APPENDIX 1
Memorandum submitted by the Parliamentary
Commissioner for Standards
Complaints against Mr Peter Mandelson
INTRODUCTION
1. Shortly before Christmas 1998 it was
widely reported in the press that in October 1996 Mr Peter Mandelson,
Member for Hartlepool, had received from Mr Geoffrey Robinson,
Member for Coventry North West, a loan of £373,000 towards
the purchase of a property in Northumberland Place, London W2.
At the time when these reports appeared, both Mr Mandelson and
Mr Robinson were members of the Government, as Secretary of State
for Trade and Industry and Paymaster General respectively. It
was also public knowledge that the Department of Trade and Industry
had since early 1998 been considering a series of complaints about
the affairs of certain companies with which Mr Robinson had previously
been connected either as chairman or as a director.
2. Mr Mandelson wrote to me on 22 December
1998 (Annex A) saying that he had received a loan from
Mr Robinson and setting out its terms. He also said that, when
he became aware that his Department was considering Mr Robinson's
affairs, he had agreed with his officials that he would have no
role in any such consideration and had not done so. He said that
he did not believe that he was required to declare the loan in
the Register of Members' Interests "as it was not a gift
or gained through my being an MP". However he requested my
advice on whether it should have been or ought now to be registered,
and said he would abide by my decision.
3. I replied (Annex B) that the definition
of gifts, hospitality and other registrable benefits contained
in the Rules for Registration[10]
included loan concessions. While accepting that there was some
doubt about the application of the Rules to transactions between
Members, I said that it was necessary to bear in mind the principal
purpose of the Register, which is "to provide information
of any pecuniary interest or other material benefit which a Member
receives which might reasonably be thought by others to influence
his or her actions, speeches or votes in Parliament, or actions
taken in his or her capacity as a Member". I also pointed
to the requirement set out in the Rules that "If there is
any doubt, (a benefit) should be registered". My advice to
Mr Mandelson was that registration in these circumstances would
be the wisest course.
4. Mr Mandelson followed my advice, and
his entry in the Register published as at 31 January 1999 contains,
under gifts, benefits and hospitality (UK), the following: "loan
from Geoffrey Robinson MP to assist in purchase of home".
5. In the New Year I received two letters
from Mr John Redwood, Member for Wokingham, dated 29 December
1998 and 28 January 1999 (Annex C), asking me to examine
whether Mr Mandelson ought to have registered not only the loan
from Mr Robinson but "at least one free flight" of which
he had been the beneficiary. Mr Redwood pointed to a previous
decision of the Committee that, though ordinary commercial loans
would not normally be registrable, loans outside commercial terms
would be; "the question at issue .... is whether the loan
is a soft one or not". He also raised the issue of whether
the terms on which Mr Mandelson had borrowed £150,000 from
the Britannia Building Society were more favourable than those
available commercially.
6. Several members of the public also wrote
to me in similar terms following the publicity given to Mr Mandelson's
purchase of the house in Northumberland Place. Mr Robert Henderson
of London NW1 raised similar complaints to Mr Redwood and in addition
suggested that Mr Mandelson might have obtained his loan from
the Britannia by improper completion of his mortgage application
form. Mr Henderson also asked me to look at the general question
of the propriety of MPs accepting large material favours from
one another (Annex D).
7. I asked Mr Mandelson to provide me with
the information I needed to consider these complaints (Annex
E). He wrote to me on 23 February 1999 and 24 March 1999 (Annex
F), and I have discussed these matters with him on several
occasions to clarify matters. I have also received information
on these matters from Mr Stanley Silverstein, the Company Secretary
of Warnaco, Britannia Building Society, Messrs Herbert Smith who
acted on an inquiry for Britannia Building Society, and Messrs
Wegg-Prosser and Farmer, Mr Mandelson's solicitors.
