Inspection procedures to remain: Peter Rodgers looks at the history of complaints about the fairness of the system

THE Department of Trade and Industry yesterday welcomed the court decision and said it planned no changes in the procedures for investigations under the Companies Act.

The Government has been a stout defender of the system for more than 20 years against attacks from a series of public figures criticised by inspectors, from Robert Maxwell in the early 1970s through to the Fayed brothers.

There have also been criticisms of the fairness of the inspection system from the Bank of England, the Securities and Investments Board, Lord Alexander, chairman of NatWest, and the law reform committee of the Inns of Court.

The Commons Trade and Industry Committee came down in favour of inspections in a 1990 report, though it made a number of detailed criticisms.

Yesterday Lord Lester of Herne Hill, the QC who conducted the Fayeds' case against the Government in the European Court of Human Rights, said the heart of the complaint was that the brothers had been publicly branded as dishonest and worse in an inspectors' report published by the Government. But they had no chance to clear their names in a criminal or civil trial.

They also complained to the court about what they claimed was an absence of safeguards in the investigation, which did not follow any normal prosecution procedures, Lord Lester said.

He cited a survey of a dozen other democracies where he said it would have been impossible for the Fayeds to be treated in the same way as in England.

The Fayeds say that in the US such a report could not have been published without giving them the right to know the evidence on which the findings were based and to cross-examine hostile witnesses. Lord Lester said Britain lacked a Bill of Rights that would force investigators to observe these requirements.

Inspections of the type mounted by the DTI have a long history in Britain. They developed from ancient powers to examine bankrupts - particularly those suspected of fraud - that lasted into this century. These antecedents are often cited to explain the inspectors' draconian power to compel witnesses to answer questions and the absence of any appeal procedure other than the difficult process of a judicial review.

Maxwell was the first to launch an outright attack on a critical inspectors' report in the Pergamon Press affair more than 20 years ago. The inspectors said he was not 'a person who can be relied upon to exercise proper stewardship of a public company'.

Maxwell went to court to attack the ruling but Lord Denning concluded in the Court of Appeal that Parliament had given no appeal against the inspectors 'so Mr Maxwell has tried to get round it by attacking the conduct of the inspectors themselves. In this he has failed utterly'.

However, Maxwell did stir enough fuss for the DTI to introduce the so-called Maxwell rules, spelling out to inspectors how the procedures of natural justice should be followed, including a provision for those criticised to be given an opportunity to comment before publication.

Concern remained muted, perhaps because few reports - about one in 12 - led to prosecutions. But attitudes changed with the Guinness affair and other corporate scandals when interviews by inspectors, who have wide powers to override the right to silence, were used as evidence.

Lawyers and businessmen attacked the way interviews became bound up with criminal proceedings, making the law against financial crime harsher than any other. That came back to haunt the Government at the weekend when Ernest Saunders won a ruling from the European Commission of Human Rights that it had been wrong to allow evidence obtained by the inspectors for their Guinness report to be used in the prosecution against him. That has not stopped the number of inspections rising, from 152 begun in 1989 to 194 in 1993.

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