Extract of the

NORTH CAROLINA DEFENSE

I. A Contract Cannot Be Enforced Against a Party Who Did Not Knowingly Assent to its Terms.

The condition imposed by Parliament for the legislation was no more than a requirement that Lloyd’s tell the truth to the Names considering renewal of their status as underwriting members and to those persons considering the possibility of becoming underwriting members.

Parliament required Lloyd’s to disclose its past, present, and anticipated liabilities for asbestos use. Lloyd’s did not disclose its liabilities, and contrary to its prior statements, did not have “rigorous accounting controls”. Lloyd’s prior statements in the recruiting brochure about having “rigorous accounting controls” have now been proven false.

Lloyd’s agreed to these conditions of disclosing its liabilities, and then Parliament passed the legislation Lloyd’s had requested, restructured Lloyd’s, and granted Lloyd’s extraordinary rule making and other powers.

By this legislation, the Lloyd’s Act of 1982, the U.K. Parliament delegated legislative power to Lloyd’s and to the Council of Lloyd’s.

A short time after passage of the Lloyd’s Act of 1982, Lloyd’s admitted that it had failed to comply with the condition, and reported to the Parliament about supplying “better quality information,” i.e., telling the truth, as follows:

The Council of Lloyd’s very much regrets that the undertaking to implement the recommendations . . . within 2 years of the Royal Ascent has not been kept.

The Society of Lloyd's v. Webb, 156 F.Supp.2d 632, 635 (N.D. Tex. 2001).

During the five years that Lloyd’s failed to improve information disseminated to prospective Names, approximately ten thousand new names joined Lloyd’s, most of whom were U.S. investors. Webb, supra, 156 F. Supp.2d at 635.

The paragraphs relating to the condition imposed by Parliament, the failure of Lloyd’s to comply with the condition, Lloyd’s letter to the Parliament confessing non-compliance, and the number of Names recruited in the following years were found against Lloyd’s by United States District Judge Jorge Solis sitting in the United States District for the Northern District of Texas in Webb, supra, 156 F. Supp.2d 632 (N.D. Tex. 2001).

Lloyd’s obligation to give accurate information to the Names considering renewal and to the new Names was a condition precedent to the exercise of the powers granted to Lloyd’s and the Council of Lloyd’s by the Lloyd’s Act 1982.

As a consequence, the Council of Lloyd’s, which was created by the Lloyd’s Act 1982, and all byelaws passed pursuant to the Lloyd’s Act 1982 lacked power and effect for failure of the condition.

By 1993-94, Lloyd’s reserves had become seriously insufficient, primarily due to asbestos claims. In an investigation conducted by the Commissioner of Insurance of the State of New York, the Commissioner found, on the basis of documentation supplied by Lloyd’s and accepted as accurate by the Commissioner, that Lloyd’s syndicates were under-reserve by as much as 18 billion United States dollars. See Report to the New York Superintendent of Insurance by Supervising Insurance Examiners dated May 11, 1995.

Initially, Lloyd’s attempted to collect deficiencies in the syndicates insuring against asbestos losses by “cash calls” on the Names that were members of those syndicates.

Because those “cash calls” were generally unsuccessful, Lloyd’s faced insolvency, bankruptcy, liquidation, and a winding up of its affairs.

Lloyd’s developed the R&R Plan to address the severe deficiencies in its reserves. The R&R Plan was a program of re-insurance for all liabilities from 1992 and earlier years and was to be administered by Equitas Reinsurance Limited and Equitas Limited.

Pursuant to the R&R Plan, any underwriting member who consented to the Plan paid a premium to be used to reinsure all losses in all syndicates for 1992 and the prior years.

Approximately one thousand seven hundred (1,700) Names refused to accept the R&R Plan, refused to pay the premiums, and refused to become participants in the R&R Plan.

Despite Lloyd’s failure to comply with the condition for the passage of the Lloyd’s Act 1982, Lloyd’s exercised the powers granted under the Act.

For example, Lloyd’s passed, effective December 6, 1995, Byelaw Number 22, “The Reconstruction and Renewal Byelaw,” granting the Council of Lloyd’s extraordinary powers including the power to bind the Names as underwriting members to agreements they did not see, review, approve, or accept.

The Reconstruction and Renewal Byelaw gave the Council power to “carry into effect the scheme forming part of the Reconstruction and Renewal Proposals . . . for the reinsurance by a company formed or to be formed by or with the assistance of The Society.” “R&R Byelaw,” Part C, Paragraph 3, Subdivision (1)(a).

The R&R Byelaw also granted the Council power to “do all such things as may appear to the Council to be desirable or expedient in connection with preparing and carrying into effect the Equitas scheme. R&R Byelaw, Part C, Paragraph 3, Subdivision (1)(b).

The byelaw further authorized the Council to direct Names to assent to the Equitas program and to make them liable for R&R debt. R&R Byelaw, Part C, Paragraph 4, Subdivision 1(a) – (d).

Over their objection or their refusal to agree to or their failure to agree to the R&R program, the non-participating Names were made “contract signatories” to the R&R program by a substitute agent appointed by Lloyd’s.