THE COMPLAINTS
1. FLIGHTS
ACCEPTED FROM
MS LINDA
WACHNER
8. The "free flight" referred
to by both Mr Redwood and Mr Henderson was offered to Mr Mandelson
by Ms Linda Wachner, Chairman of Warnaco Inc. which has interests
in the UK and is based in New York.
9. Mr Mandelson explained that there were
three separate occasions when, during private holidays in the
United States, he had accepted from Ms Wachner, a personal friend
whom he had known since 1994, flights in her company plane.
(i) In September 1996, he joined Ms Wachner for
a holiday at her home on Long Island, and she collected him from
Cape Cod;
(ii) In December 1996, in the course of a visit
to Washington, Ms Wachner invited him to join her for a weekend
break at her home in Aspen, and he travelled with her on her return
flight to New Jersey;
(iii) In August 1998, he spent his summer holiday
with Ms Wachner on Long Island, travelled with her to Aspen, from
Aspen to New Jersey and was then invited to accompany her by plane
to Venice. He stayed there at his own expense before flying back
with her to London where she was conducting business.
(My estimate of the commercial cost of comparable
flights at economy rates is not less than £3,000.)
10. Mr Mandelson provided the information that
Warnaco, a clothing company, has a small manufacturing plant in
Northern Ireland and a distribution facility in Nottingham. He
said he had no reason to believe that Ms Wachner's business interests
fell within the responsibilities of the Department of Trade and
Industry.
11. The Company Secretary of Warnaco has written
to me to confirm that the company had neither sought nor received
any grants or subsidies from the DTI in over nine years. He subsequently
told me that prior to 1990 the company had received some grants
from the Department of Trade and Industry. He also confirmed that
"on each occasion when Mr Mandelson travelled on company
aircraft, he travelled as a guest of our Chairman who personally
reimbursed the company for the cost associated with such travel"
(Annex G).
12. The Rules state that, with certain specified
exceptions, registration is required for "overseas visits
made by the Member or the Member's spouse relating to or in any
way arising out of membership of the House where the cost of the
visit was not wholly borne by the Member or by United Kingdom
public funds." Sometimes the dividing line is unclear. A
Member may be convinced that such a gift has been made to him
or her in a private capacity whereas others may reasonably think
it could lead to influence. Indeed the Rules say "Gifts
and material benefits are exempt from registration if they do
not relate in any way to membership of the House" but
make it clear that "the extent to which this exemption
applies in any particular case is necessarily a matter of judgement.
Both the possible motive of the giver and the use to which the
gift is put have to be considered: if it is clear on both counts
that the gift or benefit is entirely unrelated to membership of
the House, or would not reasonably be thought by others to be
so related, it need not be registered. If there is any doubt it
should be registered."
13. Having considered Mr Mandelson's explanation
of the circumstances and the evidence I have seen, I have no reason
to doubt that these flights were offered to him as a personal
friend rather than in his capacity as a Member of Parliament.
Since, in my judgement, the benefits he received did not arise
out of membership of the House they were not registrable.
14. I do not uphold the complaint that Mr Mandelson
was required to register these flights. Nevertheless by August
1998 Mr Mandelson was Secretary of State for Trade and Industry
and since Ms Wachner had a business operating in the UK it would
have been wise for him to have registered the benefit.
2. THE
LOAN FROM
MR GEOFFREY
ROBINSON
15. Under category 5 of the Rules for Registration
(Gifts, benefits and hospitality (UK), Members are required to
register:—
(a) tangible gifts, such as money, jewellery
etc., valued at over £125;
(b) other benefits, such as hospitality, tickets
to sporting and cultural events, relief from indebtedness, loan
concessions, provision of services etc., to a value of more than
0.5% of a Member's annual parliamentary salary. In 1996, this
threshold stood at approximately £215.
"The rule means that any gift, or other benefit,
which in any way relates to membership of the House and which
is given gratis, or at a cost below that generally available to
members of the public, should be registered" if its value
is greater than the specified amounts.
