.

ii. The fraud was made possible because the British Government granted Lloyd’s the power of self-regulation and Lloyd’s deliberately breached the key requirements of the Directive. The British Government approved and supported the audit instructions drawn up by Lloyd’s which were at the heart of the fraud. Many of those who suffered severe financial loss have been fighting since 1995 to obtain justice. A substantial number have been made bankrupt. Lloyd’s continues to try to bankrupt others and sadly there have been suicides among those who were ruined by the fraud.

iii. This document will show that it is virtually impossible to believe that many of Lloyd’s actions during the period 1976 – 1995 could have been taken without premeditation and that they did not intend to defraud members of the public who joined the Society during that period. Lloyd’s should have declared itself insolvent in 1976 (if Directive 73/239 had been implemented on its due date), or in 1982 when its Auditors advised them that it was impossible to quantify its outstanding liabilities.

iv. It is likely Lloyd’s obtained the Lloyd’s Act 1982 (a private Act of Parliament) through fraud because it withheld from Parliament information relating to the extent of the asbestos crisis facing the insurance industry, internal fraudulent scandals within Lloyd’s or the fact that it should have declared itself insolvent by Feb 1982 at the latest.

v. By 1995 Lloyd’s admitted that it was under reserved by £8 billion approx. The Court of Appeal found that the Lloyd’s recruiting brochure contained crucial misrepresentations. Much of the above £8 billion was paid by Names who had been recruited to their Lloyd’s membership after Lloyd’s should have ceased trading in 1976 or 1982 due to their insolvency.

70 vi. This document will raise the issue of whether or not the British judiciary is independent of the British Government. vii. This document points out that members of the British legislature were bribed by Lloyd’s. If this had not happened, the Conservative Government could have lost its Commons majority in 1995/6 viii. This document will question whether or not the EU legal system is free from political interference and whether Member States are able to decide which European Directives to implement and enforce and which ones to ignore. It will point out that a break down of the legal system in any Federation of States or Empire usually indicates the beginning of the end of that association of States.

71 SECTION TWO. The fraud explained

2. The background and details The background and details of the alleged premeditated fraud which was perpetrated on approximately 27,000 Names of Lloyd’s of London between 1976 and 1995. There is clear evidence that the British Government conspired with Lloyd’s to make the fraud and continuation of the fraud possible. The EU commission has co- operated with Lloyd’s & the British Government to cover up the deceit. It is the largest fraud to have been committed in the EU. It occurred because Directive 73/239 was not implemented by its due date nor was it enforced by the British Government and or the EU.

Introduction

i. Lloyd’s of London is a Society in which individuals could participate in the business of insurance on their own behalf. A member of Lloyd’s was described as a Name. A Name did not participate in the profits of others nor was he responsible for their losses but he did undertake unlimited financial liability for his own losses. He did not conduct his underwriting business as a sole trader, a company, corporation or partnership. Lloyd’s was an insurance market in which a group of individual Names joined together in an annual joint venture (a Syndicate). Each Name was usually a member of a number of Syndicates. It was normal for Names to continue their membership of a Syndicate for a number of years although a Name was able to leave one or more syndicates at the end of a year and join another or others. The accuracy of the syndicate accounts and the quantification of outstanding liabilities was a vital necessity because the syndicate was a joint venture for one year only. Only through accurate accounts could profits or losses be properly allocated to Names. A fundamental principle of Lloyd’s was that Names undertook business on their own account and that therefore profits and losses should not be mutualised. Lloyd’s claimed that it was the subject of a rigorous annual audit and that it always conducted its business on the basis of the utmost good faith and required that all participants in the market did likewise.

ii. In order to join the society a Name was required to disclose the extent of his personal net assets to Lloyd’s and by participating in the business of insurance he assumed unlimited liability to meet any claim arising from his underwriting activities.

72 iii. The volume of business that a Name could undertake at Lloyd’s depended upon the wealth disclosed by him and the financial deposit that he made with Lloyd’s. The volume of business that a Name could undertake was described as his annual premium income limit. iv. A Name was not entitled to take any active participation in his underwriting affairs apart from selecting his Lloyd’s (Name’s) Agent and the syndicates through which he was to underwrite his insurance risks. He had to rely on honesty of the Lloyd’s, his agent, the syndicates he selected and in particular the accuracy of their accounts. Due to the system of self-regulation at Lloyd’s Names relied to an even greater extent on the Council of Lloyd’s for the proper and honest management of the Society They relied upon the Council of Lloyd’s and the British Government to implement and/or enforce all EU Directives and UK laws (and regulations) which related to the insurance industry, and Lloyd’s in particular. They also relied upon h Government to supervise Lloyd’s. It was reasonable that a Name should rely on the information supplied to him by the Council of Lloyd’s and/or his Lloyd’s Agent and that if that information was false that he should then be able to rely on the protection available to him through the laws of the land.

Names were informed by Council members and their Lloyd’s Agents that the business of insurance was one “of the utmost good faith” It was therefore reasonable that they should rely on the Council keep to that principle themselves to enforce it on others. Names were informed that the Council insisted that all Members Agents and Managing Agents (who managed the syndicates) should carry compulsory Errors and Omissions insurance to protect Names from fraud or mismanagement. v. A prospective Name was not issued with a prospectus because he was not investing in a company. He therefore had to rely on the information supplied to him by Lloyd’s and the relevant legislation which controlled Lloyd’s.

The main legislation on which he relied was as follows:

a. The various Lloyd’s Acts (which were private Acts of Parliament) b. The First EU Non Life Insurance Directive 73/239. c. Various Insurance Companies Acts d. Various Misrepresentation Acts e. Various laws of Agency

73 f. British Case law

He also relied upon:-

a. Various syndicate accounts which Lloyd’s insisted that prospective Names should review before joining any syndicate. b. The Lloyd’s Recruiting Brochure. c. The information that Lloyd’s required each Members Agent’s to supply to prospective Names. d. The EU and the British Government and the Courts to ensure that the relevant legislation was being complied with.

vi. The business of Lloyd’s was conducted through syndicates. A syndicate was made up of a number of Names, typically 1000, who allocated a portion of their premium income limit to the syndicates. The syndicate was managed by the Managing Agent and the underwriting was conducted by an active underwriter who was employed by the Managing Agent. The syndicate was an annual joint venture between the Names who joined the syndicate in any particular year. The Names were free to join or leave the syndicate at the end of the year provided they had given the required notice to the Managing Agent through their Member’s Agent. Each Name joined a number of syndicates and allocated a proportion of his premium income capacity to each syndicate that he joined.

vii. The volume of business that any syndicate could underwrite in turn depended upon the total of the premium income capacity that had been allocated to it by each Name who participated on the syndicate during that particular year. viii. Participation in the business conducted by Lloyd’s of London through all its syndicates as mentioned above was by way of an annual venture however the unique accounting system at Lloyd’s declared the results, of any financial year, three years in arrears. The first two of these years were described as open years, the third year were described as the closed year. In principle the syndicate received the premium income arising from the risks of underwritten during the first year. It paid the claims arising from those risks from the premiums it received when it underwrote them. At the end of the third year the profit or loss for the joint venture was declared. To declare the true profit or loss it was essential to calculate the outstanding liabilities accurately. In principal these outstanding

74 liabilities were the total of the outstanding claims whether notified or not. These outstanding liabilities were then reinsured on behalf of the Names who participated on the syndicate year to be closed into the account of the syndicate’s following year by way of a Reinsurance To Close (RITC) premium. The third year was then closed. Thus through this accounting system the profit or loss of the syndicate could be declared and the profits were paid or the losses collected from the Names who participated in that year. If the calculation of the outstanding liabilities were underestimated the profits of the closed year would be overstated but resulting losses would be carried forward to the Names who participated on subsequent years. This document will show how Lloyd’s deliberately carried forward approx £8 billion of unreserved losses much of which was paid by Names who were recruited into Lloyd’s after the Council of Lloyd’s made it possible for syndicates to hide their losses through under reserving. ix. Syndicates specialised in various sectors of the market eg Motor, Aviation, Marine, Non Marine etc. Some syndicates were short tail syndicates where the time between receiving a premium and paying claims were short eg motor which was usually one to three years. Some syndicates were long tail syndicates where the time between receiving the premium and receiving a claim was long, eg Asbestos where claims were submitted 30 – 40 years after the claimants exposure to the material. x. Due to Lloyd’s annual venture and its accounting system it was vital that the accounts should be independently audited and that the RITC in particular was independently calculated and verified. For most syndicates, the RITC was by far the single largest figure in the account and any understatement of the RITC would give the impression that the syndicate was trading profitably when in fact a loss was being incurred. xi. Before joining Lloyd’s, every Name was required to appoint an agent to represent him in all his dealings with Lloyd’s. The agent had to be registered with Lloyd’s as a registered Members Agent. The agent was required by Lloyd’s to supply the prospective Name with certain information and to explain the workings of Lloyd’s.

In my case I was supplied with accounts of the syndicates that my agent recommended that I should join. They covered the previous seven previous closed years of account. I was also supplied with the Lloyd’s recruiting brochure which amongst other things stated that Lloyd’s

75 syndicates were all subject to a rigorous audit. My agent made it clear that I should rely on the accounts because past performance was the best guide to future performance.

My agent also explained the difference between a long tail and a short tail syndicate. The example he gave me was that if the ship sank in a storm it might be necessary to have a court case to establish whether the liability for the loss lay with the captain of the ship or as an example the marine architect who designed the ship.

I was never advised that new claims could be made against policies written 20 – 40 years previously and that I would be liable for a proportion of those claims.

My Members Agent explained that Lloyd’s required them and Managing Agents, who were responsible for the management of the syndicate, to be covered by Errors & Omissions (E & O) insurance which would ensure that all Names were protected against negligence or fraud by their agents.

I was informed that I could leave (subject to the three year accounting rule) any one, some or all syndicates at the end of any year providing I gave notice by the required date.

My agent placed great emphasis on the skills of Lloyd’s and its standing in the world insurance market. He said that Lloyd’s was proud that it had made a profit in nearly every year it had traded and there was no reason to believe that that situation should change.

