Appendix 1: Memorandum from the Parliamentary
Commissioner for Standards
Complaint against Sir Bob Russell MP
Introduction
1. This memorandum reports on my inquiry into a complaint
that Sir Bob Russell, the Member for Colchester, made claims against
parliamentary allowances for the rental of his constituency office
from 2002-03 to 2009-10 when that accommodation was owned by a
company in which he and a family member held shares.
Background
2. On 6 November 2011 Mr Daniel Ellis wrote to complain
about the ownership of the property in which Sir Bob Russell had
his constituency offices.[21]
Mr Ellis's complaint related to arrangements in place until June
2010 and he informed me that he had sent a version of his complaint
to the Independent Parliamentary Standards Authority (IPSA), which
had been responsible for the payment of Members' claims since
May 2010. On 10 November, my office wrote to Mr Ellis to inform
him that, once IPSA's process had been concluded, I would consider
whether he had provided sufficient evidence to justify my initiating
an inquiry.[22] I confirmed
with the IPSA's Compliance Officer on 5 December that IPSA's consideration
of the matter had been concluded.[23]
3. In his letter of 6 November, Mr Ellis had provided
evidence of the ownership of the Magdalen Hall Company Limited,
which he believed showed that Sir Bob Russell was the "largest
shareholder" and that Sir Bob Russell's sister-in-law
was amongst the other shareholders.[24]
Sir Bob Russell's constituency office was located in a building
owned by the Magdalen Hall Company Limited. Mr Ellis said it was
his understanding that Sir Bob Russell had claimed "circa
£780 per calendar month for renting his constituency office,
Magdalen Hall." He said that the original lease indicated
that the building had been sublet through Colchester Liberal Democrats
but the more recent claims under the Incidental Expenses Provision
indicated that the rent was paid directly to Magdalen Hall Company
Limited, the company in which he believed Sir Bob Russell and
his sister-in-law held shares.[25]
Mr Ellis said: "It is my reading of the above that Mr
Russell used public money to rent an office, directly or indirectly
from a company that he, his sister in law, Lib Dem councillors
and others own."[26]
4. Mr Ellis said that all versions of the Green Book
were clear on the rules relating to constituency offices: they
stated that a Member of Parliament must avoid any arrangement
which may give rise to an accusation that they or someone close
to them was obtaining an element of profit from public funds.
He then quoted from the Green Book the rules which prohibited
Members using their allowances to meet the costs of leasing accommodation
from themselves or an organisation in which they or a partner
or a family member had an interest. He enclosed extracts from
the Green Book editions from June 2003 to July 2009.[27]
5. With his letter Mr Ellis enclosed a Companies
House annual return for Magdalen Hall Company Limited, which he
said showed that on 10 January 2010 Sir Bob Russell held 500 ordinary
shares, and a person whom he identified as Sir Bob Russell's sister-in-law
held 10 ordinary shares.[28]
He enclosed a further Companies House annual return dated 10 January
2011 on which he noted that Sir Bob Russell had transferred his
500 shares on 5 June 2010.[29]
Mr Ellis also enclosed a copy of the Articles of Association of
the Magdalen Hall Company Limited.[30]
6. In addition, Mr Ellis enclosed documents which
stated that between 2008 and 2010 Sir Bob Russell had claimed
the cost of his office rent from parliamentary allowances and
that the rent had been paid to the Magdalen Hall Company Limited.[31]
He also enclosed a local news article from 29 June 2010 which
said: "Colchester MP Bob Russell claims £780 expenses
a month to rent an office from a company he has shares in".[32]
The article alleged that Sir Bob Russell had claimed £780.42
a month for the rent of his constituency office and that: "The
taxpayers' money goes to Magdalen Hall Company Limited, a company
in which Mr Russell is the largest shareholder."
7. Mr Ellis wrote to my office again on 28 November.[33]
He said that, although the evidence he had provided related to
the period 2008-2011, he believed that the arrangement might have
been in place for a longer period. He considered that it was possible
that the arrangement dated back to 2002. He enclosed a copy of
the lease of the building.[34]
Relevant Rules
of the House
8. The Code of Conduct for Members of Parliament
in place from May 2002 replicated a similar provision to the 1996
Code, and provided as follows:
"No improper use shall be made of any payment
or allowance made to Members for public purposes and the administrative
rules which apply to such payments and allowances must be strictly
observed."
9. The 2005 and 2009 editions of the Code of Conduct
for Members of Parliament provided as follows:
"14. Members shall at all times ensure that
their use of expenses, allowances, facilities and services provided
from the public purse is strictly in accordance with the rules
laid down on these matters, and that they observe any limits placed
by the House on the use of such expenses, allowances, facilities
and services."
10. The Green Book published in April 2002 set out
the rules then applying in relation to claims made under the Incidental
Expenses Provision (IEP) to pay, among other things, for office
and surgery accommodation. In his introduction to that edition
of the Green Book Mr Speaker said: "Members are reminded
that they are responsible for ensuring that the use of their allowances
is above reproach."
11. Paragraph 4.3.1 described expenditure allowed
under the IEP as follows:
"The IEP may be used to meet the following
expenses:
· accommodation for office or surgery
use or for occasional meetings;
· equipment and supplies for the office
or surgery
· work commissioned and other services
· certain travel and communications".
