Deposit hope for Lloyd's names
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Your support makes all the difference.SEVERAL UK banks and insurance companies are considering withholding payments to Lloyd's of London syndicates in a move which could cost the insurance market around pounds 1bn.
The banks and insurers are debating whether to hand over deposits held on behalf of 'names' - investors in Lloyd's - to meet underwriting losses.
The dilemma follows developments in the Canadian courts in June, when three Canadian banks admitted names had put them on notice, and had shown primie facie evidence, that they had been fraud victims. Under Canadian law, if a bank pays out on a letter of credit or a bank guarantee, despite having been shown evidence of fraud by the depositor, the bank is liable for any loss should the fraud be proved in the courts.
Following the concessions by the Canadian banks, names in the UK belonging to the Global Defence Association are trying the same tactics. Judgments in Canadian courts have the status of 'persuasive precedence' in the UK courts.
The names are offering to show banks evidence of fraud gathered to support the Mason case, set to be heard in the Court of Appeal in London in late autumn. In that case a Lloyd's name is alleging that he is the victim of fraud.
Several household name institutions holding a large proportion of the total amount of names' deposits have already asked to see the evidence. Catherine Mackenzie-Smith, UK chairperson of the GDA, has written to 10,000 other names asking them to write to their banks, too.
Names joining Lloyd's have to offer bank guarantees or other security for 30 per cent of the total premiums they wish to accept. The total of names' guarantees stands at pounds 3.7bn, of which Lloyd's expects to haveto call on about pounds 1bn.
In a case in the commercial court in London in 1992, five Canadian banks failed to persuade the court they should withhold deposits from Lloyd's. In that case the judge held that as long as there was no fraud in relation to the guarantees and letters of credit, then Lloyd's could draw on these deposits. But the recent Canadian court ruling means that the banks must reconsider.
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