Much of the advice which I received before I joined Lloyd’s proved in due course to be incorrect. xii. Before being accepted as an underwriting member of Lloyd’s every Name was required to attend a ROTA meeting. The meetings were held to ensure that they knew what risks they would incur and knew how the Lloyd’s market functioned. We were informed that it would be the most important meeting you would ever attend at Lloyd’s.

At my ROTA meeting the committee member who chaired it emphasised the honesty and international standing of Lloyd’s but he also emphasised that every Name would have unlimited liability. On the other hand he pointed out that when difficulties had arisen as in the case of the Sasse syndicate Names had been protected by Lloyd’s.

76 He pointed out that Lloyd’s had recently faced a serious problem relating to computer leasing but that that problem has now been solved. No mention was made of asbestos liabilities which were by then well known to the Committee of Lloyd’s or that claims could or would be made against policies which had been written 20, 30 or 40 years previously.

He emphasised that we should review and rely upon the syndicate accounts when selecting the syndicates that we were about to join. In reply to my question he confirmed that I could resign from any one, some or all of my syndicates provided I gave notice so to do prior to the specified date in any one year.

At the end of the ROTA meeting Names were required to sign a Verification Certificate but they were not given the opportunity to have the document explained to them or discuss its legal significance with their legal advisors.

Some Names claim that their signatures on their verification form were forged. xiii. I have since had need to refer back to my ROTA meeting because I was unable to resign from syndicates although I had given notice by the due date but have been informed by Lloyd’s that no minutes of the meeting were taken. This is despite the fact that Lloyd’s claimed the meeting would be the most important meeting they would attend at Lloyd’s. xiv. Prior to the Lloyd’s Act 1982 Lloyd’s had been controlled by an elected Committee. After the 82 Act Lloyd’s has been controlled by an elected Council. For simplicity's sake this document refers to Council members throughout.

77 SECTION THREE. The Fraud explained

3. Sequence of events

i. 1945 – onwards. Asbestos.

ii. 1957 DEW Gibb Emphasises the need for a strong independent audit

iii. 1968 Cromer report

iv. 1973. Directive 73/239 The EU passes the First Non-Life Insurance Directive 73/239

v. 1976 approx Murray Lawrence Underwrites Johns Manville asbestos risks

vi. From mid 1970s onwards

1. US Attorney’s asbestos reports received by Lloyd’s

2. Lloyd’s formed a secret committee to monitor the development of the asbestos liability.

3. Lloyd’s claimed in their recruiting brochure that Lloyd’s was subject to a rigorous audit.

vii. 1977 EU Infringement proceedings commenced against the British Government.

viii. 1978. Sasse Syndicate scandal breaks.

ix. Mid – late 1970s Lloyds Act negotiations commence.

x. 1979 Author joins Lloyds

xi. 1981 Peter Cameron-Webb Syndicate Scandal breaks

78 xii. 1982

1. 17th Feb Neville Russell Internal Memorandum

2. Summary of legal position

3. Neville Russell 1st letter (which was also received by Michael Heseltine, Minister of State)

4. Lloyd’s Audit Instruction 5. Murray Lawrence

6. March/May. Bank of England conducts a secret enquiry into Lloyd’s

7. Directive 73/239 Is incorporated into English law

8. Insurance Act 1982

9. The Lloyd’s Act 1982

xiii. 1983 Ian Hay Davison

xiv. On 18th March 1994, Minister Michael Heseltine, then Secretary of State for Trade and Industry

xv. 1984 approx General Undertaking Agreements

xvi. 1986 approx Ian Hay-Davison meets Mrs Thatcher to discuss fraud. xvii. 1986 Lord Neill’s report xviii. 1987 approx. E & O insurance requirement withdrawn

xix. 1988 approx Legal Action commences

xx. 1995 Equitas Ltd

xxi. 1995 Members of the House of Lords and or Common

79 xxii. 1996 Judicial Review Refused

xxiii. Jan 1999. Neville Russell & Co “Second letter”

xxiv. 2000 The Jaffray case filed in the High Court

2002 The Court of Appeal The Court of Appeal found that Lloyd’s was not subject to a rigorous audit and had misrepresented it’s audits as rigorous.

xxv. Commissioner Bolkstein fails to meet the EU’s obligations

xxvi. Commission’s failure to refer to European Court of Justice xxvii. 2004. A summary of the British Government’s failure to implement Directive 73/239

80 SECTION FOUR. The Fraud Explained

4. Human nature in relation to dishonesty

i. It is a known human failing that if an individual tells an untruth that he is likely continue his deceit to cover his previous failings. Further the longer the deceit continues the harder it becomes to admit his faults and for him tell not only the truth but the whole truth. ii. When deceit takes place within a corporation or at Government level it is usual that more than one person is involved. The stakes are invariably high and large amounts of money are involved. For the individuals involved their total moral standing is at stake and they therefore find it almost impossible to tell the truth voluntarily. iii. Corporate or Government deceit in particular may take the form of deliberate non disclosure of information, distortion of information which makes a situation or event appear to be less bad than it really is or publication of information which is either incorrect or disguises the truth. Unlike personal deceit, corporate or Government deceit usually requires the coordinated deceit by a limited number of people, in other words secrecy is a normal element of corporate or Government deceit. iv. When analysing corporate or Government deceit the occasional item of misinformation or non disclosure tends to indicate a mistake or incompetence. However continual misinformation or non disclosure over time often directed at different audiences usually indicates sinister intent and a premeditated attempt to deceive, or in other words, fraud.

81 SECTION FIVE. The fraud Explained.

5. Analysis and conclusions.

The reader should consider whether, in the context of Lloyd’s, written or verbal misrepresentations, actions taken to disguise damaging events, actions taken to circumvent EU Directives or UK Laws and the non disclosure of relevant information was innocent or whether it was intended to deceive. These considerations should be applied to each and every one of the following paragraphs.

i. 1945 Onwards

Re Section 3. i. Asbestos.

Lloyd’s of London historically underwrote a substantial amount of business from USA included in that business were health, product liability and pollution policies.

Some of those policies covered the health of those who worked with asbestos and asbestos-related products/industries.

Many such policies were underwritten from 1945 onwards at low premiums, however the associated asbestos often took 30 years to manifest itself at which time high monetary claims were made against the original policy.

Every syndicate should have reviewed its total outstanding contingent liabilities on an annual basis and made provisions for them in the RITC premium. The resulting sums should have been reserved and invested. If this had been done the resulting capital appreciation would have gone a long way towards paying the claims which were made from the mid 1970s onwards.

ii. 1957 Re Section 3. ii.

D.E.W. Gibb

“The audit is the strongest check on responsible underwriting ever invented. So long as they submit themselves to a properly conducted audit every year Lloyd’s underwriters can go on writing their newfangled risks and giving the public the service that it wants”

Throughout the 20th century there are many references which emphasised the need for a properly conducted rigorous annual audit for all syndicates at Lloyd’s. Members of the Council of Lloyd’s knew, or should have known, of that requirement. Members of the Council invited prospective Names to rely on syndicate accounts

82 when deciding whether or not to join Lloyd’s and when making underwriting decisions. Lloyd’s did this verbally at the ROTA meetings which were chaired by members of the Council, through their recruiting brochure which claimed that Lloyd’s was the subject of a rigorous audit and through Lloyd’s instructions to Members Agents.

It is not surprising therefore that both the Directive 73/239 and the Insurance companies Act 1982 required that Lloyd’s should be subject to a rigorous audit. iii. 1968 Cromer report re Section 3. iii

The Cromer report amongst other things highlighted the fact that Lloyd’s was undercapitalised at the time of his report. iv. 1973 re Section 3. iv.

Directive 73/239

Directive 73/239 was passed by the EU in 1973 although the draft Directive would have been available to Member States and the Insurance industry earlier. As a leading member of the world insurance industry, it is inconceivable that Lloyd’s were not aware of the detailed content of the draft Directive and its final form. The Council therefore had time to plan for and make the necessary changes to enable Lloyd’s to comply with the Directive when it was incorporated into UK law or to circumvent certain of its Articles.

The reader should consider whether the Directive prompted a planning process which would ensure the survival of Lloyd’s v. 1976 approx. re Section 3 v.

Murray Lawrence. Chairman of Lloyd’s. (and also employed by the Marsh McLennan Group)

Murray Lawrence’s syndicate underwrites Johns Manville asbestos risks which were brokered by a subsidiary of Marsh McLennan. Marsh McLennan had been maintaining asbestos claims information for Johns Manville and knew that their previous insurer had refused to renew their cover. It is reasonable to assume that Murray Lawrence had full details of the risks that his syndicate were about to underwrite because of his relationship with Marsh McLennan and because Marsh McLennan were required to disclose all relevant information to the underwriter.

Murray Lawrence’s syndicate then reinsured the total risk into the Merrett and Outhwaite syndicates.

83 Mr Lawrence was also Chairman of the committee which considered Lloyd’s strategy and defence to asbestos claims. If Marsh McLennan did not provide full disclosure the underwriter would have had a valid defence against the claims.

Murray Lawrence has acknowledged that he had protected his own syndicates from asbestos claims while not warning the Names at large.

The reader should ask himself whether Murray Lawrence, the Chairman of Lloyd’s, acted in the best interests of his syndicate and therefore its Names, Lloyd’s, the Marsh McLennan Group who were his employer or his own personal best interests. vi. From mid 1970’s onwards. Re Section 3 vi

Relevant events

1. Attorney reports Lloyd’s were receiving American hundreds of American attorney reports on the subject of asbestos claims which was warning them of the increasing incidence of asbestos and the likelihood of increasing future claims. Murray Lawrence was privy to these reports.

A number of the members of the Council were directors of major broking companies which introduced the asbestos liabilities to Lloyd’s, those broking companies usually manage the claims procedures on behalf of their clients. Collectively therefore the Council were aware of the growing asbestos crisis.

2. Lloyd’s formed a secret committee.

A secret committee was formed with Murray Lawrence as its Chairman, to monitor the development of the asbestos liability and to advise accordingly. (The exact date of the formation of this committee is not known to the author). It is highly likely that that committee discovered that asbestos would cause Lloyd’s insolvency (if it had not already done so) unless Lloyd’s was able to raise new capital.

