Lloyd's names win legal victory


Financial Editor

Loss-making Lloyd's names were celebrating a landmark High Court victory against auditors yesterday which could produce massive damages awards.

The judgment also boosted the prospects of an overall solution to the troubles at Lloyd's of London by dramatically increasing the pressure on auditors to make a substantial contribution to the global settlement to the names in exchange for them dropping all litigation against the market.

John Mays, chairman of Merrett syndicate 418 names' action group, said he expected the damages to total pounds 300m. "This is a stunning victory. If we had written the judgment ourselves we could not have done it better," he said. Syndicate members include such well-known personalities as Rocco Forte, Major Ronald Ferguson, father of the Duchess of York, Adam Faith, the former pop star, Sir Nicholas Lyell, the Attorney-General, and Ted Dexter, the cricketer.

Ernst & Whinney, now part of Ernst & Young, was found to have been negligent in auditing the Merrett syndicate 418 during three years in the early Eighties. Merrett is the first big Lloyd's case to involve auditors as well as the controversial asbestos and pollution policies in the US, which, because of retrospective legislation, began in the late Seventies to land names with ruinous losses.

Mr Justice Creswell found all four defendants, Stephen Merrett himself, the Merrett company, the managing agents and the auditors, guilty of negligence in failing to take proper account of the risks inherent in these US pollution and asbestos liabilities. Mr Merrett, a former deputy chairman of Lloyd's and long-serving member of the society's council, was also found to have deliberately concealed significant information from names.

The judge said he had "serious reservations about many aspects of Mr Merrett's evidence and serious reservations about his approach as underwriter", adding that Merrett accounts for 1982 contained "a mixture of truth, half- truths and falsehood".

Mr Mays said: "This is devastating criticism of Merrett, and in criticising him the judge is criticising the entire old guard at Lloyd's of which Merrett was an integral part."

The judge's findings of deceit and cover-ups by such a formerly eminent member of Lloyd's are expected to fuel efforts by US lawyers, in particular, to seek damages from the insurance market.

Rejecting names' claims for the three preceding years, Mr Justice Creswell found that there had been negligence in the underwriting and auditing of the insurance years 1982, 1983 and 1984. He found the Merrett syndicate to have been negligent on 11 counts when it took on the re-insurance of other syndicates' US pollution and asbestos liabilities.

These were big policies and Mr Merrett was in effect taking a bet against the market that the liabilities would turn out to be less than supposed. In the event, with inadequate cover of its own, they brought ruin to names.

The auditors were criticised for not getting the additional information that should have persuaded them to withhold their unconditional approval for these years' accounts. Instead, the Merrett syndicate was allowed to "close" these years, implying that it was certain it had sufficient coverage for all potential losses, and allowing it to recruit unsuspecting new names who suddenly found themselves liable for huge losses.

Ernst & Young yesterday said it would probably appeal, and stressed that the Merrett judgment, because of its particular circumstances, had no implications for other Lloyd's cases the auditor faces. Nick Land, senior partner at Ernst, said names' estimates of their potential damages were exaggerated, should an appeal fail. "Any reasonable assessment is likely to put our contribution below pounds 20m," he said.

Start your day with The Independent, sign up for daily news emails
general electionThis quiz matches undecided voters with the best party for them
Arts and Entertainment
Keira Knightley and Matthew Macfadyen starred in the big screen adaptation of Austen's novel in 2005
tvStar says studios are forcing actors to get buff for period roles
Prince William and his wife Catherine, Duchess of Cambridge show their newly-born daughter, their second child, to the media outside the Lindo Wing at St Mary's Hospital in central London, on 2 May 2015.
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before