AUA9, the substitute agent appointed by Lloyd’s to act for the Names, was a company “indirectly owned and controlled” by Lloyd’s.

Even though the Names had not agreed to the R&R settlement proposal and the contract, AUA9 committed all non-participating Names to the Equitas re-insurance contract.

As a result of the acts by Lloyd’s and AUA9, Lloyd’s claimed that the non-accepting Names became liable for the R&R debt as well as all future syndicate deficiencies.

Acting on behalf of and through Lloyd’s, Equitas Reinsurance Limited and Equitas Limited obtained judgments against individual Names for R&R debt in the courts of the United Kingdom.

The United States Constitution, Section 10, Article I, provides that no State shall pass any law impairing the “Obligation of Contracts.”

The common law and statutory laws of the states of the United States and of the State of North Carolina provide that a party may not be bound to a contract unless he agrees to it and acknowledges his agreement.

According to the North Carolina Foreign Money Judgments Recognition Act, at § 1C-1804(b)(3), “A foreign judgment shall not be recognized if . . . the cause of action on which the judgment is based is repugnant to the public policy of this state . . ..”

In this foreign action, Lloyd’s seeks to enforce rights against the Names under the R&R contract when the contract rights were created by Lloyd’s and rejected or never accepted by the Names.

Because Defendant, and other Names, rejected or did not accept the R&R contract, the cause of action resulting in the judgment at issue conflicts with the public policy of the State of North Carolina and the Constitution of the United States of America that a contract cannot be enforced against a party who did not knowingly assent to its terms.

II. Lloyd’s Created the Contract Rights for Itself by Various Byelaws…

The relevant byelaws are unenforceable and voidable because Lloyd’s failed to satisfy the conditions imposed on it by the Parliament of the United Kingdom in exchange for the legislation granting Lloyd’s the power to pass the byelaws.

III. Unlawful Delegation of Legislative and Governmental Power

Because the Lloyd’s Act 1982 constituted an unlawful delegation of legislative and governmental power by the Parliament of the United Kingdom to a private business entity, the relevant byelaws passed by Lloyd’s under the statutory authority are unenforceable and voidable.

IV. Non-payment of Stamp Duty Creates an Illegal Debt

Equitas executed an assignment of the supposed R&R debt to Lloyd’s, Complaint at ¶¶ 2, 20, and was required by U.K. law to pay a duty on the assignment of the debt.

Because no duty was paid, the transfer of the supposed R&R debt from Equitas to Lloyd’s was invalid.

Because the transfer of the supposed R&R debt from Equitas to Lloyd’s was invalid, Lloyd’s does not have standing to enforce the judgments at issue in this case.

V. Lack of Personal Jurisdiction

According to State of North Carolina Foreign Money Judgments Recognition Act, § 1C–1804(a)(2), “A foreign judgment shall not be conclusive if . . . the foreign court did not have personal jurisdiction over the defendant….”

Defendant was not served with the Writ of summons, or any other process, in the action in England.

The court in England did not have personal jurisdiction over Defendant..

None of the exceptions to the requirement that the court in England have personal jurisdiction over the Defendant apply. Defendant was not personally served in England, did not voluntarily appear in the proceeding, did not agree to submit to the jurisdiction of the court in England with respect to the subject matter involved in that suit, was not domiciled in England when the suit was brought, did not have a business office in England, and did not operate a motor vehicle or airplane in England.

VI. Lack of Notice

According to State of North Carolina Foreign Money Judgments Recognition Act, § 1C–1804(b)(1), “A foreign judgment shall not be recognized if . . . the defendant in the proceedings in the foreign court did not receive notice of the proceedings in sufficient time to enable him to defend . . ..”

Defendant did not have notice of the English action in a timely manner and, therefore, was not able to defend himself.

VII. The Amount Alleged by Plaintiff Is Incorrect.

In the event that this Court finds that the debt is enforceable, the amount alleged by Plaintiff as due and owing is incorrect.

COUNTERCLAIMS

In 1982 and the years prior to 1982, Lloyd’s syndicates insuring against losses sustained from personal injury recoveries based on exposure to asbestos had become insolvent or were rapidly becoming insolvent.

Lloyd’s accountants told Lloyd’s in a letter dated February 8, 1982, that it could not estimate the reserves necessary for the syndicates insuring asbestos losses and that these syndicates were severely under reserved, perhaps by billions of dollars.

Lloyd’s failed to disclose to the prospective new Names and to the old Names considering renewal the extent of the losses suffered by the syndicates insuring against asbestos losses and failed to disclose the financial condition of the syndicates insuring against asbestos losses.

Specifically, to conceal the financial condition of the syndicates, Lloyd’s concealed the status of the trust accounts in the LATF by using funds from solvent syndicates to pay the losses suffered by insolvent syndicates.

In addition, Lloyd’s concealed the financial condition of the syndicates by using inadequate accounting and financial controls and failed to disclose and/or misrepresented its inadequate accounting and financial controls for the syndicates.

