Examination of Witnesses (Questions 120
- 139)
MONDAY 13 MAY 2002
MR MICHAEL
CUNNAH AND
MR DAVID
JAMES
120. If this was put into the public domain do
you think it would prevent Wembley happening?
(Mr James) Given the nature of the media
and the manner in which the media would write these matters up,
I think it must be highly critical if this report came in the
public domain. We should also not lose track of the fact that
the report might be deemed to be implying criticism of certain
individuals which could give rise to litigation, which would be
another feeding ground for the media.
Mr Doran
121. I can see the point that you are making,
Mr James. This is not the point I wanted to come in on but if
I could follow it up. Reading your own report—and I have
not had the chance to absorb it totally, I have only read it once—my
immediate impression, particularly from Paragraph 6, is that basically
there is a gun to the head of WNSL and that is the reason the
project should go ahead and that is the reason why you are encouraging
it. An awful lot of what is raised in the Tropus report is, from
the evidence and what we have heard today, certainly accurate
and suggests there may still be a lot of concern about whether
the FA and WNSL are appropriate bodies to be involved in the expenditure
of £120 or £150 million of public money.
(Mr James) You are touching on the issue
there of the conflict between preserving the value of the money
that has been spent and the loss of that company in a potential
insolvency. I note in the hour and a quarter that this dialogue
has been going on that the word "solvency" has not occurred
once.
122. It is the next line of questioning I want
to follow.
(Mr James) Solvency is a theme that runs
centrally through a great deal of this dialogue and anybody's
perception of the appropriate way forward.
123. In your report you mentioned the possibility
of the loss of £75 million. Presumably that is money which
has already been spent and that will not take account of the £120
million of public money?
(Mr James) It does indeed because that
effectively means that there will be an uncovered liability for
the debts of WNSL in the event that this project does not go forward.
124. I understand that.
(Mr James) And it would be extremely
difficult to see how WNSL could have anything other than an insolvent
outcome at that time. In that connection I think it is important
to note, particularly given the last exchange of questions that
you have had with Mr Cunnah, that although the shareholding is
owned by the Football Association, the Football Association does
not have any guarantees relating to the solvency of its subsidiary
and therefore the technical feasibility of any repayment of the
£120 million (after the net value of any realisable value
of Wembley if it was not going to be built) does not imply that
there is a liability which would fall on the Football Association
and that would lead to insolvency and the virtual impossibility
of a repayment of the grant.
125. You have answered the questions that I wanted
to get into. If we hypothesise for a little bit, if for some reason
this scheme does not go ahead and the German banks pull out—and
I take it that the German banks are still involved and that is
still the case?
(Mr Cunnah) Indeed.
126. So you are agreeing to that proposition.
If they did pull out, then there would be no protection at all
for that £120 million except for what may or may not be realisable
on the piece of real estate to which WNSL would be the title-holder.
Is that the case? That would be the only asset?[17]
(Mr James) That is how I was always given
to understand it.
127. So the money has been handed over and there
is no protection for it whatsoever? It would be quite an irony,
I think, if the FA escape in exactly the same way that Carlton
and Granada have so far escaped. You are saying that your understanding
of the legal position is that that is exactly what they would
be able to do?
(Mr James) That is my understanding.
128. Some of us felt when the Football League
got into negotiations with ITV Digital that ITV Digital did not
stand a chance. We are seeing now maybe DCMS or Sport England
do not stand much of a chance if the thing collapses. I take the
point you are making about adverse publicity, but it is important,
of course, that we exercise our responsibility as far as this
public money is concerned. Are you making any suggestion in relation
to how we should handle this?
(Mr James) I could make several suggestions,
sir. If I might before I do so go back to a point that the Chairman
made earlier and just correct some ambiguities which may have
been read into the opening paragraph of the letter of 17 December
to which you have drawn attention, sir. I will come back to your
point then, if I may sir. In fact, the second sentence: "In
order to meet the present, and we understand inflexible, deadline
for a decision" is obviously in a letter written by myself
to Sir Rodney Walker with whom I was in quite close contact and
I am talking about something else at that time. At the risk of
being unintentionally mischievous, I perhaps ought to explain
what I was talking about at that time. This letter, as you will
see, is dated the 17th which was the evening of Monday 17 December
but a sequence of events had begun to unfold a week earlier on
Tuesday 11 December which I think will help you to understand
what ensued. On that day we had submitted a draft report—we
being my colleagues from Paisner and myself—to Sir Rodney,
who was at that time out of the country. That report purported
then to be as far as we could go unless we were to be given access
to further interviews which we considered very important. We believed
that the report was so important that when we heard later that
week from colleagues in WNSL that they were expecting a press
announcement supported by the statement by the Secretary of State
on the following Monday the 17th, which was likely to be favourable
to an announcement that Wembley was chosen, I became extremely
concerned that that announcement should not go forward without
the Secretary of State and the Department of Culture being aware
of the existence of this report in its relatively final form.