Would it be reasonable to assume that the committee considered what steps Lloyd’s might take to resist claims and to minimise the amount paid on those

84 claims by planning a common defence strategy to them?

If so, the reader should ask himself why Lloyd’s did not reject some or most of the claims on the basis of material non-disclosure by Marsh McLennan and or others.

The reader should ask himself if it is likely that this secret committee sought to develop a strategy to avoid Lloyd’s insolvency and whether detailed planning on the subject commenced in the 1970s.

If so then the reader must ask himself whether or not there was likely to have been a secret agenda to:-

a. Raise new capital through recruiting new Names without disclosing that Lloyd’s was insolvent or nearly insolvent.

b. Make every effort to avoid any action or the release of any information which might discourage any potential Name from joining Lloyd’s.

c. Prepare a plan to enable Lloyd’s to avoid certain requirements of Directive 73/239, and the rigorous Audit requirement in particular

3. From about this time Lloyd’s claimed in their recruiting brochure that Lloyd’s was subject to a rigorous audit.

The reader should ask himself whether or not the claim of rigorous audits was made by lloyd’s to cover up and hide from investors, the public, and Parliament. Lloyd’s inability to meet the rigorous audit requirement of Directive 73/239.

When reading the rest of this paper the reader should also consider whether the secret committee (or members of the Council in parallel or at a different time) developed the long term strategy which would ensure that Lloyd’s could survive the storm which they knew would engulf them?

If such a strategy was developed is it reasonable now, in retrospect, to recognise some of the steps in that strategy as it was put into effect?

Further if such a strategy was developed the reader should consider whether it was honest or fraudulent and if fraudulent

85 whether the British Government assisted Lloyd’s with their actions which resulted in the recruitment of approx 27,000 new Names. In due course those Names paid the majority of the £8 billion by which Lloyd’s was under reserved by 1995.

This paper is intended to assist the reader in forming his own opinion on this controversial issue. vii. 1977 re Section 3. vii.

The British Government failed to implement and enforce Directive 73/239 by its due date (1976 or 7), and the EU commenced infringement proceedings against the British Government.

The Commission commences infringement proceedings against the British Government for failure to implement Insurance Directive 73/239 which requires rigorous audits.

The reader should ask himself whether or not the British Government failed to implement and enforce Directive 73/239 on time due to pressure from Lloyd’s and due to Lloyd’s inability to comply with 73/239. Had Lloyd’s started to manipulate the Government to enact their Private Act of Parliament which in due course became Lloyd’s act 1982?

When considering this issue it should be noted that the British Government had previously had an excellent record of implementing EU Directives on time. viii. 1978 re Section 3. viii.

The Sasse syndicate

The Sasse syndicate scandal broke when it announced huge losses. Lloyd’s decided that those losses should be covered by Lloyd’s central funds thus mutualising those losses. The golden rule that every Name underwrote for his own account only and should not share the profits or losses of others was therefore broken.

The reader should ask himself whether the secret asbestos committee (or Lloyd’s Council Members) had recommended that the only way that Lloyd’s could survive would be by increasing its capital base by increasing its membership. If so this could only be done by recruiting new Names.

He should further ask himself whether Lloyd’s decided that the Sasse syndicate losses should be covered by the central funds in order avoid personal bankruptcies of members of the Sasse syndicate and or civil court cases which would discourage potential new Names from joining Lloyd’s.

86 ix. Mid – late 1970’s re Section 3. ix.

Lloyd’s

Lloyd’s commenced negotiations with the British Government to introduce their Private Act of Parliament which in due course was to become the Lloyd’s Act 1982.

The following questions are listed as examples however it is not a comprehensive list.

The reader should ask himself why Lloyd’s should ask for immunity from suit except in the case of fraud if they did not have a “potential guilty conscience”. No other regulator in UK has such immunity.

The reader should ask himself why Lloyd’s should seek to disenfranchise external Names from voting in relation to the introduction of new bylaws. Was it because they planned to introduce bye laws to support their strategy but did not want to disclose their existence to Names?

The reader should ask himself whether it was reasonable for Lloyd’s to press for a self-regulatory status.

In light of the growing asbestos crisis which could potentially overwhelm Lloyd’s, the reader should ask himself whether there were any sinister reasons for introducing a new Lloyd’s Act at all and in particular with the clauses which protected the Council of Lloyd’s interests. After all, Directive 73/239 and the Insurance Companies Act dealt specifically with Lloyd’s anomalies. x. 1979 re Section 3. x.

The author.

The Author joined Lloyd’s and commenced underwriting in 1979. He relied on the information detailed in Section 2 v on page 4 and Section 2 xi on page 7

Having relied on the representations contained in the recruiting Brochure that Lloyd’s was subject to a rigorous audit. He subsequently learnt that Lloyd’s representations were false. The Court Of Appeal found in 2002 that Lloyd’s had not been subject to an audit at all, over the 10-year period which they examined.

I relied upon extracts from the accounts of the seven previous years of the syndicates that I planned to join. I was unaware that the accounts had not been subject of a rigorous audit. By 1995 the cumulative under reserving of all syndicates amounted to £8 billion.

87 If the above accounts had been correctly reserved, it is assumed that the majority would have shown losses for the previous seven years whereas the extracts showed that the majority of them had been profitable for most of the previous seven years and

I relied upon the description of long tail syndicates which was given to him. The description was a long way from being complete. He was unaware that I would be asked to pay for new claims which were made against policies which had been underwritten 20 – 40 years previously.

I relied upon the affirmative answer given at his ROTA meetings that I would be entitled to resign on any one, some or all of the syndicates in any year providing he gave the required notice. He tried to resign from syndicates 126,127, 701 7 702. I was unable to do so because they had been left open. Open accounts were never mentioned during the answer I received at my ROTA meeting or at any other time in the recruiting process.

The reader should ask himself whether the author or any other prospective Name would have joined Lloyd’s if they had known that each of the above items on which they relied was incorrect.

The reader should bear in mind that the claim about the rigorous audit in the recruiting brochure was found by the Court of Appeal to have been a misrepresentation. He should also ask himself whether the other information on which the author relied before joining Lloyd’s was honestly supplied or was deliberately misleading. i.e. The information about long tail syndicates, joining & leaving syndicates and lack of information about open accounts.

The reader should also ask himself why computer leasing was mentioned at the ROTA meeting as a problem which had been solved but no mention of the asbestos crisis was raised. Was there any significance in the Council member’s silence on this issue? xi. 1981 re Section 3 xi.

Mr Peter Cameron-Webb

Mr Peter Cameron-Webb, who was Peter Green’s (the then Chairman of Lloyd’s) illegitimate half brother and a Lloyd’s syndicate underwriter, resigned shortly before his syndicate collapsed with liabilities estimated at approx $800 million. The investigating authorities found that fraud was common within the syndicate’s practices. Mr Cameron Webb escaped prosecution because, with the alleged assistance of his half brother, the Chairman of Lloyd’s, he fled the country. He lived in Spain and USA for the remainder of his life. In his verbal defence he claimed that practices complained of within his syndicate were common

88 throughout Lloyd’s. A high proportion of his syndicate’s losses were asbestos related.

The reader will note the similarities in Lloyd’s response to Sasse and to Cameron-Webb scandal detailed above.

Lloyd’s immediately set up a new company called Lioncover which was indirectly financed by the Names to pay the Cameron-Webb syndicate’s liabilities as they became due. Lloyd’s thus broke their golden rule by mutulising those liabilities and requiring Names to pay for the losses of others.

The Reader must ask himself why Lloyd’s chose to mutualise the losses through Lioncover when all Lloyd’s agents were required to have E & O insurance cover to protect Names against such eventualities. Did Lloyd’s wish to avoid civil court cases which would have disclosed that widespread fraudulent practices were common throughout Lloyd’s? Did Lloyd’s wish to avoid the possible personal bankruptcy of members of the syndicate? If civil court cases had gone ahead, and if personal bankruptcies had been declared, would prospective Names have continued to join Lloyd’s in such numbers thus providing Lloyd’s with the capital it so desperately required?

What was Lloyd’s motive? xii. 1982 re Section 3 xii. part1.

1. 17th Feb Neville Russell & Co. Internal Memorandum.

Neville Russell and Company together with the other Lloyd’s auditors conducted a survey of the syndicates which they audited. They wanted to ascertain the situation in relation to the syndicates’ contingent liabilities for asbestos. It contained the following words:-

“From the replies that are coming in from our clients certain facts are emerging with great consistency; 1. A very few clients have probably very little exposure. 2. The remainder are unable to quantify their ultimate liability with even a remote degree of accuracy for the following reasons: (I) Advices so far are 15,000 - maximum would be 11,000,000.” This memorandum clearly indicates the great difficulty of estimating accurately the Incurred But Not Reported (IBNR) asbestos claims.

89 1982 re Section 3 xii. part 2

2. 1982 Summary of legal position

Section 83 of the Ins Co Act 1982 entitled, "Requirements to be compiled with by Lloyd’s underwriters." states:-

para (4) "The accounts of every underwriter shall be audited annually by an accountant approved by the Committee of Lloyd’s and the auditor shall furnish a certificate in the prescribed form to the Committee and the Secretary of State."

para (5) " The said certificate shall in particular state whether in the opinion of the auditor the value of assets available to meet the underwriters liabilities in respect of insurance business is correctly shown in the accounts , and whether or not that value is sufficient to meet the liabilities calculated -

(a) in the case of liabilities in respect of long term business by an actuary; and (b) in the case of other liabilities, by the auditor on a basis approved by the Secretary of State. "

1982 Re Section 3 xii. Part 3.

3. 24th Feb Neville Russell & Co to Lloyd’s.

24th Feb Neville Russell & Co to Lloyd’s. This letter was written by Neville Russell & Company to Lloyd’s on behalf of the panel of auditors because of the then current Lloyd’s audit instructions.

" It appears that although, in respect of direct insurance of the main carriers and re insurance of American insurers , syndicates have received some notification of outstanding claims , they are unable to quantify their final liability with a reasonable degree of accuracy for the following reasons:

(i) You have informed us that there have been approximately 15,000 individual claimants. Total exposure to the problem appears to be considerably in excess of this figure.

