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(Continued from overleaf)
Last 25 November Young, again on Borrie's recommendation, declined to refer the takeover to the MMC. The decision was taken 'in the light' of the DTI report. As The Observer has stressed before, for Borrie to have recommended otherwise would be tantamount to admitting that he had been wrong in the first and second instances. Moreover, the Director General's advice has been overruled by the incumbent Secretary of State just nine times in some 2,000 cases studied since 1979. Borrie only reconsidered his original recommendation after the inspectors discovered 'previously undisclosed material facts about the transactions' -- thereby restarting the six-month clock for an MMC referral.
Lord Justice Dillon commented that the Appeal Court was dealing with a situation where the previous Trade Secretary had decided not to refer the Harrods' takeover because it appeared that the buyers had ample means and there was no special reason for a reference. But since then assertions have been made (by Lonrho) that the buyers did not have ample means and had misled the Trade Secretary. This had led to the official inspection and the report being sent to the Serious Fraud Office. 'In those circumstances can the Trade Secretary simply brush of his refusal to make a reference, without any explanation?' the judge asked.
Mummery, for Young, said that Borrie's recommendation to Young not to refer the takeover to the MMC was a substantial document and 'not just a billet doux passed on a notebook'. But the reasons for that recommendation could not be given to the court without divulging some of the matters in the DTI report.
Meanwhile, in a sworn statement read out in court, John Wood, Director of the SFO, supported Young's decision not to publish the inspectors' report. He took the view that publication was likely to prejudice the investigation and any trial.
It was on 24 July that the inspectors delivered their 750-page report to Young. Preparation had taken more than a year and had cost more than £1 million. Young passed the report to the SFO but did not confirm this fact until 29 September.
Said the DTI: 'In view of this, the Secretary of State cannot publish the report for the time being, but will do so as soon as circumstances permit.'
Said Lonrho: 'It is hoped that the SFO will complete their investigation quickly.'
On 25 November, when Young announced that there would be no referral to the MMC, he also noted that 'it may be appropriate in due course for other steps to be taken in light of the inspectors' report'.
Young -- who had originally told Lonrho that the DTI report would be published as soon as possible -- declared that it would not be published 'for the time being owing to inquiries by the prosecution authorities…'
Lonrho applied for judicial reviews of both Young's decisions. On 25 November Lord Justice Parker, sitting in the Appeal Court with Lord Justice Bingham, gave the company leave to seek a review of Young's decision not to publish the DTI inspectors' report. Lonrho had previously lost its application in the High Court before Mr Justice Macpherson and had appealed.
Finally, on 2 December, Lord Justices Watkins and Mann with Mr Justice Auld gave the company permission to challenge Young's decision not to refer the HoF takeover to the MMC. It was decided that both Lonrho's challenges would be heard together early in the New Year. But Lonrho was in the High Court again on 8 December -- this time in an attempt to force Young to release the inspectors' report for the upcoming proceedings. Lord Justice Watkins said that to order the report to be disclosed at that time would tend to pre-judge the issue. He suggested that the company knew its application when the judicial reviews commenced on 12 January.
Mummery -- Young's counsel -- said the DTI might make a public interest immunity claim to resist disclosure of Borrie's advice to Young. It would also resist attempts by Lonrho to gain disclosure of the DTI report on discovery. David Oliver QC, for the Fayeds, said his clients might challenge any publication of the report at the appropriate time.
Subsequently, during last week's High Court hearings, Oliver revealed that Young has promised to give 72 hours' notice of his intention to publish the report. But, said Oliver, Young would publish at his peril, claiming that the inspectors had exceeded their remit in their investigation.
Last Thursday in his submission to the Appeal Court, Oliver claimed that Young had been warned that if he published the report it would not come under protected privilege.
Oliver claimed that although House of Fraser has not seen the report, it is unlikely to contain anything new. He added: 'If it doesn't, then there is no adjudication to make a reference (to the MMC).' He noted that the only justification for a reference is contained in Section 644B of the Fair Trading Act and that the section deals wholly with competition and consumer protection. 'The decision by the Secretary of State was in accordance with advice given by the OFT in accordance with the Act,' he said.
But the report is a 'bombshell', as Lonrho's counsel, John Beveridge QC, described it during the hearings. According to Beveridge: 'The inspectors conclude that the Fayeds have been guilty of deception.' He added: The Fayeds' business careers have been characterised by a pattern of deception and dishonesty.'
Lonrho has been advised, he said, that the Fayeds have committed criminal offences in various countries including the United States, concerning passports and visas.'
The Observer, which is owned by Lonrho, has always argued that the Fayeds did not purchase House of Fraser entirely out of their own resources. During the Appeal Court hearing last Wednesday, Beveridge submitted in evidence a report by accountants Coopers and Lybrand which shows that House of Fraser's borrowings rose from £109 million at the time of the takeover to £844 million by May 1987. Oliver, for House of Fraser, admitted there was now 'substantial borrowing', but said this reflected transactions carried out after the House of Fraser takeover. According to Oliver, such 'transactions' had been fully explained to Sir Gordon Borrie and the DTI inspectors.
Lord Justice Dillon commented: 'At the moment we are to assume that the acquisition was financed from cash under the mattress.'
Replied Oliver: 'Not from under the mattress -- from cash from the Al-Fayeds.'
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