12. Under the heading 'Examples of expenditure allowable
under incidental expenses provision' it stated:
"Office and Surgery accommodation
NB: By the end of March 2003 all arrangements
for Members' offices will be required to conform with new guidance
issued in January 2002, and available from the Fees Office. You
are required to lodge copies of all leases with the Department
of Finance and Administration and to keep them updated."
13. On 22 January 2002 the Head of the Fees Office
had written to all Members to inform them of a change to the rules
relating to constituency office accommodation.[35]
That letter included a section headed "Restrictions on
leasing", which read as follows:
"You should avoid any leasing arrangement
which may give rise to an accusation that you—or someone
close to you—is obtaining an element of profit from public
funds.
The allowances should not be used to meet the
costs of leasing accommodation from:
· yourself. If, however, your office
or surgery is in a building which you own or lease for other purposes,
you may charge the additional costs to your allowances.
· a close business associate, or any
organisation in which you—or a partner or family member—have
an interest.
· a partner or family member (which
includes relatives by blood and by marriage).
If the accommodation is leased from a political
party or a constituency association you should ask an independent
valuer to assess the rent in order to ensure that it is being
leased at no more than a market rate."
14. The Green Book for June 2003 reflected this guidance
in new sections of this part of the Green Book dealing with principles
and propriety. Paragraph 5.12.1 set out the principles as follows:
"You are advised to ensure that arrangements
for your office and surgery premises are above reproach and that
there can be no grounds for a suggestion of misuse of public money.
You must avoid any arrangement which may give
rise to an accusation that you—or someone close to you—is
obtaining an element of profit from public funds; or that public
money is being diverted for the benefit of a political organisation."
15. Paragraph 5.12.2 on propriety included the following:
"The allowances must not be used to meet
the costs of leasing accommodation from:
· A close business associate, or any
organisation in which you—or a partner or family member—have
an interest
· A partner or family member (which
includes relatives by blood and by marriage.)
Exercise particular care if the accommodation
is leased from a political party or a constituency association.
You must ask an independent valuer to assess the property in order
to ensure that it is being rented at no more than the market rate...."
16. Paragraph 5.12.6 noted the documents required
as follows:
"You must lodge a copy of the following
with the Department of Finance and Administration
· A copy of a recent independent valuation
(required only if you lease from a political organisation or if
you sublet part of the premises)
· A copy of any agreement for cost sharing
(required only if you share with another Member, with a Member
of a devolved body or a MEP)
· A copy of any agreement for services
with your constituency association or other party political organisation.
You must also inform the Department of any alterations
to the terms of these."
17. In the April 2005 Green Book, and in the 2006
edition, the second principle against making a profit was moved
to the section on propriety, so that the provision (paragraph
5.12.2) then read as follows:
"You must avoid any arrangement which may
give rise to an accusation that you—or someone close to
you—is obtaining an element of profit from public funds;
or that public money is being diverted for the benefit of a political
organisation. The allowances must not be used to meet the costs
of leasing accommodation from:
· A close business associate, or any
organisation in which you—or a partner or family member—have
an interest
· A partner or family member (which
includes relatives by blood and by marriage.)
The requirements for the provision of documents
remained unchanged, save that Members were also required to provide
a copy of any sublease.
18. The Green Book published in March 2009 included
the following among a list of fundamental principles: "claims
should be above reproach"; "claims cannot relate
to party political activity of any sort, nor must any claim provide
a benefit to a party political organisation"; "Members
must ensure that claims do not give rise to, or give the appearance
of giving rise to, an improper personal financial benefit to themselves
or anyone else."
19. The allowance for office expenses was provided
under a new heading called 'Administrative and Office Expenditure'.
Paragraph 2.2.4.1 dealt with arrangements for Member's constituency
offices as follows:
"If the accommodation is leased from a political
party or a constituency association, you must ask an independent
valuer to assess the property in order to ensure that it is being
rented at no more than the market rate. See also the following
heading on agreements for accommodation and services in combination.
You must seek advice from the Registrar of Members' Financial
Interests if the premises are provided rent free or at a rental
below market rates."
20. There was a similar provision in the revised
edition of July 2009. Neither edition contained the specific restrictions
on leasing accommodation for constituency offices which had been
contained in the Green Books of 2003, 2005 and 2006, as set out
above.
My Inquiries
21. Having received confirmation from IPSA's Compliance
Officer on 5 December that IPSA's consideration of the complaint
submitted to them had been concluded,[36]
I wrote to Sir Bob Russell on 7 December[37]
and enclosed a copy of the complainant's letters of 6 and 28 November,
with their enclosures.[38]
I told him that the essence of the complaint was that he had made
claims against parliamentary allowances for the rental of his
constituency office from 2002-03 to 2009-10 when that accommodation
was owned by a company in which he and a family member held shares.
I told him that I had considered the complaint in relation to
the arrangements for his claims against parliamentary expenses
up to the end of 2009-2010 and that, with the Committee's agreement
(which I had sought and obtained), I would include in my inquiry
matters going back more than seven years.
22. Having summarised the rules, I asked Sir Bob
Russell about the arrangement he had with his constituency party
for the use of the property in Colchester and why it was decided
that the property should be owned by Magdalen Hall Company Limited.