(ii) The courts have not yet finally decided on whether the exposure or manifestation basis is applicable.

90 (iii) The losses are being apportioned over carriers on an industry basis. If one of the carriers has losses in excess of its insurance cover (as seems likely) then it could go bankrupt. It appears that its share of the industry loss could be apportioned over the remaining companies.

(iv) Most Syndicates are not very certain of their reinsurance recoveries.

(v) Most Syndicates will incur losses on their own writings of reinsurance business. Very little of this has been advised so far.

(vi) The Audit Instructions (clause 3) require that if there are any factors which may effect the adequacy of the reserves, then the auditor must report to the Committee and obtain their instructions before issuing his syndicate solvency report.

We consider that the impossibility of determining the liability in respect of asbestosis falls into this category and we accordingly ask for your instruction in this respect. "

This letter shows that any solvency certificate signed at a later date would hardly be meaningful. There are in addition several Neville Russell internal memos that indicate the seriousness of the matter and also state that the audit was never properly performed. (See also xxii Jan 1999. Neville Russell & Co “Second letter”)

Had Directive 73/239 or the Insurance Companies Act 1982 been correctly applied no solvency certification could have taken place with the result that Lloyd’s would have ceased trading or the loss position on the syndicates would have been left open enabling new joining Names to be free from the past losses.

However, it should be remembered that this letter was written almost 10 years after Directive 73/239 was passed by the EU. To have implemented Directive 73/239 by its due date the Insurance Companies Act 1982 should have been enacted in 1977/8. Any Name joining Lloyd’s on or after 1st Jan 1979 should have been protected by the Directive. (See also xiv below “On 18th March 1994, Michael Heseltine”)

The reader should ask himself whether or not the Chairman of Lloyd’s should have, at the very minimum, ordered that

91 those syndicates which could not establish their outstanding liabilities to stop trading or to have declared that Lloyd’s as a whole was insolvent and ordered all syndicates to cease trading. After all syndicates 126, 127, 700 & 701 are examples of syndicates which were left open in 1982.

1982 re Section 3 xii. Part 4.

4. 18th March Lloyd’s response. Lloyd’s audit instruction.

Lloyd’s response to the auditors was to issue new audit instructions which were a breach of the law. It stressed that the Council of Lloyd’s was not laying down a minimum reserving requirement for asbestos, despite their joint responsibility, with the DTI, under the Insurance Companies Act to do so. The letter contained in the following broad principles:-

1. That the underwriter should set the reserve .“ I should stress that the responsibility for the creation of aequate reserves (for both long term and short term liabilities) rests with the managing agents”

2. An Incurred But Not Reported (IBNR) claims “loading” should be carried for those claims not specifically advised which could come to light in the years ahead”

3. The auditors and agents are advised that the reserves are to be calculated by adding up the specifically advised claims and applying a loading for the Incurred but Not Reported losses.

The nature of these new instructions was inherently flawed because:-

1. Directive 73/239 required that the long term liabilities should be calculated by actuaries and the other liabilities by the auditors. Actuaries and auditors are independent of the insurance entity. The managing agents employed the underwriter and had a vested interest is reporting profits. If the reserve was too low the profit would increase by the equivalent amount.

2. The auditors had already noted “[It is highly likely] (that) one of the carriers has losses

92 going right through its insurance cover. That company’s share of the industry loss would then be apportioned over the remaining companies”. A prudent insurer, faced with such a situation, funds permitting, would assume a total loss on all asbestosis exposures, add up his exposure on a line by line basis, and apply an IBNR loading for other unforeseeable developments. Instead, the auditors, having been absolved of responsibility, acquiesced in the instructions from Lloyd’s to base reserves on advised losses to date which were only 0.1% of the maximum loss.

Why did the auditors acquiesce to Lloyd’s modified audit instructions?

The reader should ask himself whether or not these subtle changes to the audit instructions and therefore the audit certificate (and solvency certificate) were innocent? If the reader decides that they were innocent he should then ask himself why Lloyd’s might wish to degrade their audit standards at a time when legislation was passing through Parliament which was clearly designed to strengthen insurance entities’ audits?

What possible motive did the issuer have to modify the audit instruction? The modified instructions described above were given by the then Deputy Chairman of Lloyd’s and later to be Chairman, Murray Lawrence. Mr. Lawrence was also Chairman of the Lloyd’s Claims Advisory Committee. He was responsible for the decision on whether or not the claims should be resisted in court. Were those defenses to be exercised the main defendant would have been Marsh McLennan and if the defense was successful the potentially huge liabilities would fall back on them. Marsh & McLennan were Murray Lawrence’s group employer. Marsh McLennan together with its subsidiaries acted as broker and risk manager for Johns Manville Inc. Johns Manville was the largest asbestos producer in the world. Since 1945 its products liability risks had been placed with an insurance company called Travellers in California. In about 1975 Travellers refused to renew Johns Manville’s policy. A Marsh McLennan subsidiary then placed the risks into Lloyd’s through Murray Lawrence’s syndicate without disclosing that Travellers had refused to renew the policy or the

93 high claims that had been made against the previous policy. (Marsh McLennan had been negotiating the claims and had maintained their records.) Mr. Lawrence then reinsured his own syndicate’s liability under the Johns Manville’ policy to the Outhwaite and Merritt Syndicates again without disclosing that Travellers had refused to renew. The reader should also ask himself why Murray Lawrence’s syndicate accepted the risk in the first place then reinsured it to the Outhwaite and Merrett syndicates. If full disclosure had been made the risk was virtually uninsurable. Lloyd’s never used their obvious defense against paying the claims under the Johns Manville or other policies. The reader should ask himself why they were not used. Was the claim not resisted because Marsh McLennan are the largest insurance brokers in the world and introduce a substantial amount of business to Lloyd’s? Were Murray Lawrence’s actions honest or was he influenced because he was employed by Marsh Maclennon? Was the fact that Murray Lawrence was an ex Chairman of Lloyd’s a consideration in not resisting the claims in subsequent years? The conflict of interests between brokers and underwriters has always been a major issue at Lloyd’s. Can it be a co-incidence that Murray Lawrence was employed by an insurance broker (which represents the insured) but was at the same time a Director of a Managing Agency? The Managing Agency managed syndicates which were underwriting insurance risks on behalf of Names who were members of those syndicates. Under UK Agency Laws and agent is required to act in his principal’s best interests at all time and not to withhold information from him. The reader should ask himself whether Mr. Lawrence and Lloyd’s acted in the best interests of Names in this matter at all times. It may be interesting for the reader to note that a claim against those policies for $400 million was paid on behalf of Names by Equitas Ltd within the last two years. It is likely that that claim could have been resisted on the basis of the above non disclosure. The reader may also be interested to know that a case is currently being brought by Names against Marsh

94 McLennan in the courts in New York for fraudulently introducing those policies into Lloyd’s. Why was the case not brought by Lloyd’s many years ago? The reader should note that neither Lloyd’s, Managing Agents or Members Agents disclosed the existence of the Neville Russell letter to Names or the change in the audit instructions which flowed from it.

Further Lloyd’s which was introducing the Lloyd’s Bill to Parliament and at approximately the same time did not disclose the information to them either.

Does the reader believe that the UK Parliament would have passed the Lloyd’s act if they had known that Lloyd’s was insolvent at the time?

The setting of the IBNR (Incurred But Not Reported) reserves is a technical issue. Lloyd’s audit instructions inevitably resulted in Lloyd’s being under reserved. Profits would therefore inevitably be overstated until full provision for outstanding liabilities was made. In 1995 it was disclosed that Lloyd’s had understated its outstanding liabilities by about £8 billion.

The correct procedure previously adopted by the auditors was to base the (IBNR) reserves on exposure. If the reserves had been based on an exposure basis it would have been impossible to quantify the outstanding liabilities and Lloyd’s would inevitably have been insolvent.

a. The reader should ask himself whether Murray Lawrence acted honestly. Did he act in the best interests of his Names or did he act in his own best interests?

(Murray Lawrence was a Member’s Agent and in that capacity he had a legal requirement to act in the best interests of his principals.)

b. The reader should ask himself whether Lloyd’s response to the Neville Russell letter was honest.

c. Would the reader have expected Lloyd’s to inform the Names of the perilous financial situation in which they found themselves?

95 d. Was the failure of Lloyd’s to inform the Names part of their secret strategy to ensure the survival of Lloyd’s?

e. Was it honest for Lloyd’s to continue to recruit new Names knowing that a high proportion would be ruined or bankrupted and that their capital would be used to pay previously incurred losses?

f. Was it reasonable for Lloyd’s to issue its Annual Report and Accounts without disclosing the full extent of the asbestos crisis?

5. In or shortly after 1982. re Section 3 xii. Part 5

Murray Lawrence,

Murray Lawrence acknowledged that he had protected his own syndicates from asbestos claims while not warning the Names at large. However he did not explain why the accepted the Johns Manville risks in the first place.

Referring to the previous paragraph I allow the reader to come to his own conclusion.

The reader may be interested to note that Mr Justice Cresswell in the Jaffray case found Murray Lawrence to have been an honest witness. Surprised?

6. March/ May 1982. re Section 3. xii. Part 6

The Bank of England

The Bank of England conducted a secret enquiry into Lloyd’s in March to May 1982. Lloyd’s of London had been largely successful in concealing its problems in1982. However the Bank of England grew so concerned that it undertook its own top secret inquiry into Lloyd’s. The inquiry determined that the collapse of Lloyd’s, or a significant number of syndicates, would pose what one analyst termed a “ significant systemic risk” to the British banking system. The Bank's findings were conveyed to the Lloyd’s chairman Peter Green in a letter referring to serious liability problems at Lloyd’s.

According to Ian Posgate a Council member, Peter Green, showed the Bank's letter to the Council. The letter “warned of enormous losses, resulting from asbestos claims which were about to engulf the Lloyd’s market and of the disastrous effect they could have, not only on Lloyd’s itself, and on those banks who had provided Lloyd’s guarantees

96 or lent money to Lloyd’s syndicates,” The numbered letters were handed out to Council members at the beginning of the meeting and were collected again from them when the matter had been discussed. This ensured secrecy.