16. The references to "relief from indebtedness"
and "loan concessions" were specified in the light of
the decision of the Committee in 1996 to which Mr Redwood refers.
Two former Members negotiated on behalf of Mr Thomason, then a
serving Member of Parliament, an accommodation with various creditor
banks that they would not press for immediate repayment of the
Member's debts. In that case the then Commissioner concluded,
and the Committee agreed, that this constituted a benefit which
would not have been available to members of the public and on
those grounds it ought to have been registered by the Member.[11]
17. Mr Mandelson agreed a loan of £373,000
from Mr Robinson on 15 October 1996. The terms of the loan were
set out in a memorandum drafted for Mr Mandelson by his solicitors,
Messrs Wegg-Prosser and Farmer (Annex H). Those terms state
that the loan was unsecured and repayable with simple interest.
The loan would not be registered at the Land Registry as a charge
on the property without the consent of both parties unless Mr
Robinson gave Mr Mandelson 90 days' notice of his intention to
register. In the event of Mr Mandelson's death Mr Robinson could
register the loan. In the event of Mr Robinson's death Mr Mandelson
would secure the interest of Mr Robinson's estate in the repayment
of the loan but the estate would not register a charge on the
property for at least 6 months from the date of death. Part of
the loan was to be repaid from the sale of Mr Mandelson's properties
in Clerkenwell and Hartlepool. The remainder of the loan and interest
were to be repaid on the sale of the Northumberland Place property.
Mr Mandelson's solicitor has informed me that it had been subsequently
agreed that the interest payable would be compound rather than
simple.
18. Mr Mandelson said in his letter of 24 March
1999 (Annex F) that this was a concessionary loan, provided
by a friend of seventeen years' standing, and was not made on
commercial terms. The loan differs from the case referred to in
paragraph 16 above in that it was from a fellow Member rather
than from an outside body negotiated by former Members. Mr Mandelson
says that he had always understood that transactions between one
Member and another were not covered by the rules on registration.
19. The Rules do not specifically include or
exclude loans between Members. When the establishment of the Register
was originally debated by the House in 1974, the then Leader of
the House made it clear that it was designed for the disclosure
of outside interests. "The issue today is not whether Members
should have outside interests, but whether and how we should make
them known to our colleagues and our constituents."[12]
Detailed rules were framed following the debate. I understand
that prior to November 1995 the House relied largely on the Rules
on the Registration and Declaration of Financial Interests for
the regulation of the conduct of Members.
20. Lord Nolan in his introduction to the First
Report of the Committee on Standards in Public Life said that
their recommendations were "designed to maintain, and where
necessary restore, the standards of conduct in public life which
the public are entitled to expect and to promote a policy of openness
which will enable the public to see that their expectations are
being met". Chapter 2 of the Report addressed the question
of outside influence on Members, and the post-Nolan changes to
the rules of conduct agreed by the House in November 1995 focussed
on this issue.
21. In July 1996, the House approved a Code of
Conduct to be observed by Members and strengthened the existing
Rules. Neither the Rules nor the Code of Conduct exempt transactions
between Members.
22. Category 5 of the Rules requires the registration
of gifts and benefits "which in any way relate to membership
of the House". Mr Mandelson said that he had not obtained
the loan from Mr Robinson "through my being an MP".
23. Given the history of the development of the
Code of Conduct, I have no reason to doubt that when Mr Mandelson
agreed the loan in October 1996 he relied on the assumption that
the Rules on Registration were concerned with benefits received
from outside bodies and persons rather than from fellow Members.
Having requested my advice on the matter Mr Mandelson accepted
my reasoning that he should register the loan.