This was a point of view with which Mr Cunnah was entirely sympathetic
and he worked with me to obtain contact with the then Chairman
at that time with a view to bringing the report to his attention.
We were only able to do so on the evening of Friday 14 December
by which time we were only a weekend away from an announcement
that was due to be made by the Secretary of State, which I believe
still to this day was intended to be favourable to the selection
of Wembley. During the Saturday I was contacted by the DCMS and
by WNSL to be told that the Permanent Secretary for the DCMS,
having been given a copy of my report by WNSL, quite correctly,
had discussed it with the Secretary of State and that there was
an immediate requirement to review this report with myself and
the WNSL team and with Berwin Leighton Paisner through Sunday
16 December. Through Sunday 16 we met at the offices of the Football
Association with Sue Street, Permanent Secretary at the DCMS,
and the WNSL team and we presented the report and the conclusions.
At the end of that time—and this was still, you understand,
an open report, it anticipated further interviews and certain
completions to go through—it was put to me there was no
longer really any feasible time to complete the rest of the report
and that it was probably no longer feasible to proceed with the
announcement the following day but, after a great deal of debate,
it was decided that we could at least foresee the possibility
that the media presentation of the result could be deferred by
two days until the 19th, the Wednesday. One of the pressure points
was the rising of the House. Therefore the deadline which is being
referred to in this first paragraph is not the decision, as such,
as to how far a decision can be extended, it is the decision which
is being driven by the prior intention of the Secretary of State
and the Department to make an announcement, and my concern that
the report in circulation, at least in draft form, must be brought
to their attention beforehand. Unfortunately it only got into
their hands on the Friday night as a result of the unfortunate
delay earlier in the week.
Chairman
129. That is extremely helpful, Mr James, and
I am grateful to you for clarifying that. We were, of course,
aware of the turmoil which was taking place at that time and the
problems the Secretary of State had in making her statement, including
the problems relating to parliamentary privilege which had to
be safeguarded. It is also interesting, by no means your responsibility,
that the 19 December statement was the last statement the Secretary
of State ever voluntarily made to the House of Commons on this
matter; the two 10 April replies giving us her 30 April deadline
were in response to questions. It would be a matter which we may
have to raise with her as to why she allowed so much time to go
by without keeping the House of Commons informed. Could I just
ask one other question. It is curious, although I have been through
this report several times what I do not have is a date for publication
of the Tropus Report. We know it was commissioned last July. Well,
it was not published, it has never been published, but when was
it delivered?
(Mr Cunnah) It is technically still in
draft but it was delivered in its current form to WNSL I think
at the end of August or the beginning of September.
130. End of August last year?
(Mr Cunnah) Yes. I would need to confirm
that date.[18]
131. On what date, if you can recollect, was
a copy provided to the Secretary of State?
(Mr Cunnah) I honestly do not know.
132. But it was provided? She had a copy? If
your advisers wish to say that rather than passing you a note,
they are welcome to do so.
(Mr James) Sunday 16 December.
(Ms McLeman) That is the Berwin Leighton Paisner report.
(Mr James) It was also the Tropus report. The same
day they read it.
133. Thank you, that is helpful. I have read
this extremely judicious report, and one would expect nothing
else from you, and your letter. We have had Mr Cunnah talking
about the fact that the house has been put in order now. Without
impugning his integrity, plainly the house has been put in order
now. In paragraph 2.1 of your letter you say, "The process
adopted by WNSL is unlikely to satisfy the best practice standards
as usually deemed necessary in any project involving Government
or Lottery funding . . .", and you say that this could give
rise to censure by the National Audit Office. One has seen the
balance you have assessed in coming to the conclusions you have
made, but I would take it that that is a very severe criticism.
(Mr James) Yes, Sir. For the last two
years I have had the opportunity to watch the processes of the
NAO in close up through the Dome—
134. As we know well!
(Mr James) As I shall not forget easily!
One of the reasons why I was so particularly concerned I should
be able to choose the investigative team to work with me on this
review was because Berwin Leighton Paisner had undertaken a review
of the appropriations procedures at the Dome and so had a lot
of detailed prior experience of government appropriations to assess.
