Brussels or bust: the long and winding road

Author (Person)
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Series Details Vol.7, No.25, 21.6.01, p15
Publication Date 21/06/2001
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Date: 21/06/01

Peter Chapman meets John Pascoe, the man who sparked the EU's probe into the UK government's handling of the near-collapse of the Lloyd's of London insurance market

John Pascoe is getting impatient with the European Commission - and it shows. The man who sparked an EU probe into the near-collapse of the Lloyd's of London insurance market has been staring into the financial abyss for four years.

Lloyd's is demanding €980,000 from him, as his share of its huge liabilities resulting from massive awards by US courts for victims of asbestosis in the 1980s.

Pascoe, one of thousands of private investors affected, claims he was illegally lured to become a Lloyd's 'name' about two decades ago.

He believes syndicate bosses knew the asbestosis claims were looming, but failed to inform him and many others.

So far he has stumped up €203,000, but with claims expected to hit €165 billion by 2020 he and many others face total ruin.

In April 1999 Pascoe complained directly to the European Commission about the UK government's alleged failure to properly audit Lloyd's.

Although his sources suggest that Single Market Commissioner Frits Bolkestein may soon be ready to throw a lifeline to the names, Pascoe fears any action may come too late for many.

In an interview at his farmhouse home in the Berkshire countryside, Pascoe argues that the way the EU investigation has been conducted points to an urgent need for reform in the complaints system. "In the two years that they have taken to review the matter many have been bankrupted, many have fallen ill and many are deeply distressed and suffering. "

Surrounded by letters, memos and press cuttings in an ancient barn that he has turned into a battle HQ, Pascoe alleges that Lloyd's deliberately deceived investors by flagrantly ignoring the EU's insurance directive, implemented in the UK in 1982. It stated that there must be a certificate signed by auditors showing that the assets of each Lloyd's name must exceed the liabilities in the market.

He shows me two letters from Lloyd's auditors Neville Russell - one from 1982 and another from 1999. The first refers to the "impossibility of determining the liability in respect of asbestosis". The second says that "it was not part of the auditors' responsibility to calculate the value of assets or liabilities, nor would an auditor have signed a certificate certifying that. . . assets covered. . . liabilities at Lloyd's".

He also has an internal leaked document from the Department of Trade and Industry and he cites remarks by former Lloyd's chief executive Ian Hay Davison admitting that its auditing procedure in the early 1980s was inadequate.

Pascoe says the UK must be forced to put matters right - either in the European Court of Justice or in an out-of-court settlement - to compensate the names.

But he admits that matters were not helped when the Commission decided last year to widen the scope of its investigations, against his advice, after receiving scores of follow-up complaints from other disaffected names.

This, he says, turned his original complaint into a legal Pandora's box - allowing Bolkestein to claim, rightly, last month that the investigation has "taken longer than usual because of the complexity of the file".

Worse, Pascoe says he has been refused access to recent UK government replies to Commission letters - denying him the chance to challenge their assertions. "I am concerned over the unnecessary delay and over the Commission's motives. I have heard absolutely nothing from them since December and feel that I am being ignored and sidelined as they wallow in the mass of material and detail on the operation and procedures at Lloyd's. "If they had stuck to my complaint they would avoid a lot of unnecessary work and they would have to make a pronouncement. "One thing is clear, the present procedure is not working properly to protect the European citizen from the effects of non-application of directives. We are not alone - whilst our case is about Lloyd's there are others that I have met who are suffering from the same delays and secrecy. It is time to adjust the procedure as well as to finalise the Lloyd's complaint. "

The fact that the three men running the EU investigation are all British - John Mogg, internal market director-general, head of unit David Deacon and case handler Michael Thom, has done little to put his mind at rest. "Justice has to be seen to be done," says Pascoe, adding that non-UK nationals could have been put on the case to avoid accusations of a "stitch-up".

He is aware that his words may anger Bolkestein - but insists that is not the goal. "I want the Commission to view it as constructive not destructive. I think the Commission for whatever reason is working with procedures which need to be changed. "

The way forward, he claims, is reform that would make the complainant part of the investigating team to "ensure that the Commission receives the benefit of his or her knowledge-base".