24. However, accepting that Mr Mandelson made
that assumption in October 1996, the situation changed when he
was appointed Secretary of State for Trade and Industry on 27
July 1998. He became aware of the involvement of his Department
with Mr Robinson's former companies and he properly sought to
ensure that he was not compromised within his Department. At that
point he was subject to the Ministerial Code of Conduct, which
removes any doubt. It states;
"(vi) Ministers must ensure that
no conflict arises, or appears to arise, between their public
duties and their private interests;
(vii) Ministers should avoid accepting
any gift or hospitality which might, or might reasonably appear
to, compromise their judgement or place them under an improper
obligation."
"109. Ministers will want to order their
affairs so that no conflict arises or is thought to arise between
their private interests (financial or otherwise) and their public
duties."
"114. Ministers must scrupulously avoid
any danger of an actual or apparent conflict of interest between
their Ministerial position and their private financial interests."
25. In my view it could not have been possible
for Mr Mandelson to comply with the Ministerial Code without entering
the loan in the Register of Members' Interests.
26. Mr Mandelson recognised the possible conflict
of interest when he became Secretary of State at the Department
of Trade and Industry and properly took action within the Department.
He should also have disclosed the loan in the Register in accordance
with the Code of Conduct for Members of Parliament and the purpose
of the Register.
27. I therefore consider that Mr Mandelson should
have registered the loan from Mr Robinson at the latest by 27
July 1998 and I therefore uphold the complaint.
3. THE
MORTGAGE FROM
BRITANNIA BUILDING
SOCIETY ON
THE HOUSE
IN NORTHUMBERLAND
PLACE
28. The question of Mr Mandelson's mortgage from
the Britannia Building Society was raised in the complaints from
Mr Redwood and Mr Henderson on the grounds that it may have been
concessionary and therefore registrable, or improperly obtained.
29. I have looked at these complaints in the
light of the requirements of the Code of Conduct for Members of
Parliament and the Rules. Those which apply here are as follows.
On whether the loan was concessionary the Code says
on personal conduct:
"Holders of public office should not place
themselves under any financial or other obligation to outside
individuals or organisations that might influence them in the
performance of their official duties"
and the Guide to the Rules states that:
"The main purpose of the Register of Members'
Interests is 'to provide information of any pecuniary interest
or other material benefit which a Member receives which might
reasonably be thought by others to influence his or her actions,
speeches or votes in Parliament, or actions taken in his or her
capacity as a Member of Parliament."
and on registration of benefits:
"The rule means that any gift, or other benefit
which in any way relates to membership of the House and which
is given gratis, or at a cost below that generally available to
members of the public, should be registered ...."
On whether the loan was properly obtained the Code
says:
"Holders of public office should be as open
as possible about all the decisions and actions that they take."
and
"Holders of public office have a duty to
declare any private interests relating to their public duties
and to take steps to resolve any conflicts arising in a way that
protects the public interest."
and
"Members shall base their conduct on a consideration
of the public interest, avoid conflict between personal interest
and the public interest and resolve any conflict between the two,
at once, and in favour of the public interest."
30. I have received details of the mortgage application
process from Mr Mandelson, Mr Mandelson's solicitor Messrs Wegg-Prosser
and Farmer, and Messrs Herbert Smith, a firm of solicitors whom
Britannia Building Society appointed to conduct an independent
review of this mortgage application and of whether their own processes
were sound and fair given speculation from their members, the
public and the press.
31. Mr Mandelson's solicitor tells me the loan
agreement was made between Mr Mandelson and Mr Robinson before
14 October 1996 "to enable Peter Mandelson to acquire and
refurbish the property". Mr Mandelson applied to the Britannia
Building Society for a loan of £150,000 towards the £465,000
purchase price of the Northumberland Place property. He has provided
me with a copy of his mortgage application form which he signed
on 30 August 1996 (Annex I). The mortgage was provided
by Britannia Building Society for completion on 23 October 1996.
32. I have looked carefully at the mortgage application
form. It is incomplete and, at the date Mr Mandelson signed it,
it was incorrect.
