Lloyd's fails to block names' fraud claim

Roger Pearson reports on a bid by the insurance giant to block claims against the company of fraudulent misrepresentation

Lloyd's has failed to block one of the first major High Court battles of 2000, in which the insurer faces fraud allegations.

The Appeal Court has paved the way for continuation of the bitterly contested action – due to begin on 11 January and last for at least three months – by refusing to give the green light for bankruptcy proceedings to be launched against around 600 names and former names.

Lloyd's launched the bankruptcy bid in an attempt to recover money from names who are said to have failed to pay reinsurance premiums under the Lloyd's Reconstruction and Renewal Plan.

But earlier this year in a High Court test case Mr Justice Jacob set aside a statutory demand issued in bankruptcy proceedings against former name Simon Garrow.

Lloyd's appealed Judge Jacob's decision. If the appeal had succeeded a formidable obstacle would have been put in the way of the forthcoming fraud case. However, the Appeal Court upheld the High Court ruling.

The statutory demand at the centre of the test case was in respect of a judgment debt based on Garrow's undisputed liability to pay a reinsurance premium of £169,029.

It was issued following an action in which Lloyd's successfully sued the names and former names who had declined to accept the Reconstruction and Renewal Plan.

However, a number of names, including Garrow, are cross-claiming against Lloyd's alleging they were duped by fraudulent misrepresentation. It was on the basis of this that Judge Jacob set aside the statutory demand.

Garrow says that his counterclaim is at least equal to the amount Lloyd's is seeking from him and that he should not be prevented from going on with it.

Dismissing Lloyd's appeal, Lord Justice Robert Walker said that presentation of a bankruptcy petition led not to enforcement of a judgment but to administration of the debtor's assets for the discharge of all debts provable in his bankruptcy.

The court considered that in the circumstances, Judge Jacob was right to exercise his discretion and set aside the statutory demand. He had not, said Lord Justice Walker, taken into account any irrelevant matters in exercising his discretion.