I also asked him about the ownership arrangements for that company
and for details of any shareholdings that he, or any member of
his family, had held or continued to hold in it. I asked him whether
he had transferred his shareholding on 5 June 2010—and,
if he had, why he had done so. I asked him to provide details
of the current ownership of the company and whether he still shared
the property with his constituency party. I asked him to provide
details of the kind of accommodation he had there during the period
from 2002-03 to 2009-10, including how far that accommodation
had been separate from the party's offices. I asked him about
the claims he made against his parliamentary allowances during
that period for the use of his constituency office, including
how he had identified what costs fell to his constituency office
as opposed to the party office. I asked him whether he had lodged
with the Department of Finance and Administration the original
copy of the lease and any independent rental valuation, as well
as whether he had at any time had a discussion with the House
authorities about his arrangements.
23. Sir Bob Russell responded to my letter on 12
December.[39] In his
letter Sir Bob Russell noted that the complaint related to payments
by the Fees Office to Magdalen Hall Company Limited. He said that,
according to the Party Treasurer of his constituency party, payments
were paid directly to Colchester Liberal Democrats—irrespective
of what the House published records may have said. He asked, therefore,
that I contact the Fees Office to seek confirmation that that
the payments were made to Colchester Liberal Democrats and not
to Magdalen Hall Company Limited as claimed by the complainant.
He noted that he had a sub-lease from Colchester Liberal Democrats,
not from Magdalen Hall Company Limited. Sir Bob Russell concluded
his letter: "The bottom line for me is: have I had a personal
financial benefit from the arrangements? No."
24. On 8 January I received a substantive response
from Sir Bob Russell to my letter of 7 December.[40]
He noted in a preamble that he considered the complaint to be
"vexatious, with the purpose of seeking to
discredit me in the eyes of the electorate".
In his letter, he stressed again that the
arrangements at his constituency offices had "not resulted
in any personal financial advantage" to him or anyone
associated with him. He said that the reverse was the case: he
had made "a considerable personal financial contribution"
towards the operation of his constituency office which he said
was to the "overall benefit" of both the public
purse and his constituents.
25. Sir Bob Russell said that from 1997 to 2001 he
had rented first floor offices in an office block in Colchester
Town Centre; he moved from these offices shortly before the 2001
General Election. In the light of that experience, he decided
that—if re-elected—he wanted to have more suitable
office accommodation. He noted that the offices he had had previously
had not been compliant with the Disability Discrimination Act.
Having looked around, however, "it was a case of 'what
we could afford was not suitable, what was suitable we could not
afford.'" Sir Bob Russell told me that he had for the
next year used a windowless former washing machine repair workshop
and basement which "clearly could not be considered
as a permanent base for the local MP". The
former St Mary Magdalen Church Hall—later renamed Magdalen
Hall—had then come on the market. Sir Bob Russell said that
he had wanted accommodation that was fit for purpose—and
cost-effective. He said: "The whole operation was to ensure
penny for penny, pound for pound, that I maximised the allocation
for constituency office purposes provided by Parliament."
He believed that over the years he had achieved that. He told
me that he had held more than 400 Advice Bureaux there, which
he said was some 5,000 individual appointments. He estimated that,
by holding Advice Bureaux in Magdalen Hall (rather than in Castle
Methodist Church, as he had done for 18 months previously), he
had saved "circa £18,500".
26. On the question of why it had been decided that
the Magdalen Hall Company Limited should own the hall, Sir Bob
Russell told me that he recalled that legal advice was that the
property should be "acquired by a company—with named
shareholders—rather than a constituency political party
with a fluctuating membership." He explained that individuals,
therefore, not necessarily members of the constituency party,
purchased shares. He said: "I think we all considered
this to be more of a "donation" than an "investment"!"
He estimated that there were probably around 60 individuals and
emphasised that there was "no suggestion of a dividend
or making a profit." Sir Bob Russell said that he was
"the largest single share-holder, with just under a third
of those issued"[41]
and told me that he had paid for these shares outright to enable
the premises to be purchased in order to achieve his objective
of a suitable constituency office. He said: "I
have never made any return on those shares, nor did I ever expect
or intend to" and noted that his share ownership had
been published every year in the Register of Members' Financial
Interests. Sir Bob Russell told me that his sister-in-law had
two single shares valued at £250 each and that no other member
of his family held shares.
27. Sir Bob Russell told
me that well before the 2010 general election he had decided to
transfer his shareholding to the constituency party as a donation.
He said: "It was something which had always been in the
back of my mind." He told me that he felt he owed a lot
to his political party. He did not receive anything in return
for the donation. He said that what had triggered his decision,
rather than waiting for his eventual departure from the House
of Commons (on defeat or retirement), was reading information
from IPSA: this "made him think that perhaps this was
as good a time as any other for me to donate them ahead of the
change-over." He said that he considered that he had
from 2002 to 2010 acted in accordance with the advice given by
the former Fees Office and with the approval of the then Parliamentary
Commissioner for Standards, along with separate legal advice given
to his constituency party and himself.