33. Question C2, Details of Existing Accommodation,
asked:
"Please give details if you have or have
had a mortgage or are the tenant of your existing dwelling".
Mr Mandelson gave details of the £40,000 mortgage on his
Clerkenwell flat but no information about the mortgage on his
Hartlepool house which was £35,000.
Question D "Commitments" asked:
1. Do you have any hire purchase/loan agreements?
Mr Mandelson replied "No". Mr Mandelson did not
say he had a loan on his Hartlepool house.
In answer to another question
5. "Do you propose to borrow any other money
upon security of the property to assist in the purchase?"
Mr Mandelson replied "No".
34. I have asked Messrs Herbert Smith whether
Mr Mandelson was asked by the Britannia Building Society on what
basis he was providing the balance of the purchase price. Messrs
Herbert Smith tell me that they put this question to the Britannia
Building Society branch manager who interviewed Mr Mandelson for
his mortgage application. The branch manager told them that Mr
Mandelson said his family was providing the balance. Mr Mandelson
told Messrs Herbert Smith that his mother was providing the balance
but that she later declined to do so.
35. Mr Mandelson's solicitors, Messrs Wegg-Prosser
and Farmer, have told me that
"The General Conditions of the Britannia
offer to Mr Mandelson state that 'The balance of the purchase
price is to be provided by the purchaser and it is understood
that no second mortgage or other loan is being arranged in connection
with the purchase.' At the date that the Report on Title was delivered
to the Britannia I understand that this was the case. Subsequently
when the personal loan from Mr Robinson was agreed shortly before
completion neither I nor Mr Mandelson thought to inform the Society.
My personal conduct of the conveyancing of Mr
Mandelson's home has been exhaustively investigated, initially
by the Britannia in correspondence and later in correspondence
and in a very lengthy interview with Solicitors representing and
advising the Society. I understand they have reported to the Britannia
that no action is appropriate or required.
I have acknowledged that because of a number of
factors, including the illness and death of my father in October
1996, my own management of the transaction fell below the high
standard that I have maintained in 30 years of practice. I appreciate
that I should have thought to inform the Britannia of the arrangement
with Mr Robinson. I should make it clear however that it has always
been my view that the loan never prejudiced the interests of the
Britannia both because of its terms and the identity of the parties
involved. I understand that they accept that view"
(Annex J).
36. This indicates that the information held
by Britannia Building Society complied with the conditions of
their offer, namely that Mr Mandelson was intending to provide
the balance of the purchase price without any other mortgage or
loan and that he had no other loan outstanding. Mr Mandelson failed
to include on the application form details of the loan on his
Hartlepool house or to inform the Britannia Building Society when
he obtained the loan from Mr Robinson and Mr Mandelson's solicitor
has admitted he failed to carry out his duty to inform Britannia
Building Society of the loan from Mr Robinson.
37. At the request of the Britannia Building
Society Messrs Herbert Smith wrote to me (Annex K) setting
out the findings of their inquiry.
".... our client has instructed us to summarise
the conclusions which we have reached regarding this matter which
are as follows:—
1. There was no dishonest intent on behalf
of Mr Mandelson or Mr Wegg-Prosser and, therefore, no element
of mortgage fraud.
2. There was never any financial risk to the
Society at any time and no loss will be suffered by the Society
as a result of this transaction.
3. The Society has always been fully secured—the
arrangement with Mr Robinson was that his loan was unsecured (so
that the Society's interests prevailed) with interest being rolled
up and only payable on the sale of the property. Accordingly,
there was never a risk that Mr Mandelson would be unable to make
his interest payments to the Society despite the loan from Mr
Robinson.
4. The Society's normal lending criteria and
procedures were followed at all times, and the Society conducted
itself properly throughout the transaction and in the aftermath
of the publicity arising in respect of this matter in December
1998/January 1999."
They also said:
"A solicitor acting for a lender on a mortgage
transaction has a contractual obligation to adhere to the express
instructions of that particular lender (these are usually sent
out, as in this case, with the initial letter of instruction).
