The Royal Butler II: a missing gift, the society jeweller and a case that collapsed

When Harold Brown arrived outside Spink & Son (est. 1666) in St James's, London, with a two-foot silver boat stuffed into a plastic bag, he may have reflected that there were few better places to dispose of a gift that had once graced a Royal Palace.

At the dealers, close to the corner of the aptly named Duke Street and King Street, the butler met Jan Havlik, whom he had first met at a Cartier party.

Mr Brown handed over the dhow, a model of an Arabian boat and a wedding present specially commissioned by the Emir of Bahrain from the Royal jewellers Garrard. The butler later collected £1,200.

Little did he imagine then that his errand on 1 December 1997 would attract the interest of another major institution of the area, New Scotland Yard, and trigger a chain of events that would expose the Yard and his employers to deep embarrassment.

Scotland Yard announced an internal inquiry yesterday after deep flaws were exposed in its investigation into Mr Brown, but officers are known to be furious about the Queen's late intervention in Paul Burrell's trial which in effect scuppered both cases after a two-year inquiry that cost £2m.

The case has also intensified Royal embarrassment over a so-called "cash-for-gifts" culture in which palace staff were said to be selling private gifts worth more than £100,000 a year in return for commissions.

Those claims are under investigation by Prince Charles's private secretary Sir Michael Peat and yesterday he said he would be widening his inquiry after the Old Bailey was told that a note written by the Prince apparently authorised staff to sell a wedding ring.

"The first we knew about it was when it was disclosed in court," Sir Michael said. "I am writing to the defence lawyers and asking them to provide me with the relevant information ... This will be included in a register of allegations which I am assembling to ensure we have a full and open inquiry."

The charges against Mr Brown had their roots in an overheard conversation in a Mayfair pub. A figure in the arts world was heard saying that the dhow was on show in the boardroom of the jewellry dealers Spink, then based in St James's, London. It was being offered for sale at £30,000.

The information was passed to police by a private investigator in November 2000. Officers went to Spink and collected documents that showed Mr Brown had deposited a daffodil motif, an emerald and diamond bangle with matching 18-carat gold earrings and the dhow in November and December 1997. Mr Havlik, the jewellery department director at Spink, which held three royal warrants, signed the receipt forms.

The dhow had been given to Diana when the royal couple's possessions were divided up after their divorce. However, on one occasion, she had spoken to the Crown jeweller and indicated that she wanted to get rid of it. The bangle and earrings were sold through a dealer in Hatton Garden, and could not be traced.

The daffodil motif was handed to police by Mr Brown in 2000. Mr Brown was questioned about the items and changed his story, according to police transcripts. First, he told police that he sent the proceeds from the sale of the dhow in an envelope to Diana. He said the jewel-encrusted flag, the most valuable part of the boat, had been sold separately.

When, at the second interview, officers pointed out that he had only received the money for the dhow five months after Diana died, he changed his account. "Well, I must have kept the money, I don't ... I cannot be certain," he told police. "I was given it to sell before her death and sold it afterwards. I suppose I spent the money for the dhow. It was a game ... beyond my depth really."

During the last interview, he told police Mr Burrell had acted as a go-between. "I handed the proceeds [from the dhow] back to Paul Burrell understanding that they would go to the memorial fund," he said. No money was received by the memorial fund.

Police inquiries established that the dhow was mentioned in an inventory after the divorce, but had disappeared from one compiled after Diana's death. Based on Mr Brown's final account, police went to Mr Burrell's Cheshire home to look for documents connected with the dhow, according to the prosecution.

When he was questioned by police, he denied that he had ever been given money for the dhow. However, the royal memorabilia at his home thrust Mr Burrell to the forefront of the investigation.

Mr Havlik, who left Spink in 1998, knew both butlers. In what he said was his "ultimate glory" he was introduced to Diana in 1995 by Mr Burrell, who described Mr Havlik as "our man at Cartier".

In a newspaper interview in 2000, Mr Havlik said: "Our whole business is built on trust and discretion ... it could be very, very valuable. But you do not ask why they are selling. You do not ask questions of these sorts of people. I did not know whether someone in the Royal Household wanted to get rid of it. It was not something one asked." Mr Havlik's solicitors said yesterday: "He is delighted that this matter is now at an end. He and his family have endured over two years of stress and anxiety."

