LONDON-Although Lloyd's of London appears to have made it through the rough water and into calmer seas with the success of its reconstruction and renewal plan, it hasn't quite reached harbor as far as member litigation is concerned.

Names have vowed to fight a ruling handed down late last month by the Court of Appeal in London that refused to let names who had not paid their Lloyd's losses withhold payment while they sue the market for fraudulent trading. The decision by Lord Justices Phillips, Saville and Ward upheld two High Court judgments delivered earlier this year.

In the most recent of those rulings, Justice Colman in the High Court decided members must pay any outstanding bills to Lloyd's before they could start litigating against Lloyd's, upholding the "pay now, sue later" clause in members' contracts (BI, April 28). Even though the litigating members lodged their intention to appeal the decision, Justice Colman allowed Lloyd's to start collecting the oe300 million ($487.4 million) in outstanding debts owed to the market in the wake of its reconstruction and renewal plan, clearing the way for Lloyd's to sue them for payment.

Earlier in the year, Justice Colman had ruled against three non-paying members who alleged that as a result of Lloyd's fraudulent trading, their Lloyd's membership was voided and therefore they had no obligation to pay premiums to Equitas Ltd. (BI, Feb. 24). He had not given the three members leave to appeal his decision, which was based on the premise that even if an appeals court upheld their assertions of fraudulent trading, although damages would be awarded, their memberships would not be rescinded, and they still would be liable for the Equitas premium.

The latest decision stated that the lord justices "know of no principle of law that should lead us to construe the words of the (pay now, sue later) clause so as to exclude from its ambit any claim based or allegedly based on fraud. . . .We conclude that (this clause) prevents non-accepting names from setting up their claim in fraud against the society in answer to a claim by the society. . .of the premium due under the Equitas contract."

But the names involved have vowed to continue their legal battle and will appeal the case to the House of Lords, the highest court in the land. Catherine Mackenzie Smith, chairwoman of the United Names Organisation, pointed out the case was brought on the premise that Lloyd's had traded fraudulently, and she questioned the future attraction of Lloyd's for individual investors in light of the group's allegation of fraud.

"Why should anybody today put up capital to belong to Lloyd's knowing Lloyd's has the power to amend contracts, change agents, and to act fraudulently, without the name having the protection of the law?" she asked.

Other non-paying names will bring new litigation against paying their Lloyd's losses, she warned, and another suit alleging fraud may be brought by names who have paid their dues, too.

Richard Rosenblatt, chairman of the American Names Assn. in Rancho Santa Fe, Calif., said the Court of Appeal decision reinforced his association's fight to take legal action in U.S. rather than English courts, despite the so-called "forum selection clause" in members' contracts that states that all litigation should take place in the United Kingdom.

"This decision confirms the longstanding contention of the ANA that there are no laws in England comparable to U.S. securities and consumer fraud laws," he said.

Lloyd's is appealing two U.S. rulings regarding the forum selection clause. In March, the 9th U.S. Circuit Court of Appeals in San Francisco ruled U.S. securities law took precedent over the forum selection clause under Securities and Exchange Commission regulations, a similar decision to the one made by the 5th U.S. Circuit Court of Appeals (BI, March 17).

Lloyd's has decided not to enforce legal demands for outstanding sums owed by U.S. names until these cases are concluded and it has firmed up its policy on U.S. debt collection. According to Lloyd's financial recovery department, a number of U.S. members who had not paid their R&R premiums by the official September 1996 deadline since have settled their accounts with Lloyd's as a result of writs issued in the United States earlier this year. Names who missed the September deadline were unable to take advantage of various payments such as "debt credits" made on their behalf by Lloyd's centrally.

Just under (British pounds) 70 million ($113.7 million) has been paid to Lloyd's as a result of its debt collection program.

Earlier this year, Lloyd's Finance Director Bob Hewes said he would be delighted if Lloyd's collected half of the estimated (British pounds) 630 million ($1.02 billion) outstanding. More than (British pounds) 550 million ($893.5 million) remains to be handed over, including interest for the unpaid debts, exchange rate losses and shortfalls in the valuation of assets that have hit some names who thought they had paid their finality bills.

Lloyd's has served about 30 statutory demands on non-paying names, confirmed Philip Coldbeck, a solicitor and assistant manager of the financial recovery department. Statutory demands are the first step leading to bankruptcy proceedings. So far, two names have had bankruptcy orders against them, about a dozen more names have court dates.

About 400 people are currently negotiating with FRD to pay off their Lloyd's liabilities, said Mr. Coldbeck, stressing that the debt collection process is being undertaken on a "commercial basis, as any other creditor would."