Furthermore, a solicitor is also under a common law duty to take
reasonable care to protect and secure the position of the lender.
The general duty on a solicitor is to report to the lender any
matter which comes to his attention which materially affects the
nature of the transaction.
There was no express instruction from the Society
in this case, and there is no duty at common law, for a solicitor
to confirm the ability of the borrower to cover the remainder
of the purchase price. However, a solicitor is under a duty to
inform the lender of any material change (in the borrower's circumstances
or otherwise). Wegg-Prosser and Farmer were instructed in this
case (in accordance with the Society's standard instructions)
to inform it if they became aware that a third party was lending
money towards the purchase of the property and/or if a third party
was to take a charge over the property in respect of that loan.
Wegg-Prosser and Farmer did not inform the Society
about the change in Mr Mandelson's circumstances and also failed
to inform the Society that Mr Robinson was to provide a loan towards
the purchase of the property which was to be secured by a second
charge on the property.
Mr Mandelson applied for and was granted a standard
five year fixed term mortgage with no special concession whatsoever
being granted to him. Indeed, all normal procedures were followed
including a request that Mr Mandelson be interviewed at his local
branch. This interview took place on 30 August 1996."
38. While the terms of the mortgage offered by
the Britannia Building Society were not in themselves concessionary,
the mortgage was obtained without the disclosure of all the requisite
information. In addition the information Mr Mandelson provided
on his mortgage application form was not correct.
39. As a consequence, Mr Mandelson, unknown to
the Britannia Building Society, received his mortgage on a different
basis from that which would properly have applied to other members
of the public. I must therefore uphold the complaint that it was
outside normal commercial practice.
40. Mr Mandelson failed to inform the lender
of two material facts and therefore breached the Code of Conduct
for Members of Parliament which requires them to be as open as
possible about all the decisions and actions that they take, and
to take steps to resolve any conflicts arising in a way that protects
the public interest.
41. I therefore uphold these complaints.
MATTERS
FOR FURTHER
CONSIDERATION
42. From my investigation of these complaints
it appears that there are matters which require clarification
for Members and the public, given the concerns of the House which
led to the setting up of the Committee on Standards in Public
Life and the adoption of the Code of Conduct.
43. I decided that in this case the question
of influence was not at issue in relation to the benefits Mr Mandelson
received from his personal friend Ms Wachner. However Members
should be aware when accepting such generous gifts of the principle
on which the Rules are based. The requirement to register is governed
not by their own conviction that their actions in Parliament will
not be influenced by the gift, nor whether the giver intended
to exercise influence, but by whether others might reasonably
think that this might be the case. The Committee may wish
to remind Members of this principle.
44. The Committee may also wish to consider removing
any doubt by including within the Rules specific guidance on whether
or not transactions between Members which fall within the registrable
categories ought to be registered.
SUMMARY
OF CONCLUSIONS
1. Flights accepted from Ms L Wachner
Complaint not upheld. (Paragraph 14)
2. The loan from Mr G Robinson to acquire
and refurbish Northumberland Place
Complaint upheld. Mr Mandelson should have registered
the loan from Mr Robinson from 27 July 1998 at the latest. (Paragraph
27)
3. The Mortgage from Britannia Building Society
on Northumberland Place
Complaints upheld. The mortgage was obtained on a
basis outside normal commercial practice. Mr Mandelson's mortgage
application was incomplete and inaccurate and he therefore breached
the Code of Conduct for Members of Parliament. (Paragraphs 39
and 40)
| 11 May 1999 | Elizabeth Filkin |
10 The Code of Conduct together with the Guide to the
Rules Relating to the Conduct of Members (HC 688). Back
11 Fourth
Report of the Committee on Standards and Privileges, Session 1995-96. Back
12 HC
Deb (1974) 874, c 393 Back
| 