28. Sir Bob Russell told me that the arrangements
for sharing the building with his constituency party were the
same in January 2012 as they had been since 2002, when the building
was converted. He supplied a plan of the property showing the
accommodation arrangements during the period from 2002-03 to 2009-10.[42]
He explained that the portion of the building occupied by the
constituency party was accessed by the side door, while the portion
occupied by his constituency offices was accessed by the front
door. He did not have keys to the side door, and no one in the
constituency party had keys to the door to his constituency office.
There was a connecting door (lockable from the side of Sir Bob
Russell's constituency office) between the two halves of the building,
because they shared toilet facilities and a kitchen. He added
that he had himself "raised £4,500 through personal
fund-raising to pay for the provision of toilet facilities for
those with disabilities". He said that the layout of
the building confirmed that there was an "approximately
50-50 split" between his constituency office and the
party offices.
29. Sir Bob Russell told me that all his claims for
the office costs relating to his constituency office were in the
public domain. He considered that these confirmed that utility
costs and business rates had been "shared 50-50 as required
in the lease arrangements (agreed by the former House authorities)".
He supplied a copy of the lease[43]
and of an independent rental valuation carried out in 2010 by
a firm of chartered surveyors, which he considered confirmed that
the rent he was paying was in accordance with the market rent.[44]
He told me that he had lodged the original copy of his lease and
an independent rental valuation with the Department of Finance
and Administration. He said that the rent was paid directly to
the constituency party and that "not a single penny"
had come to him.
30. Sir Bob Russell told me that he had discussed
his arrangements with the House authorities. He would, he said,
"never have ventured out on this arrangement ten years
ago if there was any hint that what I was doing was improper".
He said that neither he nor any of those who had given money to
the project had made any financial gain out of the arrangement.
He added: "What we have here is a group of people—good
supporters of mine—who have assisted me in providing fit-for-purpose
offices for myself and my staff, for the overall benefit to my
constituents and maximising the value of the resources provided
by the public purse for MPs to fund offices in their constituencies."
31. With his letter, Sir Bob Russell enclosed documentation
which he said supported his "strong rebuttal that I have
knowingly done anything which I should not have done."
He also included a summary of this documentation.[45]
He enclosed a copy of a letter of 21 May 2002 from a Fees Office
official, which stated that she was "writing to confirm
that the lease meets our approval".[46]
32. In addition, Sir Bob Russell enclosed a letter
of 31 January 2002 from him to a senior official in the Fees Office.[47]
That letter said that, following a meeting with that official
and the then Head of the Fees Office and a subsequent telephone
conversation between Sir Bob Russell and the official, he had
decided to step down as a director of the company which owned
the "headquarters building of my constituency party".
He noted that the official had advised him that there was no requirement
to do that, but that by doing so he would "remove the
scope for criticism or complaint which someone might be minded
to make". He said that he was "also grateful
to [the official] and [the Head of the Fees Office]
for confirming that the arrangements for my MP's constituency
offices comply with what is set out in the letter from [the
Head of the Fees Office] dated 22nd January".
Sir Bob Russell also enclosed a letter of
13 May 2002 that he had sent to the same official in the Fees
Office.[48] That letter
informed the official that "I have at long last moved
into my new constituency accommodation in Colchester"
and that Sir Bob Russell and his staff had spent the weekend moving
to Magdalen Hall. The letter continued: "We are now operating
from our new base".
33. In response to my question about how he had identified
the costs which fell to his constituency office as opposed to
the party's office, Sir Bob Russell included a response of 3 October
2011 from the House authorities to a Freedom of Information request
which stated that "no services other than rent have been
provided".[49]
34. Sir Bob Russell enclosed an e-mail of 3 January
2012 from an official in the Department of Human Resources and
Change in response to his request for information regarding his
constituency office rent.[50]
That e-mail stated that between July 2002 and March 2004, payments
had been made to the Magdalen Hall Company Limited. Between April
2004 and August 2010 payments had been made to the Colchester
Liberal Democrats Business Account. The e-mail confirmed that
no payments were made directly to Sir Bob Russell. It also set
out a summary of rent payments between May 2002 and 6 May 2010,
which showed that from April 2002 the annual rent charged had
been £8,235; the rent rose to £9,365 from April 2006.
The official later amended this to May 2005.[51]
35. In addition, Sir Bob Russell enclosed a draft
letter of 29 March 2004 from him to the Fees Office, asking the
Fees Office to pay the rent to the constituency party and not
to the Magdalen Hall Company Limited.[52]
To that letter were added manuscript amendments which explained
that the Magdalen Hall Company Limited owned the building which
housed both Sir Bob Russell's constituency office and rooms used
by Colchester Liberal Democrats. The amendments also explained
that the Company leased the whole building to the constituency
party, who in turn sub-let Sir Bob Russell's constituency office
to him, and that the constituency party had requested that payment
from the Fees Offices should go to them and not to the Magdalen
Hall Company Limited. The notes also said that this had been described
to Sir Bob Russell as "a tidying up operation".[53]
36. In response to my questions about his shareholding,
Sir Bob Russell enclosed a letter of 21 December 2011 from the
Company Secretary which confirmed that no dividends had been paid
by the Magdalen Hall Company Limited on any of its shares since
the company had been set up, and that no shareholder had obtained
any financial benefit as a result of owning shares in the company.[54]
A letter of 14 July 2010 from the hon. Treasurer of the Colchester
Liberal Democrats to the Liberal Democrat Party headquarters stated
that Sir Bob Russell had donated his shares to the constituency
party.[55]
37. Sir Bob Russell also enclosed a letter of 23
April 2002 from the then Parliamentary Commissioner for Standards.[56]
That letter said that the Commissioner had read the correspondence
between Sir Bob Russell and the former Commissioner relating to
the "sale and purchase of the former St Mary Magdalen
Church Hall". The Commissioner had enclosed a register
entry which recorded Sir Bob Russell's shareholding in the Magdalen
Hall Company Limited. In his letter, Sir Bob Russell told me that
he considered that this letter showed that he had "closely
followed the advice given at the time and that approval was given
for what took place".