So the views we formed together came from that point of view.
There is much in here that is in parallel with the process of
the Dome and some of the difficulties which were encountered,
but my paragraph 2.1 is really a recognition of the position which
is described in the Tropus report but which in essence is effectively
two separate appropriations procedures being run in parallel and
one group of people being unaware of the existence of the other
tendering process. So you have two tendering processes running
together, one of which is the open tender in which eleven people
participate, and the other one, on a completely separate basis
which, instead of going for three separate stages of the project
each to be separately costed and tendered, is one overall global
review being solicited. When eventually the latter one, the global
review, finds favour, inadequate time is provided to allow the
other eleven to alter their perception in order to pitch. That
is clearly absolutely not acceptable, and that is such a severe
criticism there is really no excuse which can be offered for it,
but one then has to look to why that situation occurred and what
can be done as to the issue of governance which it discloses.
That brings us again to the governance issues, and brings me back
again to the unanswered question to this gentleman as to what
should be done about the future, and I have a slightly contradictory
approach to the unanswered question. The first is that I formed
a very strong impression that there was one problem here which
was very nearly the same as the problem experienced by the board
of the New Millennium Experience Company. The board of WNSL and
the board of the New Millennium Experience Company both had a
significant shareholder or shareholding sitting on top of them
which they assumed effectively to be providing the direction and
the overall view and governance, whereas the board at the secondary
level, which actually carries ultimately the solvency responsibility—a
factor common to both boards—did not believe that its solvency
problem was significant because it would be taken care of or resolved
by the ultimate execution of the project. In this particular case,
I do not believe the WNSL board has anything like the same security
as to its solvency from the FA as did the New Millennium Experience
Company, and we know what problems they got into. So in this particular
case, the recommendation I would make—and I am not quite
sure how it could be addressed at this time—would be two-fold.
The first is that apart from the issues of governance, it should
perhaps be that the Football Association, if it is to be effectively
a 100 per cent owning party to this venture, should in some way
be asked to set in place some appropriate form of guarantee from
its own resources with which to address any deficiency in the
business of WNSL if it is going to have the same degree of control
and direction. If not, then the WNSL board should in some way
be established on such an independent basis—and it would
be much more than Mr Cunnah's requirements as he has addressed
them for experienced construction and marketing, it will have
to go to the whole issues of financial management execution and
governance in the wider sense—to ensure these issues in
the future are conducted much, much better than they were in the
process leading up to this extremely poor appropriations procedure.
135. I have one or two more questions in relation
to Mr James' letter. You have wisely, shrewdly and appropriately
in the end dumped this decision into the lap of the Government.
In your final paragraph you make an on-balance decision yourself
or take an on-balance view yourself, but in your final sentence,
which is impregnable in my view, you say, "Government in
turn will wish to establish its own view as to the issues of propriety
and safety before addressing the advantages this project offers
in the national interest." That is very fair and it is perfectly
right that if the Government has decided to involve itself in
this project—extremely unwisely, in my view but the Government
has made such a decision—you have dumped that exploding
parcel in their lap and it is the appropriate lap for it to be
dumped in. You use language very judiciously and it is appropriate
but, nevertheless, you say in paragraph 2 (iii) on page 5 of your
covering letter, "I conclude there is an unavoidable element
of risk which cannot be dissociated from the contract as negotiated".
You say in paragraph 6 of your conclusions on page 6 of your covering
letter that: "There is no evidence of any criminality or
impropriety having occurred to date in this matter"—that
does not mean there has been no criminality or impropriety, simply
there is no evidence of it—"but . . .", you say,
". . . there is no means by which all questions or"—I
take it the "or" should be "of"—"of
propriety can be eliminated to the extent that the contract could
ever be regarded as one hundred per cent safe." So you make
that very clear in your letter. I am not going to ask you some
stupid questions such as, "If this was not a national stadium
project you were being asked to invest in, would you invest in
it personally", but at the same time you have made very clear
that in the end the considerations are such that it is appropriate
for the Government to take a view on issues of propriety and safety.
That is where you left it. Have you had any reason in the six
months since you wrote that letter to change your view of the
criteria which you named here by which the Government should judge
it?
(Mr James) I think you have asked me
two groups of questions there which I will try and separate, if
I may, Sir. Can we go back to paragraph (iii) on page 5 at the
very end? May I draw your attention to words which I do not think
you did read out. "within the jurisdiction of WNSL".