Lloyd’s represented “that there was in existence a rigorous system of auditing which involved the making of a reasonable estimate of outstanding liabilities including unknown and unnoted losses” but, in fact, the system did not make any reasonable estimates.

The information describing its accounting and financial controls for the syndicates and the LATF trust accounts for the syndicates and the Names given by Lloyd’s to the Names considering renewal of their participation as underwriting members and to the prospective Names were found by the Court of Appeals of the House of Lords to be false. Jaffray v. Society of Lloyd’s, 2002 WL 1654876, at ¶¶ 321-25, 374-76 (C.A. July 26, 2002).

Defendant would not have become a Name and would not have renewed his membership if he had known about the losses attributable to asbestos claims, the financial condition of the syndicates, or the lack of proper accounting and financial controls for the syndicates.

As a result of Plaintiff Lloyd’s conduct, Defendant suffered monetary losses.

Defendant is entitled to a set-off or recoupment of his losses.

CLASS ACTION ALLEGATIONS

The predominating, common questions of law and fact include, but are not necessarily limited to, the following:

(a) whether Lloyd’s failed to disclose the extent of the losses due to asbestos and environmental claims;

(b) whether Lloyd’s misrepresented the extent of the losses due to asbestos and environmental claims;

(d) whether Lloyd’s misrepresented the financial condition of the syndicates;

(e) whether Lloyd’s failed to disclose its accounting and financial controls for the syndicates;

(f) whether Lloyd’s misrepresented its accounting and financial controls for the syndicates;

(g) whether Lloyd’s owed a fiduciary duty to the Names;

(h) whether Lloyd’s breached a fiduciary duty to the Names;

(i) whether Lloyd’s could bind Names to the R&R program despite the Names rejecting or refusing to accept the program; and

(k) whether Lloyd’s could bind the Names to the R&R program despite its

failure to fulfill the requirements imposed on it by Parliament.

FACTS

Editorial Note: In this section, for the sake of brevity, the text has been omitted as it repeated the allegation that were used above and focused on getting forum here in the US as a result of the fact that the Lloyd’s American Trust Fund is governed by New York law.

COUNTERCLAIMS

I. Negligent Misrepresentation

Plaintiff and Counterclaim Defendant Lloyd's negligently misrepresented the losses generated by asbestos and environmental claims, the financial condition of the syndicates, and its accounting and financial controls for the syndicates.

II. Fraud

Plaintiff and Counterclaim Defendant Lloyd's fraudulently concealed and/or mis-stated the extent of the losses generated by the asbestos and environmental claims, the financial condition of the syndicates, and its accounting and financial controls for the syndicates.

III. Consumer Fraud

In its efforts to sign and re-sign Names, Plaintiff and Counterclaim Defendant Lloyd's fraudulently concealed and/or and mis-stated the extent of the losses generated by the asbestos and environmental claims, the financial condition of the syndicates, and its accounting, and the financial controls for the syndicates.

Lloyd's acts and omissions were unfair and deceptive trade acts and practices.

Defendant and Counterclaim Plaintiff and other class members who signed or re-signed as Names during this time were directly, foreseeably, and proximately injured by Lloyd's acts and omissions.

Lloyd's acts and omissions violated New York's Consumer Protection From Deceptive Acts and Practices Act, General Business Law § 349, and similar statutes in effect in other states.

As a result of Lloyd's acts or failure to act, Counterclaim Plaintiff and the other class members are entitled to damages as set forth in this counterclaim.

IV. Breach of Fiduciary Duty

Plaintiff and Counterclaim Defendant Lloyd's breached its fiduciary duty to Defendant and Counterclaim Plaintiff and others similarly situated by failing to disclose and/or misrepresenting the extent of the losses generated by the asbestos and environmental claims, by failing to disclose and/or misrepresenting the financial condition of the syndicates, and by misrepresenting its accounting and financial controls for the syndicates.

DAMAGES

(1) Dismissing Plaintiff's Complaint with prejudice;

(2) granting Defendant a set-off or recoupment against Plaintiff based on Plaintiff's misconduct and in an amount equal to losses suffered by Defendant;

(3) declaring this action to be a Rule (b)(2) and (b)(3) class action and certifying Defendant and Counterclaim Plaintiff as the class representatives and his counsel as class counsel;

(4) enjoining Plaintiff and Counterclaim Defendant Lloyd's from enforcing any and all judgments for alleged R&R debt obtained against any and all members of the class;

(5) enjoining Plaintiff and Counterclaim Defendant Lloyd's from prosecuting any action in an effort to obtain a judgment for alleged R&R debt against any and all members of the class;

(6) declaring that the members of the class are entitled to a set-off or recoupment against Plaintiff based on Plaintiff's misconduct and in an amount equal to losses suffered by the members of the class;

(7) awarding damages to the class;

(8) awarding Defendant and Counterclaim Plaintiff the costs and disbursements of this action, including a reasonable allowance for the fees and expenses of Defendant's and Counterclaim Plaintiff's attorneys and experts;

(9) Defendant and Counterclaim Plaintiff respectfully demands a jury; and

(10) granting Defendant and Counterclaim Plaintiff and the other members of the class any further relief this Court deems just and proper.