38. I wrote back to Sir Bob Russell on 17 January.[57]
I asked him to confirm or otherwise modify my understanding of
his evidence, drawing on, in addition to his evidence, additional
documentation from Companies House and the Land Registry.[58]
The evidence from the Land Registry showed that on 30 April 2002
Magdalen Hall Company Limited purchased the property Magdalen
Hall. The purchase price of the property was £100,000; the
purchase was funded in part by a loan.
39. According to Companies House records, I noted
that in December 2002 Sir Bob Russell had owned 100 of the total
244 shares in Magdalen Hall Company: he was the largest single
shareholder. There were 41 other shareholdings, none of which
had exceeded more than 10 shares, and the price paid for the shares
was £50 each. I said that I assumed, therefore, that in 2002
Sir Bob Russell had paid £5,000 for his shares. I said that,
according to the Companies House records over the course of the
years, further shares had been issued and the number of shares
held by Sir Bob Russell had increased.[59]
When Sir Bob Russell donated his shareholding to the Colchester
Liberal Democrats in 2010, the value of these then 500 shares
was £25,000 and the party had registered this donation with
the Electoral Commission. Sir Bob Russell's sister-in-law's shareholding
was two at 16 December 2002 and ten by 10 January 2011. I said
that, on the basis of the valuation of Sir Bob Russell's shareholding,
I assumed that the current market value of these was £500.
40. I understood that, according to the property
valuers, in March 2010 Sir Bob Russell was not being charged more
than the market rate and that the valuers had made various visits
to the property from time to time, the latest of which had been
in September 2009. I said I assumed that no earlier valuations
were lodged with the House authorities.
41. In addition to asking him to confirm or otherwise
modify my understanding of his evidence, I asked Sir Bob Russell
for further details of his shareholding in Magdalen Hall Company
Limited and to confirm specifically what he had told the House
authorities, in 2002 or at any other time, about his arrangements.
In particular, I asked whether, in addition to discussing his
directorship, he had informed the Department that he was the largest
single shareholder in the company which owned the property and
that his office was to be rented from his constituency party who
in turn would lease the property from that company.
42. With my letter I provided copies from my office's
registration files of relevant earlier correspondence between
Sir Bob Russell and the then Parliamentary Commissioners for Standards,
together with a former Commissioner's note of a telephone conversation
of 27 November 2001.[60]
A letter of 23 November 2001 from the Commissioner advised Sir
Bob Russell to register his shareholding "if the share
allocation is already agreed and imminent".[61]
Her record of their telephone conversation noted that Sir Bob
Russell had told her that he would wait to register his shareholding
until it was "agreed and signed" and that "as
soon as it was agreed he would make an entry".[62]
A letter from Sir Bob Russell of 30 November 2001 said that he
would "write further in respect of my Party's pending
purchase of the former St Mary Magdalen Church Hall, Colchester,
once the precise details of [his] involvement
[were] confirmed".[63]
In my letter, I noted that these exchanges were about the registration
of Sir Bob Russell's shareholding and that there had been no reference
to his intended use of part of the property for his constituency
office.
43. Sir Bob Russell responded to my letter on 22
January.[64] He confirmed
that my understanding of his evidence was correct save for one
"serious misunderstanding of the facts", although
he said he could understand how it had arisen. This related to
his shareholding. He said that while it was true that in 2002
he had purchased 100 shares in Magdalen Hall Company Limited,
these had then been valued at £250 each, thus had cost £25,000
in total. He said it had not been correct, therefore, to assume
that he had paid £5,000. Sir Bob Russell explained that in
2009 the Company had decided to sub-divide each £250 share
into five shares of £50 and in his case, therefore, while
the number of shares increased from 100 to 500, the total value
remained at £25,000. He noted that the same explanation applied
to the increase of two to ten shares in the name of his sister-in-law.
He confirmed that he had not acquired further shares either by
purchasing them or by the Company assigning them without cost
to him. Sir Bob Russell said this was further evidence
that he had made no personal financial gain from the arrangements
for his constituency office.
44. In addition, Sir Bob Russell said that he had
no recollection as to why, initially, the rent was paid to Magdalen
Hall Company Limited rather than to the constituency party. He
noted that a new treasurer had "pointed this out and arrangements
were made to rectify the situation." He said that at
all times the rent was not paid via him but directly by the Fees
Office. He noted that he had, in fact, never become a Director
of Magdalen Hall Company Limited. He said that this had been a
proposal, both reflecting his "position as the largest
shareholder", and so that his "half of the building
would have a voice". In view of the advice of the then
Fees Office Sir Bob Russell had decided not to become a Director.
