Peter Preston, the newspaper's editor, confirmed that he had received legal papers from the Hamilton camp but said the newspaper would pursue the story.
Mr Hamilton's response to yesterday's claims contrasted starkly with Tim Smith's resignation. While Mr Smith admitted receiving payments from Mohamed al- Fayed, the owner of Harrods, for asking parliamentary questions, Mr Hamilton said claims that he also accepted payments were 'wholly and totally untrue'.
Mr Fayed had told the Guardian that he employed Mr Greer between 1987 and 1989 to run a pounds 50,000 lobbying campaign at the height of the House of Fraser takeover battle with Lonrho. He said he was told by Ian Greer Associates that he would be charged pounds 2,000 each time Mr Hamilton or Mr Smith asked questions in the House.
Records show that both men asked a total of 22 questions about the business of Tiny Rowland and Lonrho. In addition, the newspaper quoted Mr Fayed as saying that Mr Hamilton asked for, and was given, a free holiday at the Ritz hotel in Paris, which the Fayed brothers own. Further, he said that Mr Hamilton ran up an extra bill of more than pounds 2,000 on 'extras', such as chauffeur-driven cars.
Mr Fayed refused to discuss the affair yesterday, but he told the Guardian: 'Mr Greer said to me: 'You need to rent an MP just like you rent a London taxi.' I couldn't believe that, in Britain, where Parliament has such a big reputation, you had to pay MPs. I was shattered . . . he said it would be pounds 2,000 a question.'
In a further statement, a spokesman for Mr Fayed said he decided to speak out because 'he wanted to expose the sham of men in high office who are quite content to see his family's reputation attacked in a travesty of an official report but whose conduct is dubious to say the least'. This is a reference to the damning Department of Trade and Industry report into the House of Fraser takeover which criticised the Fayeds.
The spokesman said Mr Fayed was wrongly advised that he would have to pay for the services of MPs, and he added: 'He now knows this advice to be worthless and bitterly regrets any contacts with those who purport to peddle influence but are simply parasites in pinstripe suits.'
Yesterday, Mr Hamilton engaged the services of Peter Carter- Ruck and issued a statement saying: 'There is no truth in the allegations in today's Guardian that I received payments from Ian Greer, on behalf of Mohamed al- Fayed, in return for asking parliamentary questions or for any other action.
'As Minister of Corporate Affairs I have from the outset scrupulously excluded myself from consideration of any matters concerning House of Fraser on account of my earlier interest in issues involving the Fayeds, as a backbencher.'
Mr Greer said: 'I have seen the Guardian article and read . . . the allegation that I have obtained money from clients to pay MPs to place parliamentary questions. I advised the Guardian yesterday that the allegations are wholly and totally untrue, which they are. We will be issuing a writ.'
Meanwhile, it emerged Mr Fayed met Mr Greer on 22 September after the European Court of Human Rights ruled against the Fayed brothers in their long-running fight against the government report into the Harrods takeover.
Sources close to the Fayeds said that, during the meeting, allegedly requested by Mr Greer, Mr Fayed discussed his feeling that he had not been fairly treated in Britain since the House of Fraser takeover in 1985. The subject of his brother Ali al-Fayed's long-standing British citizenship application was mentioned in the context of these complaints about his 'hostile' treatment, it was understood.
A spokeswoman for Ian Greer Associates also confirmed the meeting took place but insisted it had been at the request of Mr Fayed and that Mr Greer had been asked to perform a task which he refused to undertake.
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