Sir Richard Scott's draft report, now circulating in Whitehall, criticises Mr Lilley's decision to sign public interest immunity (PII) certificates that denied the defendants in the Matrix Churchill case evidence that proved their innocence.
His decision followed a briefing from the same senior civil servant who advised Michael Heseltine. Mr Heseltine refused to sign. Until now, Mr Lilley, seen as a Cabinet rising star, has not featured among ministers expected to be heavily criticised. Sir Nicholas Lyell, the Attorney-General, and William Waldegrave, the Agriculture Minister, were expected to take most blame.
Drafts of Sir Richard's report, have been sent to senior politicians and civil servants.
Mr Lilley, Secretary of State for Trade and Industry from 1990 to 1992, is accused by Sir Richard of not examining closely enough the impact of export legislation pushed through by his department in 1990. That act, the Import and Export Control Act 1990,enabled the Department of Trade and Industry (DTI) to exercise wide powers without having to submit to parliamentary scrutiny.
DTI officials could bring in export orders restricting sales of goods to certain countries and did not have to explain their reasons to Parliament. Such an order, which carried severe penalties covering Iraq, was the legal basis for the Matrix Churchill prosecution.
Sir Richard says he finds it surprising that orders could come into effect upon the Secretary of State's signature without further ado. It was wrong, he says, for Mr Lilley to claim to Parliament that the act was merely a technical measure.
Sir Richard singles out Mr Lilley for twice signing public immunity interest certificates. Mr Lilley relied on the same briefing paper by Michael Coolican, head of export control at the DTI, as Mr Heseltine, who succeeded him at the DTI.
Mr Lilley signed his PII certificates in November 1991, during the committal proceedings for Matrix Churchill. Mr Coolican's briefing laid out the facts of the case and made no recommendation either way. The first PII certificate had attached to it a list of 16 documents enabling the commital magistrates to see which papers were being kept back. This certificate did not reach the magistrates. Soon afterwards, Mr Lilley signed a second certificate that was sent. Significantly, it did not specify any documents, reducing the risk of magistrates calling for copies.
In his evidence to the Scott, inquiry, Mr Heseltine admitted that when it came to the Matrix Churchill trial, he too received the same minute dated 13 November 1991 from Mr Coolican. But he chose not to sign the PII certificate. Only after pressure from Sir Nicholas Lyell did he agree to put his name to a certificate with amended wording.
Mr Lilley, along with everyone else named in the report, will have the opportunity to ask for changes in the draft report before a final version is published after Easter. On the Import and Export Control Act point, he is believed to have submitted evidence to the inquiry, spreading the blame to Labour for waving the legislation through and not demanding a full Commons debate.Reuse content