He said this was further evidence of his openness at all times
with the House authorities and that my observation that he had
consulted with, and followed the advice of, the Fees Office about
his arrangements was correct. He also confirmed that he had no
knowledge of any other rental valuations.
45. In relation to what he had told the House authorities
in 2002, Sir Bob Russell said that, looking back to conversations
which occurred 10 years ago, he did not have written evidence
that he had told them that he would be the largest single shareholder,
and that his constituency office would be rented from his constituency
party on a sub-tenancy to their tenancy with Magdalen Hall Company
Limited—but, he said, "they most certainly knew
that the latter was the case." He highlighted that the
letter of 21 May 2002 from the House authorities to him stated
that the lease which he had provided to them for his office space
had met their approval.[65]
46. Sir Bob Russell said that, as the whole purpose
of the exercise was to secure a suitable constituency office,
he could state "with absolute confidence that the House
authorities were fully aware" of what he had been seeking
to achieve. He said: "It is simply inconceivable that
this was not so." He told me that: "This would
have been mentioned whenever conversations took place—specifically
when the advice was given that it would be better that I did not
become a Director of the company."
47. Sir Bob Russell told me that the House authorities
had been of "considerable assistance in ensuring that
matters progressed" and that they were "definitely
aware that my constituency office was to be located at Magdalen
Hall." In his view the payment by them of the rent when
he moved into his office in May 2002 again provided "clear
evidence that they knew this was the case." Sir Bob Russell
considered that the fact that the House authorities also had the
layout plan of his constituency office was further evidence that
the House authorities were "fully in the picture as to
the reason for the acquisition of the former St Mary Magdalen
Church Hall—to be my constituency office."
48. In respect of the 2001 and 2002 correspondence
between him and the then Commissioners,[66]
Sir Bob Russell acknowledged that, ten years later, a fresh set
of eyes could reach a conclusion different from that which he
said had been "the clear understanding of all parties
involved at that time". He considered that that would,
however, be a wrong conclusion. In the context of the involvement
of two former Parliamentary Commissioners for Standards and individuals
working in the Fees Office, Sir Bob Russell invited me to accept
that the purpose of the exercise— namely the acquisition
of a building for his constituency office—had been "common
knowledge by all involved".
49. He said: "While I cannot prove that I
verbally told the House authorities that I would be the largest
shareholder in the then proposed company, they were certainly
aware that I was a "large" shareholder because my discussions
with them reference whether I should or should not be a Director."
Sir Bob Russell said that the fact that he had told the then Parliamentary
Commissioner for Standards in November 2001 that he intended to
purchase shares valued at £25,000 clearly showed him being
a "large" shareholder. Sir Bob Russell noted
that, following advice from the then Commissioner, he had in due
course registered his shareholding in the Register of Members'
Financial Interests. While he said that he did not have "a
total memory recall" of his conversation with the then
Commissioner in November 2001, Sir Bob Russell said that he was
"absolutely certain" that he would also have
mentioned the purpose of the exercise—namely to provide
a constituency office. He said: "It is inconceivable that
I did not."
50. Sir Bob Russell said that it was in this context,
therefore, that he invited me to accept "at least on the
balance of probability if nothing else" that the then
Commissioner "was fully in the picture as to what was
proposed"—and also to accept that when her successor
wrote to him in April 2002 he had "no reason to believe
that this was anything other than an endorsement of what I had
previously notified to" the previous Commissioner and
discussed with her.[67]
Sir Bob Russell considered that this was "a green light
to what had been discussed intensely over several months with
the House authorities to allow me to have my constituency office
at Magdalen Hall."
51. Sir Bob Russell again strongly rebutted that
he had knowingly done anything which he should not have done.
He considered that at all times he had "closely followed
the advice given" and that "approval was given
for what took place." He said that the arrangements had
not resulted in misuse of public funds and there had been "no
personal financial gain to me."
52. I wrote to the Director-General for Human Resources
and Change on 25 January for his advice on this complaint.[68]
I asked for: a breakdown of Sir Bob Russell's claims from parliamentary
allowances from 2002-03 to 2010-11; confirmation that the Department
did not hold, and had not held, an independent valuation of the
market rent for Sir Bob Russell's share of the Colchester premises
from any time from April 2002 to March 2010; any relevant documentation;
and an explanation of why the House made rental payments to Magdalen
Hall Company Limited between July 2002 and March 2004 when Sir
Bob's lease had been with his constituency party.
53. Having summarised the relevant questions to be
resolved, I asked whether the Director-General had any information
to confirm that in 2002 the Department had been aware that the
property housing Sir Bob Russell's constituency office was owned
by a company in which the Member had a substantial shareholding
(and in which his sister-in-law had two shares) and of the circumstances
in which the company was created. I asked, if the authorities
had been aware of the full circumstances, in 2002 or subsequently,
how this approach had at the time been considered to be consistent
with the relevant Green Book rules, and whether that remained
the Department's view. I asked whether he thought the House authorities
should have asked Sir Bob Russell for an independent rental valuation
in 2002 and again in 2004.