Author's note. No mention was made in the Bank’s letter (that the author is aware of) of the losses which would be suffered by Names who had been or were to be recruited by Lloyd’s after the asbestos problem became known in the mid 70’s. The Names were not advised of the existence of the Bank of England letter or investigation.

The reader should ask himself whether or not it was innocent or fraudulent of either the Bank of England or Lloyd’s to withhold this information from Names and prospective Names. He should also ask himself whether it is credible that the Bank of England did not advise the British Government of its investigation or its conclusions.

7 June 1982. re Section 3. xii. Part 7.

Directive 73/239

i. Directive 73/239 was incorporated into English law by way of The Insurance Companies Act 1982 but many of its clauses have ever been enforced (as far as Lloyd’s is concerned) by the UK authorities.

Complaints have been made to the EU Commissioner Bolkstein by the author and others and Petitions have been submitted to the European Parliament. The European Parliament voted unanimously (but for 12 abstentions) to take the Commission to the European Court of Justice. That was during the last session however the new European Parliament has so far not acted upon the vote.

The reader should ask himself if political interference from Lloyd’s and or the British Government has delayed the case being taken to ECJ.

ii. The Insurance Companies Act 1982 was passed which incorporated Directive 73/239 into UK law.

iii. The Lloyd’s Act 1982 which was a Private Act of Parliament was enacted. All the clauses in the Bill were therefore drafted by Lloyd’s and Lloyd’s lawyers were intimately involved in guiding the Bill though its committee stages.

97 These two Acts required amongst other things:-

a. That Lloyd’s should keep annual accounts. (Directive 73/239

In fact Lloyd’s continued to use their three year accounting system which produced accounts annually (which is very different from annual accounts).

With annual accounts the profit and loss account covers a specific period of time and the balance sheet states the financial position on the last day of the period. Both the profit and loss account and balance sheet are audited.

With Lloyd’s three year accounting system the profit and loss accounts are in effect accumulated management accounts for the first two years and are closed and audited at the end of the third year. However the Balance Sheets were not audited. Under the Lloyd’s audit instructions and the Lloyd’s accounting bye laws the most important figure the Re Insurance To Close (RITC) or in layman’s language the reserve for outstanding liabilities were calculated by the Managing Agent (or underwriter). They were not audited.

Lloyd’s were therefore in breach of Directive 73/239 and the Insurance Companies Act from 1983 onwards.

(The reader should ask why the British Government took no action to require Lloyd’s to comply with the law. The DTI after all was Lloyd’s supervisor)

b. That Lloyd’s (syndicates) should be the subject of a rigorous audit.

Lloyd’s were able to devise their audit instructions so that only the profit and loss account of the third year (the closed year) was audited. The balance sheet and therefore the outstanding liabilities were not audited.

98 It is impossible to conduct a rigorous audit without an audit of all the figures in both the profit and Loss account and the balance sheet.

Lord Neill’s Report to Secretary of State, HMSO 1986

“..the Syndicate Accounting Bye law limits the scope of the true and fair requirement to the profit or loss of years of account which have been closed. Thus, there is no requirement for the auditors to express a true and fair view about open years, nor about syndicate balance sheets since the latter do not incorporate provisions for outstanding claims in respect of open years.”

In 2000 The Court of Appeal which reviewed the audit procedures and instructions and found that Lloyd’s was not subject to an audit at all. Lloyd’s were therefore in breach of Directive 73/239 from the date the Insurance Companies Act 1982 came into force

The reader should ask why the British Government took no action to require Lloyd’s to comply with the law. c. That the long-term liabilities should be calculated by an actuary, and the other liabilities should be calculated by the auditor.

These liabilities were actually calculated by the underwriter as per Lloyd’s modified audit instructions and were therefore not subject to the audit. See section 5 xi 1982 para 2 above.

[The "auditors"] did not consider it part of their duty to audit the reinsurance to close. (RITC or long term liabilities) ('A View of the Room', by Ian Hay-Davison pp. 53-54)

The reader should be aware that the Secretary of State was required to approve Lloyd’s audit instructions.

99 The reader should therefore ask himself whether the British Government conspired with Lloyd’s on this and all other matters raised in this paper. d. That Lloyd’s solvency should be verified annually by way of the solvency certificate.

The author has not been able to ascertain whether the annual solvency certificate were signed or properly signed by the Auditors and or Chairman of Lloyd’s and whether it was submitted to the Secretary of State.

It is however likely that the certificates were signed and were submitted to the Secretary of State. The author advances the following possible reason why the Auditors were able to convince themselves to acquiesce and sign the solvency test audit certificates. Two months before issuing their 18th March response which modified the audit instructions, Lloyd’s had changed their regulations by removing key words from the audit opinion. The auditors no longer had to express their opinion as to whether the assets were sufficient to “wind up” the accounts. The auditors were from then onwards required to express their opinion in the new certification that the assets were sufficient to meet the liabilities calculated in accordance with Lloyd’s instructions. (Eg Reserves calculated by the Managing Agents and not by Actuaries or Auditors as the Law required)

The reader should ask himself if the solvency certificate was signed by Lloyd’s and submitted to the Secretary of State did they know that it did not comply with the requirements of the Directive or Act.

He should also ask why Secretary of State allowed Lloyd’s to continue trading if he had not received a solvency certificate which complied with the law. e. Lloyd’s was given self-regulatory powers to regulate the Lloyd’s market subject to supervision by the Dept of Trade & Industry and the approval of the Lloyd’s audit instructions by the Secretary of State.

100 The reader will note that by granting Lloyd’s self-regulatory powers the British Government did not divest itself of responsibility for Lloyd’s

The reader should ask himself how much the Secretary of State knew about Lloyd’s financial situation. Did he conspire with Lloyd’s to allow Lloyd’s to continue trading when he knew that they were not complying with the law? Did he know, or should he have known, that new Names would be required to pay undeclared losses from previous years? f. The Names voting rights were changed so that External Names were no longer able to vote on new bye laws.

The reader should ask himself why Lloyd’s proposed these changes to the Names’ voting rights. Was it as an example in order that they could change the accounting byelaws without the alterations being scrutinised by the external Names?

Does this clause confirm premeditation? g. The Council of Lloyd’s were given immunity of suit except in the case of fraud.

The reader should ask himself why Lloyd’s proposed such immunity and fought so hard for it if they were honest and intended that their successors should be honest also.

In 2000 the Court of Appeal in the Jaffray case ruled that the Names had failed to reach the very high standard of proof required to prove fraud. The Court of Appeal did not rule that there was no fraud.

During the passage of the Lloyd’s Bill through Parliament Lloyd’s failed to disclose the asbestos problem to the House. They also failed to advise Parliament that they had received the Neville Russell letter which in effect proved that they were insolvent. They also failed to disclose the existence of and findings of the Bank of England investigation.

101 The reader should ask himself if the Government was aware of any or all of the items listed in the previous paragraphs. Is it likely that the Bank of England would withhold the result of its enquiry from the Government? Is it credible that the DTI did not know of the asbestos crisis?

I understand that there is evidence that the DTI had knowledge of the Neville Russell letter but I do not know when they received it. The Secretary of State was required to approve the Lloyd’s audit instructions. The Secretary of State was required to receive the Lloyd’s Annual Solvency certificate to allow Lloyd’s to continue trading but he knew or should of known that the audit instructions were flawed as described above.

If the Government did have knowledge of any one or more of the items above then it could logically lead one to the conclusion that the Government conspired with Lloyd’s to deceive Parliament and or the Names.

The reader should also ask himself if it was likely that Parliament would have passed the Lloyd’s Act if full disclosure had been made to them. xiii. 1983 re Section 3 xiii

Ian Hay-Davison

Ian Hay-Davison was appointed by the Governor of the Bank of England as its representative on the Council of Lloyd’s. He became Deputy Chairman and Chief Executive of Lloyd’s.

The reader should ask himself what brief Ian Hay Davison was given by the Governor of the Bank of England? Was it likely that Ian Hay Davison disclosed to the Bank of England and or the British Government what he had discovered at Lloyd’s? If Ian Hay Davison disclosed it to the Bank of England only, is it likely that the Bank withheld the information from the British Government? Why did Ian Hay Davison resigned so soon after his appointment?

102 Telephone 0171 486 5582/3 3rd Floor Facsimile 0171 486 5584 25 James Street London WlM 5HY

From Ian Hay Davison Is the answer to the question as to why Ian Hay Davison resigned contained in the above letter? xiv. On 18th March 1994, Michael Heseltine. Re Section 3 xiv

Admission of liability

Micheal Heseltine, then Secretary of State for Trade and Industry admitted his department received the Neville Russell letter that put UK Govt on notice of the incalculable liability for asbestosis claims.

Obviously this was a significant factor which drew the Minister of State’s the attention of the inadequacy of Lloyd’s reserves. Although the Minister does not state when he received the letter, if the DTI received it after 1982 we would have expected the Secretary of State to disclose when it was received. The fact that he does not, suggests that the DTI received the Neville Russell letter contemporaneously, and was therefore aware of the solvency problem at Lloyd’s prior to final approval of the Lloyd’s Bill on 23rd July 1982.

Significantly, the Heseltine letter confirms that the DTI did accept ongoing responsibility for regulation of Lloyd’s under the ICA 1982,

103 both before and after the passing of the Lloyd’s Act, stating inter alia: "this degree of uncertainty does not affect the discharge of my responsibilities under the Companies Act in relation to Lloyd’s, nor would it have done in 1982."

Mr Heseltine's admission of liability (on behalf of UK Govt) is exacerbated by the failure of the DTI to intervene to notify Parliament before the Lloyd’s Bill received Royal Assent on 23rd July 1982, or to intervene thereafter by ensuring that the Neville Russell letter be included in Lloyd’s Global Reports & Accounts. It is noteworthy that statutory immunity under the Lloyd’s Act was conditional upon Lloyd’s undertaking to Parliament that it would maintain E&O cover at all times Lloyd’s breached the undertaking in about 1987. Lloyd’s compounded their deceit by failing to inform Parliament and to request that they lifted the immunity.