All investigations should be brought out into the open to encourage the offender "to make fast reparations and repairs to his activities". Another option would be to impose fines on member states failing to present the full facts. "The alternative is this long drawn-out approach where the matter becomes stale, people lose interest and drive, and the whole affair is finalised with an out-of-date report long after the guilty have retired, changed jobs or even died. "

Despite their huge losses, tales of broken marriages and 20 suicides since the Lloyd's losses emerged, Pascoe admits the public image of names has not helped their cause in legal battles, particularly in Blairite Britain.

Many are seen as upper-class wealthy country types or unhinged septuagenarian aristocrats who lost money they never earned in the first place by being too greedy.

Although he himself is a product of Eton and the Scots Guards, Pascoe is anxious to avoid stereotypes. People like him have worked hard, he says. He offers me a CV portrait of a business career spanning nearly 40 years, including spells at US multinational Sperry Rand and Caterpillar dealer Finning.

He jokes that he originally joined Lloyd's "to give me more time to play golf", but in reality his decision was based on a hard-headed assessment of the facts before him. What seemed a sensible move went wrong because he was lied to, says Pascoe.

He resigned all of his directorships three years ago as bankruptcy loomed and now lectures on 'creativity and the brain'. But that hasn't stopped Lloyd's from chasing him.

Pascoe claims his home has been spied on by private investigators. When challenged, they have insisted they are simply motorists who have stopped to relieve themselves. But they have failed to water down his resistance.

If the Commission does not take action, Pascoe says the European Court of Human Rights in Strasbourg will hear a complaint that the UK judge who backed Lloyd's demand against him, Lord Tuckey, was biased because he had close professional and family links with Lloyd's.

As a stop-gap, he hopes that bankruptcy proceedings against him can be delayed until after the UK's High Court hears an appeal, due next month, into a fraud case involving Lloyd's.

In any event, if Europe stays quiet it could soon be shamed into action by the US, where federal agents are close to finalising their own investigation into the way Lloyd's managed the asbestosis claims.

Pascoe hopes it does not come to that: "Lloyd's makes the South Sea Bubble look like a children's tea party. It would be sad if the Americans were left to sort out a European scandal. "

Lloyd's and the EU: the story so far

  • 1973: EU's First Life Insurance directive adopted. It says auditors must sign a certificate stating that assets of underwriters (names) are sufficient to meet liabilities.
  • 1982: UK implements directive. Lloyd's auditors express doubts about its ability to determine the liability from around 15,000 (and growing) asbestosis claimants, despite the need to provide a solvency certificate.
  • 1984: Pascoe becomes a Lloyd's name, along with many others, allegedly oblivious to the financial risk posed by the growing number of asbestosis claims.
  • 1991: He leaves Lloyd's as huge losses from asbestosis claims begin to bite after US courts award damages to workers exposed to the mineral in factories and workplaces. Payouts are expected to top €165 billion by 2020.
  • 1997: Lloyd's issues writ against Pascoe, demanding payment of €980,000 for his share of its claims after he refuses to join 'Equitas', a scheme set up by Lloyd's to handle its asbestosis payouts. Equitas members are granted 'loss premiums' which means they will be asked to pay less in return for agreeing to sign away their rights to sue Lloyd's. Pascoe challenges the demand in UK courts, to no avail. Lloyd's names send petition to European Parliament over the issue.
  • April 1999: Pascoe lodges complaint to European Commission.
  • October 1999: Commission accepts complaint.
  • October 2000: Commission writes to UK.
  • January 2001: UK replies. The Commission is currently examining the response.
  • May - June 2001: Internal Market Commissioner

Frits Bolkestein confirms that the Union executive is examining a "substantial number" of new complaints from other Lloyd's names, describing the allegations as "extremely grave".

The Commission is examining the nature of solvency certificates issued by Lloyd's.

Interview with John Pascoe, the man who sparked the EU's probe into the UK government's handling of the near-collapse of the Lloyd's of London insurance market.

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