I would be as confident as I am able to on the thoroughness of
the review that we did[19]
that there was no illegality or criminality anywhere within this
particular project which we were identifying within the areas
within our investigation. I do not alter my opinion on that. I
think to that extent it is clear and clean. Why I am saying that
I am unable to give the comfort that this will always be safe
is because we live in a world which is much more devious than
the simplicity of a single company and a single project. Here
I believe I am speaking in a privileged situation and I am okay
in that sense as to what I say. We can only investigate where
we could shine our torch, and we could not shine our torch outside
the jurisdiction of the business of WNSL. We could not look into
the affairs of other events and other companies going on at the
same time elsewhere, and we could not therefore form any view
as to any interrelationship of these issues with any parallel
affairs elsewhere.
136. Could I ask you one other question, and
I am just trying to turn up your words because they are very important
words.
(Mr James) Did you want me to answer
the second part of your question?
137. I will find the words as we go along, I
can ask the question without having the exact words. If I may
summarise your conclusions, but please tell me if my summary is
inaccurate or unfair, what you are saying is there are lots and
lots of problems about this, there are lots of doubts about it,
but if you do want a national stadium, this is the route to go
down. Let us just take away those words, which I have said, "If
you really do want a national stadium" and let us put aside
that criterion. If this was a construction venture which did not
have national implications and something which the Government
has taken a view on, is it in your view a project which a company
finding its own money would have been well advised to pursue?
(Mr James) That will be the answer to
your second question indeed and my last paragraph. I, in forming
a view here, tried to take a view as a "company rescue"
man as much as anything else, because this seemed to me to be
potentially a company which was about to go bust, so I was looking
at it from the point of view of how does one maximise value, how
does one recover something from the wreckage. It seemed to me
that here we have a situation where a great deal of government
money had already been spent on buying something—effectively
they had bought an option on the creation of the future national
stadium—and everything they had allowed that money to be
spent on still existed as an opportunity. They had reached first
base, to the extent there was a design, there was a working dialogue
as to finding the funding, and there was a reasonably wide acceptance
within the media this was an appropriate course of action in the
national interest. Had they decided at that stage to go down any
course of action which had abandoned it, a number of very unfortunate
things would have happened. Certainly I could see no way whereby
the grant could be repaid; there would have been a loss therefore
of funds which would never be put to any value—and having
seen as much money as I have go down with the Dome—
138. Whose funds?
(Mr James) Lottery funds.
139. But many people would say they are lost
anyhow.
(Mr James) But sometimes it is possible
to recover something of value and if there was a desire for a
national stadium, it seemed the first base had been reached, and
that although there might have been a number of very serious imperfections
on the journey to first base one at least was there. The likelihood
of this being overturned by challengers to the propriety I have
marked and evaluated and decided the risk was there but it was
not great. Secondly, provided the board put its governance in
place correctly for the future, and particularly sorted out its
relationship with the Football Association and one or two other
points which, if you wish, we can turn to, this was probably the
cheapest option the Government were ever going to get to have
their national stadium, because they were being offered a defined
fixed price at that time. The likelihood then was that Barclays
were going to come into line with financing, and I was asked by
Mr Cunnah to help with dialogue with Barclays at that time, which
I did, in order to explain to them the background and I believe
then they were satisfied, and that there was every reasonable
prospect therefore the timetable could be met so that sometime
around the year 2004 a stadium would be reborn somewhere in North
West London. The alternative to that was the loss of that project,
the loss of the money which had been invested already, the bankruptcy
and the non-recovery of any funds or equivalent value of the Lottery
arising from it, and the probability that if somebody now wanted
to go down the course of trying to create a new stadium elsewhere
there would first of all be a duplication certainly of all the
development costs which had been spent out of the first £120
million, there would be a longer delay in finding such a stadium
and by that time the escalation of costs to build it. Pragmatically,
it seemed to be very unlikely that the Government would ever have
a better option than creating another stadium of this consequence
within the definable parameters of the funding available and effectively
passing the bulk of that funding into the private sector to provide.
So I thought it was a reasonable recommendation to say, "Go
for it."
17 Note from WNSL: see evidence given before
the Committee on 21 May 2002 by Wembley National Stadium Limited
and The Football Association. Back
18
Note by WNSL: the report provided to WNSL by Tropus was
headed "3rd Draft" and dated 2 August 2001. Back
19
Note by Mr David James: The scope of Berwin Leighton Paisner's
review and investigation is set out in paragraphs 5 to 17 of Section
A of their report (see HC 843 (2001-02), Memorandum). Back
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