Lloyd’s in concert with its external regulator, the British Government, deliberate non-disclosure in Lloyd’s accounts of the change in the audit instructions which breached Directive 73/239 and the Insurance Companies Act 1982 or the contents of the Neville Russell letter resulted in and contributed to the defrauding of Lloyd’s Names, xv. 1984 approx. Re Section 3. xv. General Undertaking

Lloyd’s required all Names to sign a new General Undertaking. The General Undertaking was an agreement between Lloyd’s and a Name which set out the contractual relationship between both parties.

One of the most important features of the 1984 General Undertaking was to bind those Names who joined Lloyd’s prior to 1982 to the Lloyd’s Act 1982 and therefore the clause that gave Lloyd’s immunity from suit except in the event of Fraud.

However this General Undertaking also had a clause included in its small print by which Names agreed that any litigation recoveries should first be paid to the Lloyd’s Premium Trust Deed to pay any outstanding losses to Lloyd’s after which the balance should be paid to the Name.

The General Undertaking’s significance was not explained to the author by his Members Agent and it is thought highly unlikely that any Members Agents explained the significance and details of the agreement to their principals.

It was normal practice for Lloyd’s to give regular instructions to Members Agents as to the manner in which they conducted their

104 relations with Names and as to the information which should be supplied to Names. There is no record ( of which the author is aware ) of Lloyd’s giving Members Agents instructions, as an example, to advise all Names of the above two significant features of the agreement.

The reader should remember that a Members’ Agent was the agent of the Name and every Name was required by Lloyd’s to have a Members Agent. Further that every Agent was bound by the Laws of Agency. A key feature of the Law of Agency requires an agent to act in his principal’s best interests at all times.

The reader should ask himself why the General Undertaking agreement required that litigation recoveries should first be paid to the Names Premium Trust Deed. Does this clause alone suggest that Lloyd’s already expected Names to litigate against Council members, Members Agents, Managing Agents and Auditors and that Lloyd’s would seek to control those litigation recoveries?

The reader should ask himself whether or not the General Undertaking Agreement indicated or proves premeditation. xvi. 1986 approx re. Section 3 xvi.

Mrs Thatcher - meeting

1. Ian Hay Davison had a meeting with Mrs Thatcher in which he advised her that he wished to bring fraud cases against a significant number of the Lloyd’s community. (It is said that his original brief from the Bank of England was to clear “the rotten apples out of the barrel” but in the event found that all the apples including the barrel itself were rotten.)

Mrs Thatcher responded that she would block any such action.

The reader should ask himself whether or not Mrs Thatcher’s was aware of Lloyd’s financial situation and or the existence of the Bank of England enquiry. Does her response indicate political interference in the course of justice?

Ian Hay-Davison is on record as saying

“Regrettably, the Government, on policy grounds, decided not to prosecute any of those involved [in the frauds] and no successful prosecutions were brought. I was, and remain, extremely indignant and disappointed at this.”

105 The reader should ask whether this proves that there was political interference in the judiciary or improper interference in the administration of the criminal law. He should also ask if political interference occurred in civil cases.

Should those who suffered through the British Government’s improper interference in the judiciary or the administration of the law be compensated by the British Government?

2. Ian Hay Davison resigns from Lloyd’s.

Did Ian Hay-Davison resign because Mrs Thatcher said she would block fraud prosecutions? xvii. 1986 Re Section 3 xvii.

Lord Neill’s report

As mentioned above Lord Neill’s report to the Secretary of State 1986 includes the following words.

“ the syndicate accounting bye law limits the scope of the true and fair requirement to the profit or loss of years of account which has been closed. Thus, there is no requirement for the auditors to express a true and fair view about open years, nor about the syndicate Balance Sheets since the latter does not incorporate provisions for outstanding claims in respect of open years”

Because this report was addressed to the Secretary of State he knew, or should have known that the Lloyd’s audit instructions which he had approved were flawed.

The reader should ask himself why the Secretary of State did not insist that Lloyd’s should comply with the law. Does it confirm conspiracy with Lloyd’s to defraud Names? xviii. 1987 approx. Re Section 3. xviii.

E & O requirement withdrawn

Lloyd’s had claimed through Members Agent’s that Names were protected from negligence and or fraud through the Errors & Omissions insurance policies that all Managing and Members Agents were required to take out.

Further during the passage of the Lloyd’s Bill through Parliament Lloyd’s gave an undertaking to Parliament, in return for its immunity from suit (except in the case of fraud), that Names would be protected by E & O insurance.

106 Neither the Members Agents nor Lloyd’s pointed out that these policies were underwritten at Lloyd’s and that they were of no use to Names because the Names were therefore insuring themselves.

In about 1987 the agents complained to the Council that they could no longer afford the E & O premiums which had increased drastically. In response the Council withdrew the requirement that agents should hold E & O insurance cover.

Lloyd’s did not inform Parliament that they were in breach of their undertaking nor did they surrender their immunity from suit.

The reader should note that the premiums would only have been increased dramatically if the Lloyd’s market insiders knew about the syndicate’s under reserving etc.

The Council did not inform Names that it had withdrawn their vital protection.

The reader should ask himself whether the E & O requirement and its eventual withdrawal is a further indication of premeditation. xix. 1988 approx re Section 3 xix

Legal Action

1. By 1988 the house of cards had begun to fall down. Some syndicates had been announcing serious losses. The spiral scam became known to some Names. On some syndicates Names joined together to form action groups to sue their Names, Managing Agents and Auditors for fraud and or negligence. All the early cases, such as Gooda Walker, Feltrim and Devonshire which came to court were successful. They were all awarded £ multi million damages.

However after a very short time all the E & O insurance cover was exhausted. As an example in the Gooda Walker case Names won about £1 billion in damages which was not paid due to the lack of E&O cover.

Court actions therefore ceased because money was no longer available to pay the claims.

As a further example, the author was awarded approx £50,000 in the Feltrim case, which with interest is now worth over £100,000. Lloyd’s applied to the court to have this sum paid into my Premium Trust fund as per the small print in the General Undertaking. (See Page ) The House of Lords found in

107 Lloyd’s favour. However in the meanwhile I had settled all my past, then current and future liabilities to Lloyd’s through my “Individual Voluntary Arrangement” which was administered under the Bankruptcy Act. As I have no liabilities to Lloyd’s and because the award was paid to the Lloyd’s Premium Trust Fund after my IVA had closed the money should have been returned to me. Lloyd’s now refuse to return the money to me or to account for it.

The reader should ask himself whether the events described in the previous paragraph amount to theft.

2. Over the following years about 200 Lloyd’s related cases have been heard in the UK courts, which makes it by far the largest series of civil cases ever heard in the UK.

Most of the cases were heard by Judges who while they practiced at the Bar were involved with insurance cases. Many of the Judges had been employed by Lloyd’s in the past.

The reader may wish to ask himself the question as to whether some may have been biased towards Lloyd’s. (see page )

xx. 1995 re Section. 3. xx.

Equitas Ltd

By the time Names were forming themselves into litigation groups it became clear that Lloyd’s position had become untenable. Lloyd’s did what they could and should have done in the mid 1970’s. With the assistance of actuaries Lloyd’s spent over a year analysing all the syndicates’ outstanding claims and liabilities. The result of their work disclosed that Lloyd’s, in total, was under reserved by approx £8 billion. After going through the Reconstruction and Renewal process and consulting the Names the R & R scheme was accepted. All 1992 and prior years were re-insured into a new company called Equitas Ltd The re-insurance premium of approx £8 billion was then collected by Lloyd’s from its membership of about 33,000 Names, approx. 27,000 of whom had joined Lloyd’s during the period described in this paper. Many of them had lost their life savings, some have been made bankrupt, some committed suicide, many were divorced and still in 2005 Lloyd’s continues to try to bankrupt others.

But Lloyd’s was not finished in 1995. It supplied all Names with their “Finality statements” which inferred that if a Name agreed to pay the

108 amount on the statement it would settle all his outstanding liabilities. In reality it is likely that the Finality statements were actually interim statements. If the £8 billion re-insurance premium received by Equitas together with investment income is insufficient to meet the 1992 and prior year’s liabilities, which now appears probable, Equitas will declare partial insolvency and those who paid the amount claimed on the “Finality statement” will have to pay the balance of the claims.

xxi. 1995 re Section. 3. xxi.

Members of the House of Lords and or Commons

Lloyd’s bribed some or all of the Names who were also Members of the House of Lords or the House of Commons by giving them discounts from Reconstruction and Renewal “Finality” statements. It is believed that some discounts may have been as much as 90% of the amount claimed.

It is thought that some of these discounts could have saved a number of Conservative MP’s from bankruptcy which in turn may have saved the Conservative Government’s majority.

These discounts were not available to other Names. xxii. 1996 re Section. 3. xxii.

Judicial Review Refused

In 1996 it was held that the R&R bye law and R&R itself should not be subject to judicial review despite the promise given by Lord Mackay of Clashfern during the passing of the Lloyd’s Act. Lord Mackay’s commitment was as follows:- “Lloyd’s would not be above the law because judicial review would always be available”. xxiii. Jan 1999. re Section 3. xxiv.

Neville Russell & Co “Second letter”

As a final smoking gun there is the letter I received in Jan 1999 from Neville Russell that states:

" It was not part of the auditors responsibility to calculate the value of the assets or liabilities , nor would an auditor have signed a certificate certifying that ...... assets covered ..... liabilities at Lloyd’s." .

109 Had the Ins Co Act 1982 been correctly applied no solvency certification could have taken place with the result that Lloyd’s would have ceased trading or the loss position on the syndicates would have been left open enabling new joining Names to be free from the past losses. The author of this letter writes “I have limited this expose to two pages for simplicity, there is of course a lot of surrounding evidence.