Mr Brown, a former page to the Queen, had stopped working for Diana in 1995. At the time of his arrest, he had been working for Princess Margaret but was suspended until he was interviewed by Viscount Ullswater, her private secretary, and allowed to return.

Mr Brown, an Australian-born bachelor, remained at Kensington Palace, as well as owning a flat in Tunbridge Wells, Kent. He has continued working for Princess Margaret's family since her death.

After the prosecutors examined the evidence, it was decided to go ahead with two separate cases. Mr Burrell's was held first and during that trial, the prosecution claimed they had evidence Mr Brown had been selling Diana's clothing from Kensington Palace in the year after she died.

The Burrell jury was told that the items were destined for an eccentric and wealthy collector from New York, whose passion contributed to funds for Mr Brown's retirement.

The collector, who was not named, put in an order for a specific hat worn by the princess, the court was told. Legal restrictions meant that allegation could not be reported until now.

The New York collector was said to have kept a shrine to Diana and would buy anything connected to her. The claims, read from a police statement, were made by an unnamed man in December 2000. He claimed that he went to Kensington Palace with a friend who collected clothes from Harold Brown.

During Mr Burrell's trial, William Boyce QC, said Mr Brown handed over a large bag that contained three hats and a cape, or shawl.

The friend was said to have paraded around at a New Year's party in 1998 in front of his guests in a hat worn by Diana at Ascot, her dress and high-heeled shoes.

"There were eight people at the party and after some drink and talking, the man whose party it was disappeared into the bedroom and returned wearing Diana's Ascot hat and her dress and high-heeled shoes," Mr Boyce said.

However, the claims were never tested in court. The prosecution case at Mr Burrell's trial hit trouble when the court was told the Royal Family had been misled by police officers over the extent of evidence against Mr Burrell.

The Queen's unexpected intervention then halted the Burrell trial just before he was to take the stand. The Queen recalled a conversation during a 90-minute meeting in which Mr Burrell told her, after Diana's death, that he was keeping hold of some of her possessions.

The intervention, which blew apart the Crown's case against Mr Burrell, had a knock-on effect for Mr Brown and Mr Havlik, whose trials were due to start last week. The collapse also threw up a fresh series of questions about the nature and extent of royal "gifting". The prosecution had wanted to wait for the results of Sir Michael's inquiry into issues including gifts given to staff by members of the Royal Family, which is due to report in February.

On Monday, the trial judge, the Recorder of London, Michael Hyam, ordered the case to go ahead immediately. The inevitable result wasits collapse.

Paul Flynn, the Labour MP for Newport West, called last night for an independent inquiry into the police investigation of the Burrell and Brown cases and any involvement by the Royal Family.

"We have a situation where strong evidence of an alleged theft of valuables that belonged to the Royal Family on behalf of the nation has not been pursued.

"It is extraordinary that the process should somehow seemingly be manipulated just because of the threat of embarrassing revelations to certain interested parties."

Key questions that remain unanswered

How did the dhow find its way to Spink?

That is still not clear. Mr Brown said he was authorised by Mr Burrell. Mr Burrell denies this.

Was there ever a prospect of the accounts being challenged at trial?

Probably not. The prosecution said it did not think Mr Burrell was an appropriate person to call as a witness.

Who is to blame for the collapse of the case?

The Windsors blamed the Crown Prosecution Service and police for a flawed case. The police said its case was brought properly but "disclosures from various households" made it impossible to continue.

Why have the police officers involved not been disciplined?

An internal inquiry has begun but the Police Federation said officers "stand by their investigation".

Where does this leave the Royal Family's denials that gifts are routinely sold for profit?

Police have been told that staff are given "champagne and polo prizes" but the trials showed some gifts are of much higher value. The Peat inquiry may shed some light.

What responsibility does the Royal Family bear?

The Queen's recollection of her conversation with Mr Burrell dealt a fatal blow to both cases but it remains unclear why her memory took so long to be jogged.

Why was the Brown case not dropped as soon as the Burrell trial collapsed?

The prosecution wanted to postpone the case to await the Peat inquiry, but the judge refused.