The Hamilton Affair: The Rowland Factor - Poisoned feud of the tycoons claims new casualty

IT WAS a long war between two vengeful tycoons. It corroded politics, destroyed careers, tainted the Tories with the mark of sleaze and helped to bring down John Major's government. And what happened at Court 13 of the High Court in London over the past five weeks was just its latest, surreal chapter.

The late Tiny Rowland was Banquo's ghost during the libel trial between Mohamed Al Fayed and the former minister Neil Hamilton. Rowland and Mr Fayed were business buccaneers, outsiders from less than privileged backgrounds who were never quite accepted in Britain, their adopted country. It was this that made them covet the House of Fraser stores and its jewel, Harrods.

Their relationship was warm at first. Rowland, a half-German whose real name was Furhop, had a fond nickname - "Tootsie" - for the Egyptian-born Mr Fayed. Rowland, a former member of the Hitler Youth in Hamburg, headed Lonrho, a multi-national company that sought to control governments in the states of black Africa and whose business practices led Ted Heath, when he was Prime Minister, to label him the "unacceptable face of capitalism".

Rowland, halted by the Monopolies and Mergers Commission from acquiring House of Fraser, sought help from "Tootsie". He sold him pounds 120m of shares on, he thought, a temporary, redeemable basis. But Mr Fayed used them as a Trojan horse and, with the acquiescence of Norman Tebbit, who was Secretary of State for Trade and Industry at the time, carried out a coup to secure the Knightsbridge emporium.

Rowland launched a campaign to expose his now bitter rival who, he believed, had lied to the Department of Trade and Industry over the takeover. He investigated his enemy's finances and background, forging an alliance with Mr Fayed's estranged former brother-in-law, Adnan Khashoggi.

Sir Edward Du Cann, who held the post of chairman of the 1922 Committee of Tory backbench MPs, was on the board of Lonrho and he soon secured the support of a bunch of MPs, mainly Conservative, to ask questions and table early day motions in the Commons. The Observer, bought by Rowland, became a conduit for anti-Fayed propaganda.

Mr Fayed was urged by his advisers to defend himself and, at the suggestion of Lord King of Wartnaby, head of British Airways, appointed Ian Greer, a political lobbyist who had links with the Conservative Party, to mount a counter- offensive.

He also arranged elaborate security, including bodyguards and electronic surveillance and hung a stuffed shark, nicknamed "Tiny" in Harrods' food hall. Mr Fayed told Mr Greer: "Ian, that gangster Rowland is shitting on me from a great height; he has got so many MPs on his pay." In some ways the Tories and Mr Fayed made natural allies.

Rowland was using The Observer not just against Mr Fayed but also to harry the Government for blocking his own Harrods bid, taking particular interest in the murky financial affairs of Margaret Thatcher's son, Mark.

Mr Fayed at this time was a Tory backer, giving generously to party funds. During a period of crisis, he answered Mrs Thatcher's call by helping to stabilise the pound with the aid of the Sultan of Brunei. To the Tory MPs, their antipathy to Rowland guided them towards taking up the Fayed cause.

Mr Fayed had been told by Mr Greer that "MPs could be rented like taxis". He had hired them and he wanted a return. A quartet of MPs - Sir Peter Hordern, Sir Michael Grylls, Tim Smith and Neil Hamilton - began to lobby ministers and regulatory bodies on his behalf.

Mr Smith was given pounds 18,000 in cash by Mr Fayed, who went on to claim that Mr Hamilton had received similar payments, of up to pounds 100,000; Sir Peter received pounds 25,000 a year as a paid consultant to Harrods, which he put down in the Commons register of members' interests, and Sir Michael received a consultancy fee from Mr Greer, although it was not proved it was directly related to his Harrods work.

In 1989, The Observer published a report of the DTI inquiry into Mr Fayed's acquisition of Harrods, leaked to Rowland, under the headline "Exposed: the Phoney Pharaoh". Mr Fayed ordered Mr Greer to counter the bad publicity and Mr Hamilton was among the most eager to oblige - attacking Mr Rowland and The Observer in the Commons.

But Mr Fayed was now aggrieved that the MPs he had thought he had rented were not doing enough to stop the vendetta against him. He became particularly incensed at Mr Hamilton who, after becoming a trade minister, was defending the DTI report into the Harrods takeover.

To rub salt into the wound, the Government next turned down Mr Fayed and his brother Ali's applications for British passports. An enraged Mr Fayed tried to find out from Rowland whether he had bribed any MPs or ministers.

It was now Mr Fayed who turned against the Tories as an amused Rowland looked on and whipped up controversy with his own leaks to the media and encouraged Mr Fayed in his new mission against the Conservatives with false leads.

One of the planted Rowland leads was that Michael Howard, then Home Secretary, had taken a bribe of pounds 1m from the Lonrho boss in connection with the DTI inquiry, and that Baroness Thatcher had been bought a house by the Saudis. Both were untrue, but Mr Fayed soon firmly believe them to be true.

The sleaze stories multiplied. Jonathan Aitken's visit to the Paris Ritz was revealed by Mr Fayed, leading to a trail of legal actions that saw the former chief secretary to the Treasury end up in prison for perjury. The media hunted out examples of Tory sleaze week after week, reducing Mr Major's "back to basics" policy to farce.

Mr Fayed shopped his former helpers to the newspapers. Mr Smith resigned after admitting to Sir Robin Butler, Cabinet Secretary at the time, that he had received money from Mr Fayed.

After more investigations Sir Michael Grylls' financial relationship with Mr Greer was exposed. Mr Hamilton quit his ministerial post after a meeting with the Deputy Prime Minister, Michael Heseltine.

The Hamiltons decided to sue Mr Fayed over allegations he had made on a Channel 4 Dispatches programme. A legal amendment was won in the House of Lords against the Solicitor General and Mr Fayed's lawyers - who had argued that the 1689 Bill of Rights made it impossible for Mr Hamilton to sue - and the action against Mr Fayed began. A lot of right-wing Conservative hopes rested on the former MP destroying the Egyptian who had humiliated their party.

What followed was one of the most riveting libel trials ever staged in Britain, with Tory dirty linen washed in public.

Mr Fayed's evidence, his first appearance in a British court, topped the bill. In his excitable answers in broken English he repeated his allegations and saw the hand of Rowland behind his troubles.

For good measure he added that Lady Thatcher had "thrown him to the dogs", despite all he had done for her and Britain, and that the Duke of Edinburgh had masterminded the deaths of Dodi Fayed, his son, and Diana, Princess of Wales, in the Paris car crash of August 1997.

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