54. The Director-General for Human Resources and
Change responded to me on 21 February.[69]
He said that the arrangements which were under scrutiny had begun
in 2001-02, when Sir Bob Russell entered into arrangements with
others for the purpose of acquiring a church hall to serve both
as a constituency office for himself and as offices for the local
Liberal Democrat party. The Director-General noted that at about
the same time, the then Head of the Fees Office had issued new
guidance which "affected" the arrangements that
were being set up. He told me that the transactional records and
most of the correspondence relating to the period between 2002
and 2004 had "properly been destroyed under the House's
Authorised Records Disposal Practice", and in his view
the few records that remained in this instance might support more
than one explanation. The Director-General said: "I must
therefore express extreme caution about drawing inferences from
this period."
55. The Director-General told me that on 22 January
2002, the Head of the Fees Office had written to all Members setting
out restrictions on leasing office accommodation where the costs
were being met by the Fees Office: with effect from April 2003
Members were not allowed to rent from themselves or close associates
or family; the lease had to be lodged with the Fees Office; and
if leasing from a political party or constituency association,
there must have been an independent rent valuation. He enclosed
a copy of that letter.[70]
He said that Sir Bob Russell had met a manager in the Fees Office
in late January 2002 and followed this up with a letter on 31
January, confirming that a copy of his lease would be supplied
and that he would provide an independent valuation.[71]
The Department had on file a further letter from Sir Bob Russell
of 13 May 2002 (enclosing the lease), and a reply from the Fees
Office to the effect that the lease was acceptable.[72]
He said that the Department also had records of the payments made,
and to whom they were made. The Director-General noted that the
answers he was providing to my questions were subject to the caveat
that "from this limited information base we cannot answer
a number of your questions with any certainty".
56. The Director-General enclosed with his letter
the relevant documentation held on file. This included the following:
a) a letter from Sir Bob Russell to the Fees
Office of 4 July 2002 asking them to make the payment of the rent
for his constituency office to Magdalen Hall Company Limited;[73]
b) letters from the House authorities to all
Members of 17 January 2003 and 20 March 2003 reminding them that
the new restrictions on leasing office accommodation were coming
into force at the end of March and asking Members to provide any
relevant documentation;[74]
c) a letter from Sir Bob Russell to the Fees
Office of 29 March 2004 asking them to make payments in future
to his constituency party.[75]
This letter appeared to be the final version of the draft with
manuscript notes provided by Sir Bob Russell with his letter of
8 January 2012.[76] This
final version included the following description of Magdalen Hall
Company Limited: "shares are held by members and supporters
of Colchester Liberal Democrats";[77]
d) a letter from Sir Bob Russell to the Fees
Office of 23 March 2007 informing them of an increase in the rent
costs for his constituency office;[78]
e) a letter from Sir Bob Russell to the Director-General
of 30 March 2010[79]
responding to a letter from him of 17 March 2010[80]
providing a copy of the original lease for his constituency office[81]
and the independent valuation of March 2010;[82]
and
f) a letter from an official in the Department
of Resources to Sir Bob Russell of 11 May 2010 seeking supporting
evidence from his landlord for the increase in rent which he had
claimed during 2009-10.[83]
57. The Director-General also enclosed a summary
of the payments made in respect of the use of the constituency
office as far as these were available.[84]
From April 2002 to April 2010, taking account of subsequent information
about the backdating of the rent to May 2005, these claims amounted
to £97,162.34, of which £70,847.83 was for rent.[85]
The Director-General confirmed that the Department did not hold
an independent valuation from 2002 but could not at this distance
say "for certain" whether or not such a valuation
had been supplied. He noted that the Department did hold the valuation
of March 2010.
58. The Director-General told me that the immediate
reason for paying Magdalen Hall Company Limited direct between
July 2002 and March 2004 appeared to have been the written instruction
dated 4 July 2002 from Sir Bob Russell.[86]
He noted that, given the lapse of time since then, it was not
possible to say whether there had been other contact with Sir
Bob Russell about this, or whether consideration had been given
to the appropriateness of the arrangement. The Director-General
noted that the sublease gave no indication as to whom the rent
should be paid, and said it was not unusual for rent to be paid
to a third party such as a management company. He told me that
Sir Bob Russell had written again on 29 March 2004 requesting
that payments be made direct to the constituency party.[87]
59. In respect of what knowledge the House authorities
had about Sir Bob Russell's, and his sister-in-law's, shareholdings,
the Director-General confirmed that there were no additional letters
on file which related "directly to the issue of the ownership
of Magdalen Hall." He noted that while Sir Bob Russell
referred to standing aside from a directorship in January 2002,[88]
he could see nothing that in itself suggested that Sir Bob Russell
held shares (or at least shares with other than a nominal value).
The Director-General said that it was "entirely possible"
that the substantial personal shareholding was disclosed at the
meeting in January 2002, but that in his view it was difficult
to see how Sir Bob Russell could then have been led to understand
that the arrangements for his constituency offices complied with
what was set out in the letter from the Head of the Fees Office
dated 22 January 2002.[89]
The Director-General suggested that one possible explanation was
that the arrangements complied as of that date, but would cease
to comply when the full force of the arrangements took effect
in April 2003. He thought it was very unlikely that the shareholding
of Sir Bob Russell's sister-in-law would have been discussed.