I believe that the above provides an open and shut case that European Directive 73/239 whilst correctly implemented (transposed) was not corrected applied, and that the British Government/ Lloyd’s and/or the Commission have failed in their responsibilities and further that damage has been suffered as a result of a Member States failure to correctly apply the provisions of the Directive. xxiv. 2000 re Section 3 xxv

The Jaffray trial was heard in the High Court xxv. 2002 The Court of Appeal

The Court of Appeal found that Lloyd’s was not subject to a rigorous Audit

The Court of Appeal found that Lloyd’s claims in its recruiting brochure that “it was subject to a rigorous audit” was a misrepresentation.

Despite this finding the litigating Names were refused leave to amend their pleadings to seek compensation for the proven misrepresentation which through definition must have been innocent, negligent or fraudulent.

The reader might wish to ask himself whether the British Government interfered in the course of justice to prevent that amendment of pleadings. xxvi. Commissioner Bolkestein re Section. 3. xxvii.

Commissioner Bolkstein refused to answer my complaint number 2000/4837 on the basis that Lloyd’s was fully compliant with Directive 73/239 following the introduction of the Financial Services Act 2000.

Lloyds clearly is still not compliant with Directive 73/239 as outlined in Mr Stockwell’s letter to Commissioner Bolkstein of 14th Oct 2004 reproduced in full below under para xxix.

110 xxvii. Commission’s failure to refer to the European Court of Justice

There has been a repeated failure by the British Government to give effect to the third paragraph of article 234 of the Treaty. ie. following the recent (December) failure by the Judicial Committee of the House of Lords (i.e. UK Supreme Court) to abide by their mandatory referral obligation the Commission are now under an obligation to re-open the entire Lloyd’s file and the Court of Justice must force them to do so. xxviii. 2004.re Section 3. xxix

A summary of Lloyd’s ongoing breaches of Directive 73/239 despite Commissioner Bolkstein’s assurance that Lloyd’s was fully compliant will the directive since the introduction of the Financial Services Act 2000.

Letter to Commissioner Fritz Bolkestein from Christopher Stockwell

Commissioner Frits Bolkestein European Commission Avenue du Cortenberg Brussels 1049 Belgium

14 October 2004

Dear Mr Bolkestein,

As I know you are aware, the European Parliament last February asked the Commission to confirm whether or not the regulation of Lloyd’s was compliant with the Insurance Directive 73/239 before the coming into effect of FSMA 2000 in December 2001.

Over the last few months we have done a good deal of further work on this subject. I thought it might help you if I listed some of the ways in which we have identified that the Directive requirements were not implemented. I would appreciate your telling me if you have identified any facts and matters, which lead you to believe that the conclusions we have reached are in any way mistaken. Clearly, if the conclusions mirror your own, it may assist you in answering the Parliament’s question.

Failures identified to impose domestic legal requirements in relation to particular requirements of the Insurance Directive

111 Save by provision made by FSMA 2000, or made pursuant to FSMA 2000 and reproduced in the FSA Lloyd’s Sourcebook, and in each case having effect from or after 1 December 2001, no enactment at any material time made any provision (alternatively any provision readily ascertainable with reasonable certainty either by the Names or by the persons on whom the Insurance Directive required relevant obligations to be imposed) giving effect in domestic law to: 1. The requirement of Article 8(1)(b) of the Insurance Directive that, as a condition of authorisation, a Lloyd’s syndicate limit its business activities to insurance and incidental business (this requirement first being given effect by provisions reproduced in the FSA Lloyd’s Sourcebook, notably at section 10.10, having effect on or after 1 December 2001). By way of illustration only, we draw your attention to the finding of Lord Justice Thomas (Sphere Drake v EIU and Stirling Cooke Brown, July 2003) that Lloyd’s allowed an unauthorised trade in gross losses that was not insurance at all;

2. The requirement of Article 8(1)(c) of the Insurance Directive that, as a condition of authorisation, a Lloyd’s syndicate submit a scheme of operations satisfying the requirements of Article 9 of the Insurance Directive (this requirement first being given effect by provisions reproduced in the FSA Lloyd’s Sourcebook, notably at section 10.7, having effect on or after 1 December 2001). We draw your attention to the claims by Lloyd’s in the recent Economist article saying that one reason the new Franchise regime will help to maintain profits through the insurance cycle is that syndicates now have to submit business plans to the Lloyd’s Franchise Board (NB not the FSA) for approval;

3. The requirement of Article 8.1 of the Insurance Directive (before as well as after its amendment by Directive 95/26/EC) that the Defendant monitor the compliance of Lloyd’s syndicates with the conditions of official authorisation (this requirement first being given effect by S. 314(1) of FSMA 2000 with effect from 1 December 2001);

4. The requirement of Article 22(1)(a) (latterly (b)) of the Insurance Directive that the Defendant be empowered to withdraw the official authorisation granted to a Lloyd’s syndicate if it no longer fulfils the conditions of admission, since the absence of any domestic requirement imposing conditions corresponding to those required by Article 8(1)(b) and (c) of the Insurance Directive made effective implementation of the Article 22 requirement in domestic law impossible (this requirement first being given effect when

112 provisions reproduced in the FSA Lloyd’s Sourcebook first became effective to impose such conditions);

5. The requirement that any authorisation granted to a Lloyd’s syndicate relate only to specific classes (or denominated combinations of classes) of insurance, as required by Article 7.2 of the Insurance Directive (this requirement has not been given effect pursuant to FSMA 2000);

6. The requirements, imposed by Article 15, and subsequently by Articles 13 and 15, of the Insurance Directive, to fix the percentage (if any) of technical reserves permitted to be covered by claims against reinsurers, and to verify the proportion of technical reserves constituted by reinsurance, including reinsurance within the Lloyd’s market (these requirements have not been given effect pursuant to FSMA 2000);

7. The requirement, imposed by Articles 16 to 17 of the Insurance Directive, that Lloyd’s syndicates establish a minimum guarantee fund differing in level according to the class of business written, since, as set out above, Lloyd’s syndicates were not authorised by reference to the class of business written nor required as a condition of authorisation to submit a scheme of operations indicating the nature of the business to be written; and hence also the requirement that Lloyd’s syndicates maintain a solvency margin, since in those circumstances domestic law failed to enable the required amount of the minimum guarantee fund, and thus of the solvency margin, to be ascertained with any or sufficient certainty (these requirements have not been given effect save to the extent that provisions reproduced in the FSA Lloyd’s Sourcebook have given effect to the requirement to submit a scheme of operations as a condition of authorisation);

8. The requirement, in accordance with Article 13 of the Insurance Directive with effect from 1 July 1994, that Lloyd’s syndicates have sound administrative and accounting procedures and adequate internal control mechanisms (this requirement first being given effect by provisions reproduced in the FSA Lloyd’s Sourcebook, notably at sections 9.4 and 10.8, having effect on or after 1 December 2001). This breach was confirmed by the Court of Appeal holding in 2002 (Lloyds v Jaffray) that Lloyd’s failed to maintain an auditing system that made reasonable estimates of outstanding liabilities, including unknown and unnoted from 1978 -1996;

9. The requirement of Article 14 and subsequently Article 13(2) of the Insurance Directive that the Defendant verify the state of solvency of Lloyd’s syndicates, since so far as there were

113 any “rules” prescribing the manner in which assets and liabilities were to be valued for the purposes of the solvency margin or of ascertaining the state of solvency of a Lloyd’s syndicate, these were not to be found in any domestic enactment but in informal material issued by Lloyd’s itself, and in terms insufficiently certain and ascertainable to constitute proper implementation of those requirements (this requirement first being given effect by provisions reproduced in the FSA Lloyd’s Sourcebook, notably at sections 9.4, 10.9, and 11 to 14, having effect on or after 1 December 2001)

In sum, there was a failure to ensure that the requirements of the Insurance Directive as to conditions (and monitoring of compliance with same), classes of authorisation, general supervision, technical reserves, solvency margin and guarantee fund were observed. In particular: Inadequacy of the Lloyd’s accounting system

(a) The UK Government permitted the accounting system at Lloyd’s to be wholly inadequate to enable it to fulfil its obligations under the Insurance Directive, as set out in the judgment of the Court of Appeal in Jaffray and Others v. Society of Lloyd’s, at para. 376.

(b) The inadequacy of Lloyd’s accounting system resulted from;

1. the Government’s unlawful delegation of responsibility for compliance with the requirements of the Insurance Directive, to the Council of Lloyd’s (which in turn left detailed management of the market to a Committee of Working Names composed of underwriters, agents, and brokers of whom Cresswell J said in 2000: “the catalogue of failings and incompetence…established by judgements of the court, by disciplinary hearings and other means) is staggering. External Names were the innocent victims.), and,

2. to the extent to which the Government supervised Lloyd’s at all, the inadequacy of such supervision.

(c) The Government purported to supervise Lloyd’s accounting procedures and the accuracy of the calculation of liabilities necessary to determine reserves merely by approving the “instructions” or “Rules” (“Audit Instructions”) referred to in the audit certificate; such approval of Audit Instructions was incapable of constituting compliance by the Government with its supervisory obligations under the Insurance Directive. The approval of Audit Instructions, and the Instructions themselves, were at all material times inadequate for this purpose:

114 (i) MPRs

For all years of account, further instruction as to the quantification of reserves were issued by Lloyd’s in relation to each category of business. Pursuant to such instructions, reserves were to be the greater of the following:

i. The application of a specified multiple to the net premium income for the year of account, known as the minimum percentage reserves (“MPRs”). For the oldest year of account referred to in each year’s Audit Instructions, and all years previous to the oldest year of account, an alternative test of outstanding liabilities was to be applied if this would result in higher reserves;

ii. The total outstanding liabilities on each year of account, including IBNR, or

iii. The amount of the RITC for the closing year of account, including any previous years reinsured into that account (provided the year in question was not being run off)

The choice essentially lay between fixing the reserves at the level of the MPRs approved by the Government as part of the audit instructions, or at the level of the outstanding liabilities, the amount so determined providing the basis for the cost of the RITC. Notwithstanding that reserves should have been the greater of these two, in practice;

a.Since underwriting agents had an obvious incentive to produce an ostensible profit for the Names on the closing year, they accordingly set reserves at the minimum plausible level – (“reserving by the bottom line”), the MPRs providing a reference point for such practice, the Defendants at no time having set MPRs at or above 100% of premium income.

b. Reserving on such basis was inadequate, and

c.The Government was aware of this (as evidenced by correspondence in evidence between the Government Actuary’s Department and the Department of Trade and Industry).

