In a judgment due to be published this week, the European Commission of Human Rights found by a majority of 14 to one that Ernest Saunders, the former Guinness chairman, was denied a fair trial because of the use of evidence obtained during interviews by Department of Trade and Industry inspectors.
The 30-page judgment backs a complaint from Mr Saunders that use of DTI evidence during subsequent criminal proceedings is oppressive and against Article Sixof the European Convention of Human Rights, which says everyone is entitled to a fair public hearing.
The Government is expected to contest the ruling, which will be considered by the European Court of Human Rights in the next year. Its chances of overturning it are thought remote given the unequivocal majority under which the case is being referred.
Separately, it has emerged that the police Complaints Investigations Bureau is examining allegations by Lord Spends, another Guinness defendant, that police manufactured evidence, altered documents and supressed evidence during the course of the case.
The Home Secretary is studying calls from two more Guinness defendants, Gerald Ronson and Tony Parnes, for their cases to be referred back to the Court of Appeal on the grounds that the prosecution withheld evidence.
One legal source close to the case said: 'The Government have a real problem. They have indicated they are going to fight it through to the bitter end, but it is clear they are in a losing battle.'
In its report, the European Commission says that during Mr Saunders' trial the prosecution relied on transcripts of DTI interviews to establish the state of his knowledge and to point out the inconsistencies in his oral evidence.
Inspectors for the DTI have powers to compel a witness to give evidence, with the effect that a suspect's usual right of silence is removed.
There is evidence to suggest that in the Guinness case the authorities deliberately delayed calling in the police to allow the DTI to collect evidence using its powers of compulsion.
If the European Court upholds the ruling, the Government would have to reform at least five laws, all stating that evidence obtained under compulsion can be used in criminal proceedings. These are the Companies Act 1985, the Financial Services Act 1986, the Insolvency Act 1986, the Banking Act 1987, and the Criminal Justice Act 1987.
In prior judgments on the same issue, the Court of Appeal in England has always maintained that since company directors and City professionals are usually articulate, sophisticated and clever people, it is entirely reasonable to suspend the right of silence enjoyed in other areas of the criminal law.
One source close to the case said: 'The Commission has by implication dismissed this line of argument as nonsense. Either you do or you don't have a right of silence. You cannot distinguish on the basis of class, education, colour or sex'.
The DTI and the Serious Fraud Office said they were unable to comment on the implications of the ruling, which they would be studying with their lawyers. A DTI spokeswoman said: 'It is unclear whether it is only the use of DTI transcripts in criminal proceedings which is under attack or the whole system under which we conduct investigations.'Reuse content