Lottery official may face action over pounds 100m deal

Peter Davis, the beleaguered National Lottery regulator, could face legal action over a disastrous deal which cost a Lloyd's insurance syndicate almost pounds 100m.

Mr Davis, who today faces calls for his resignation, was finance director of the company which set up the deal, resulting in losses to 5,500 people, including a number of Conservative MPs and the Attorney General, Sir Nicholas Lyell.

The director-general of the lottery watchdog, Oflot, will today meet Hayden Phillips, permanent secretary at the Department of National Heritage, to discuss his admissions that he accepted flights and hospitality from GTECH, the American company at the centre of bribery allegations made by Richard Branson. Last night, his position seemed increasingly untenable after Robert Sheldon, the chairman of the Commons Public Accounts Committee, said that Mr Davis's actions were unjustifiable and naive.

The potential legal action against Mr Davis may be brought by members of Lloyd's who were attached to Syndicate 210, managed by Sturge Holdings Plc, of which he was finance director and deputy chairman from 1988 to 1993.

Sources within Lloyd's say that the Sturge Names Action Group - whose members ran up losses of more than pounds 1bn under Sturge Holdings' management - are taking legal advice on the possibility of suing Mr Davis and other board members over the deal. If the directors are found to have been negligent, the Lloyd's members may seek compensation from them.

The deal relates to the reinsurance of American risks insured by Syndicate 210 in the 1960s and 1970s. During that period, Sturge had taken on a large number of asbestos and industrial pollution policies but, prudently, reinsured against potential losses in 1974 with two US companies, Fireman's Fund of America, based in San Francisco, and Kemper Re of Long Grove, Illinois.

In 1991, faced with costly open-ended claims, the US companies offered the Sturge syndicate $80m (pounds 52m) in return for the termination of the reinsurance protection policy. The board of the managing agency (then Sturge Holdings Plc, now Ockham Holdings Plc) accepted the offer but claims for illness and property damage relating to the insured years which continued to come in, eating up the $80m and leading to further calls on members' assets.

"That decision has resulted in a loss to members of the syndicate of pounds 96m," said John Rew, chairman of the Sturge Names Action Group. "It was a disastrous deal which has cost members more than they can possibly afford."

The figure of pounds 96m so far was given to Syndicate 210 members at a meeting last week. Lloyd's records show that in 1991 eight sitting MPs, including Sir Nicholas Lyell, Jerry Wiggin and Tim Renton, the former arts minister, were members of 210.

Among those who could receive writs is Sturge chairman David Coleridge, a former chairman of Lloyd's. Minutes of board meetings and internal documents, details of which have been obtained by the Independent, showed that Mr Coleridge was the prime mover behind the deal but that Mr Davis was among the directors who approved it.

It emerged over the weekend that Mr Davis had taken flights from GTECH, a 22.5-per-cent shareholder in Camelot, and stayed on Long Island with Carl Menges, a non-executive director of GTECH. Mr Davis insisted that his friendship with Mr Menges had no bearing on the award of the lottery contract, but Jack Cunningham, Labour spokesman on National Heritage, has called upon him to resign.

Mr Sheldon said: "This is the gambling industry and a regulator would be wise to keep a very distant relationship with these people.When you think of how careful we are regulating casinos and horseracing, Mr Davis's behaviour seems very naive to say the least."

Mr Davis declined to comment yesterday. Peter Newton, a spokesman for Sturge, said he did not believe Mr Davis was involved in negotiating the deal. He added: "If the Sturge Names have asked lawyers to examine the conduct of every member of the Sturge board, then that, at that time, would involve Peter Davis."

He conceded that Mr Davis signed a letter on the matter to members, but said that did not mean "ipso facto" that he was involved in negotiating the deal.