115 Duties imposed by the Directive that were breached

1. The United Kingdom Government had a duty under the Directive to ensure compliance by Lloyd’s syndicates, and Lloyd’s taken as a whole, with the requirements of the Directive. It failed adequately, or at all, to monitor the compliance of Lloyd’s syndicates with the conditions of official authorisation required by Article 6 of the Insurance Directive and further it:

a) Permitted syndicates to write business which was not insurance business at all, in breach of Article 8(1)(b) of the Insurance Directive,

b) Failed to require a scheme of operations, alternatively failed to require a sufficiently particularised scheme of operations, in breach of Articles 8(1)(c) and 9 of the Insurance Directive,

c) Failed to grant authorisation to Lloyd’s syndicates in respect of specific classes (or denominated combinations of classes) only, in breach of Article 7.2 of the Insurance Directive.

2. The Government had a further duty to ensure there were adequate technical reserves, that solvency requirements were complied with (and their verification) and to establish requirements as to internal procedures. Contrary to Articles 13 and 15 of the Insurance Directive, the Government failed to fix the percentage of technical reserves which were permitted to be covered by claims against reinsurers. It also failed to consider whether insurance undertakings should be limited in their use of reinsurance within the Lloyd’s market to meet their underwriting liabilities and failed to monitor and/or to verify the proportion of technical reserves constituted by reinsurance and/or by reinsurance within the Lloyd’s market.

3. The Government failed to verify the state of solvency of Lloyds syndicates and/or failed to require syndicates at Lloyds to have sound administrative and accounting procedures and adequate internal control mechanisms contrary to Articles 13(2), 13(3) and 16 of the Insurance Directive. This in spite of the fact that the Government imposed (by s. 73(4) ICA 1974 and subsequently s. 83(5) ICA 1982) a requirement to involve an actuary in the preparation of the accounts for long term business (defined in s. 1 to include life and related business) but not for direct insurance.

4. The Government committed a serious breach of its obligations in failing to make any provision, or any readily ascertainable provision, to give effect in domestic law to the requirements of the Insurance Directive identified above;

116 a) In permitting the accounting system at Lloyd’s to be wholly inadequate, the Government committed a serious breach of its obligations. The breach was made all the more egregious by the fact that it knew that that it was inadequate to fix reserves at levels below the greater of the minimum percentage reserves and the amount of outstanding liabilities, and by the fact that the Government was also in default in failing to implement other obligations owed by the United Kingdom under Community law including that imposed by Article 16a of Directive 92/49;

b) It amounted to a serious breach of the Government’s obligations to fail adequately to monitor the compliance of Lloyd’s syndicates with the conditions of official authorization required by Article 6 of the Insurance Directive;

Further, in failing to verify the state of solvency of Lloyd’s syndicates and to require them to have sound administrative and accounting procedures and adequate internal control mechanisms, the Government committed serious breaches of Articles 13(2), 13(3) and 16 of the Insurance Directive.

5. The Government has repeatedly made public statements disclaiming, in plain conflict with the requirements of the Insurance Directive, any obligation on its part to take steps to ensure the adequacy of the systems and arrangements within Lloyd’s. In particular, please note:

a) Statements made by a DTI official, Mr. Spencer, in evidence to the Treasury and Civil Service Select Committee of the House of Commons in or about 1995 to the effect that:

i) The Defendants had no responsibility towards Names as suppliers of capital (para. 3104, at p. 131).

(ii) Under the relevant legislation, the responsibility for looking after the interests of Names lay with the Council of Lloyd’s (para. 3110, at p. 132).

(iii) The Defendants were not responsible for ensuring the solvency of insurance undertakings at Lloyd’s (para. 3164, at p. 140).

(iv)The appropriate remedy for a breach of statutory duties by Lloyd’s was by way of “individual members of the Lloyd’s community seeking action against the Lloyd’s Council for dereliction of duty, I guess” it being said that the Defendants could only exert “moral suasion” over

117 Lloyd’s as regards the protection of Names’ interests (para. 3159, at p. 139).

b) The statement by a retired official of the DTI that his sole responsibility in relation to Lloyd’s was to “receive” the Lloyd’s accounts; there was no obligation to do anything with the figures or to comment on them. A strict reading of the obligations set out in the Insurance Companies Acts 1974 and 1982 in relation to the duties of the DTI seems to confirm his statement.

These public statements, should be taken in combination with Lloyd’s continuing representations to Names and prospective Names throughout the period 1978 to 1988 of the adequacy of the system for quantifying syndicate liabilities (which the Court of Appeal, in its judgment of 26 July 2002 in Society of Lloyd’s v. Jaffray, found to have been false and which Names say were false both before and after this period); and Lloyd’s representations, repeatedly made at various times, that Lloyd’s was a self-regulating body. In this respect, please note; a) Mr Peter Green, then Chairman of Lloyd’s, at an extraordinary general meeting on 4 November 1980, where he stated that the purpose of the proposed Private Bill which became the Lloyd’s Act 1982 was to preserve Lloyd’s status as a self-regulating City institution; b) Mr Peter Miller, then Chairman of Lloyd’s, in a letter to Names of 25 May 1984, in which he stated that the Lloyd’s Acts 1871 to 1982 imposed upon the Council of Lloyd’s the task of managing and superintending the affairs of the Society and of regulating and directing the business of insurance at Lloyd’s, c) The statements by Mr Spencer to the Treasury Select Committee referred to above (paras 3110-3159).

These statements resulted in continuing concealment from Names of:

a) the fact that, and extent to which, the Government had failed to fulfil its obligations under the Insurance Directive,

b) the fact that, and extent to which, the systems in question were inadequate, and

c) the fact that and extent to which that inadequacy had resulted (and was continuing to result) in Names joining and remaining members of Lloyds, and increasing their underwriting capacity, on the basis of information which in fact failed to reflect the true scale of the liabilities thereby acquired.

118 6. The Government failed to require even rudimentary internal systems for syndicates (as chronicled in various loss reviews and court decisions). Such was the failure to require even remotely adequate internal record-keeping and other essential systems for syndicate operations that the High Court in Sphere Drake was able to find in July 2003 that as late as 1993-1994, business could be written without any proper records or description in writing; and this moreover despite the Government’s knowledge of the catastrophic problems in the Lloyd’s market which culminated in the R&R exercise. The Government failed to respond to experience of previous difficulties and allowed the PA (Personal Accident) Spiral to develop despite the notoriety of the problems previously caused by the LMX (London Market Excess-of- loss) Spiral.

I hope you will agree that the specific examples cited are more than adequate justification for concluding that the Government failed to implement the Directive prior to FSMA 2000 taking effect in December 2001.

Yours sincerely

Christopher D Stockwell

119 SECTION SIX

5. Finale

1. I repeat the opening Executive Summary.

This petition and the attached authorities and comments attempts to show how the Society of Lloyd’s, with the full cooperation of the British Government defrauded about 27,000 Names of up to £8 billion. This would not have been possible if it had implemented and enforced Directive 73/239 by its due date in1978. It implemented the Directive by way of the Insurance Companies Act 1982 but they failed to enforce it as far as Lloyd’s was concerned for at least the following 25 years.

In principal, Lloyd’s did not maintain annual accounts. Its liabilities were not calculated in accordance with Directive 73/239. It did not have an audit and its solvency certificates were worthless.

It will be seen that in 1968 the Cromer Report warned Lloyd’s that it was under capitalized. Lloyd’s became aware of the Asbestos crisis facing it in the 1970’s. Its auditors advised Lloyd’s that it was insolvent in 1982 because it was impossible to quantify their outstanding liabilities.

Lloyd’s solution was to disguise their insolvency, hide the truth and recruit new investors to finance what turned out to be an approximate £8 billion deficit. The British Government knew the situation, decided that it was against the National interest to allow Lloyd’s to declare its insolvency. They failed to enforce Directive 73/239’s requirements which made the fraud described in this petition possible.

Thus approx 27,000 investors became innocent victims of the largest premeditated fraud in the EU which required collaboration between the British Government and its financial regulator, Lloyd’s of London.

(Unfortunately, at the time of the Jaffray trial, the exact nature and the details of the Lloyd’s audit fraud were not fully understood by the Names and their lawyers. Therefore the fraud was only partially exposed at the trial. The Court of Appeal found that Lloyd’s had made misrepresentations to Names, but it also found that the Names had failed to meet the high standard of proof required to enable the Court to find that there had been fraud. (Therefore the Court did not find that there had not been fraud.))

2. I repeat Section four “Human nature in relation to dishonesty”

v. It is a known human failing that if an individual tells an untruth that he is likely continue his deceit to cover his previous failings. Further the longer the deceit continues the harder it becomes to admit his faults and for him tell not only the truth but the whole truth. vi. When deceit takes place within a corporation or at Government level it is usual that more than one person is involved. The stakes are invariably high and large amounts of money are involved. For the individuals involved their total moral standing is at stake and they therefore find it almost impossible to tell the truth voluntarily. vii. Corporate or Government deceit in particular may take the form of deliberate non disclosure of information, distortion of information which makes a situation or event appear to be less bad than it really is or publication of information which is either incorrect or disguises the truth. Unlike personal deceit, corporate or Government deceit usually requires the coordinated deceit by a limited number of people, in other words secrecy is a normal element of corporate or Government deceit. viii. When analysing corporate or Government deceit the occasional item of misinformation or non disclosure tends to indicate a mistake or incompetence. However continual misinformation or non disclosure over time often directed at different audiences usually indicates sinister intent and a premeditated attempt to deceive, or in other words, fraud.

I ask the reader to decide whether the events described in this paper amount to the largest fraud ever to have been committed in the EU.

I ask the reader to decide whether the British Government conspired to commit the fraud.

I ask the reader to decide whether the EU Commission assisted in covering up the fraud.

Should the answer to any of the above three questions be yes, may I seek your assistance in seeing that justice is done without delay.

Justice in this matter will clearly be in the European Union’s best interest.