Diana dolls and the effrontery of lawyers

An admirable charity has been put out of business, temporarily, by poor legal advice

Go to the website of the the Diana, Princess of Wales Memorial Fund and you will find this tragic warning: "Unfortunately, due to a legal case, we are unable to make new grants at the present time."

Go to the website of the the Diana, Princess of Wales Memorial Fund and you will find this tragic warning: "Unfortunately, due to a legal case, we are unable to make new grants at the present time."

This refers to a trial which opens in a Los Angeles court this morning where the trustees find themselves being sued by the Franklin Mint for "malicious prosecution". The fund was established to receive charitable donations from members of the public, so that is where the money comes from that is at risk in California. The fund's goal is to support the causes with which Princess Diana was associated. This means helping people living on the margins, both here and overseas. It is developing services, for instance, for young, unaccompanied refugees and asylum-seekers. To take another example, it works abroad to enhance awareness of palliative care in the management of HIV/Aids.

In other words, the Diana fund is an admirable charity which has, at least temporarily, been put out of business by poor legal advice. It is no use the dozens of lawyers with whom the trust has been involved both in the UK and the USA saying that all their advice has been sound when the net result is that the charity's work has been brought to a complete halt - and this after extracting literally millions of pounds in legal fees.

Unfortunately the fund was constructed with a fatal flaw. It incorporated a conflict of interest into its very foundation. For until March 1999, its chairman was Anthony Julius, who was also a senior partner at the fund's solicitors, Mishcon de Reya. The sheer effrontery of some solicitors never ceases to amaze me. Let me imagine how the subject was introduced by Mr Julius. "Actually my firm, Mishcon, has a lot of experience in the kind of work the fund will need doing. Of course I won't play any part in the preparation of advice. That would be quite wrong. But the firm operates in watertight compartments. It will all be perfectly proper. Everyone agree? Yes, good.'"

No, wrong, wrong from the start.

A few months later Mishcon presented its bill for 11 weeks' work. It totalled £500,000! Do the sums. The bill represented £9,000 per working day. If we take £200 per hour as a charge-out rate, then some 45 hours a day were being worked, which in turns equals six to seven solicitors striving full time for 11 weeks to set up the charity. What an incredible performance. And this is where the conflict of interest comes in. From the trustees' point of view, if your chairman is also a partner of the firm presenting the colossal invoice, it is bound to be harder than it otherwise would be to query the size of the fee and demand, for instance, that the firm's time sheets be examined.

Then the fund, still chaired by Mr Julius, decided to sue Franklin. This big American producer of collectibles of various kinds had begun to sell items such as Diana dolls. One of the firms of American lawyers that the fund consulted said that Franklin's actions were "classic examples of unfair competition and violation of the right of publicity". The fund went ahead with its action. It used up £2.4m of legal advice, most of it paid to American firms. It lost.

I will again allow myself to guess what happened. The trustees will have assumed that the legal advice they received was the gospel truth. They will not have asked themselves whether it accorded with common sense - and even if it hadn't, they would not have known what to do (check whether the right question was asked; try another solicitor). Even a preliminary enquiry would have been useful: how were the American lawyers chosen? Were they all recommended by Mishcon? If so, had they all done a lot of business together in the past?

Now comes the horrifying sequel, the counter-claim for "malicious prosecution". On the face of it, it sounds like a wild allegation. It implies that the original action against Franklin was primarily designed to hurt Franklin rather than to protect the fund. It certainly tells us that Franklin has been made very, very angry.

It's heartbreaking. The work of the charity itself seems to be brilliantly led by its chief executive. When it found itself forced to freeze its awards, it turned to other grant-giving organisations, large and small, to help with replacement funding. As a result £8.5m has been raised so far from 25 different sources - other grant-giving bodies, individuals and banks. It wasn't easy to do, because the fund's policy has been to support charities and causes that would normally find it difficult to get recognition or funding. Yet it succeeded. The charity has undertaken to repay its rescuers when its legal nightmare is over.

Yet looking solely at the fund's legal problems, which have dogged it from the day it was established, one would have to conclude that the trustees have been spectacularly incompetent. They have allowed themselves to be dragged into a series of increasingly costly actions for little or no return. When the Los Angeles trial is concluded, whatever its result, any trustees who have served since the beginning should hang their heads in shame and depart as quickly as possible.