He noted that there was no reference to her involvement in the
company in any of the correspondence held by the Department.[90]
60. The Director-General said that had the Department
been conscious of the ownership of Magdalen Hall Company Limited
in June 2003 (when the Green Book rules were updated with the
restrictions on leasing office accommodation), he believed that
they would have ruled that the arrangement did not comply with
the Green Book, and would have approached Sir Bob Russell accordingly.
The Director-General said: "This was an issue which was
active at the time: in addition to the 2003 Green Book, two circulars
were issued to all Members (on 17 January 2003 and 20 March 2003)
reminding them of the tighter rules."[91]
61. The Director-General noted that the Department
had asked for an independent rental valuation in 2002, and Sir
Bob Russell had undertaken to supply one. He said it was possible
that Sir Bob Russell did so, but if that was the case, the Department
had no record of it, having disposed of most of their records
from that period. He told me that it would of course have been
wise to have sought a valuation in 2004 or 2005 if one had not
been supplied in 2002, but he could not now determine whether
that was the case.
62. Finally, the Director-General noted that the
50/50 apportionment of costs relating to the premises seemed reasonable
on the basis of the information available and that regardless
of whether or not a valuation had been provided at an earlier
stage, the 2010 valuation confirmed that the rent was at that
time at or below the market rate.[92]
He said: "In the light of that, the rent paid on the office
over the years strikes me as reasonable."
63. I wrote to the Director-General on 22 February
2012 to ask him to help me in identifying the relevant evidence
to show that in 2002 the Department had asked Sir Bob Russell
to provide an independent rental valuation, as he had told me
in his letter of 21 February.[93]
He replied on 27 February 2012.[94]
He noted that the Department's letter of 22 January 2002 had set
out the new arrangements for constituency offices, which included
the requirement for an independent valuation if the accommodation
was leased from a political party or constituency association.[95]
This had been followed by a meeting between Sir Bob Russell and
senior officials in the Fees Office and a subsequent telephone
conversation between Sir Bob Russell and a senior manager. Sir
Bob Russell had then written on 31 January 2002 that his office
space would be "assessed by an independent valuer".[96]
The Director-General told me that he inferred from this that
"the Department had asked him to carry out an independent
valuation."
64. Having considered carefully all the evidence
I had received, I noted that a key question was whether Sir Bob
Russell had referred to his shareholding in his meeting and other
discussions with senior Fees Office officials in 2002. The members
of staff involved had since retired but, given the central significance
of this issue, I decided it was necessary to write to the then
Head of the Fees Office to see if he could help me with his recollection
of these events. I did so on 22 February.[97]
In particular I asked him to confirm that he did indeed agree
that Sir Bob Russell's arrangements for his constituency offices
complied with the Department's letter of 22 January 2002[98]
introducing the prohibition on Members using allowances to meet
the costs of renting constituency offices from themselves or from
any organisation in which they, or a partner or family member,
had an interest. If such agreement had been given I asked for
the reasoning and whether the former Head of the Fees Office recalled
that in coming to his decision he had been aware of the ownership
arrangements of Magdalen Hall, namely Sir Bob Russell's substantial
shareholding and the much lesser shareholding of his sister-in-law.
Finally, I asked whether he had any recollection of the Department
receiving an independent valuation of the market rent of the property.
65. Unfortunately the former Head of the Fees Office
was out of the country and uncontactable for some weeks. While
I was concerned about the resulting delay, I decided—and
so informed Sir Bob Russell[99]—
that in fairness I needed to have his evidence to see how far
he could confirm Sir Bob Russell's recollection. The former Head
of the Fees Office responded to my letter on 3 April.[100]
He said, that if indeed he had been consulted (he considered Sir
Bob Russell's letter of 31 January 2002[101]
to be unclear on that point) he had no recollection of it. He
told me that he was "certain" that if the "full
extent of the Member's involvement with the Magdalen Hall Company
Ltd".—i.e. that Sir Bob Russell "continued
to be a majority owner even though he was standing down as a director
and that his sister in law also had a small shareholding"—had
been fully disclosed at the time to him or to the other official
in the Fees Office it would not have been seen as complying with
the new rules which were to come into force at the end of March
2003.[102]
66. In respect of the letter of 21 May 2002 from
a Fees Office official, which confirmed "that the lease
meets our approval",[103]
the former Head of the Fees Office said that he could not recall
"either approving or confirming the lease" but
told me that "it could not have been granted in full knowledge
of all the circumstances of the Member's involvement with Magdalen
Hall Company." [104]
He told me that he had "no recollection" of the
Department receiving an independent valuation of the market rent
for Sir Bob Russell's constituency office.
67. I wrote to Sir Bob Russell on 16 April asking
for his comments on the advice from the House authorities and
the evidence from the former Head of the Fees Office.[105]
In particular I asked whether, in the light of this evidence,
he accepted that his arrangements were in fact a breach of the
rules of the House which came into force at the end of March 2003.
I asked Sir Bob Russell whether, taking account of the responses
from officials, he believed that he had provided the Department
with the details of his and his sister-in-law's share ownership.
I also asked him for any reasons why he thought the Department
had come to a different view then about his arrangements that
it and the former Head of the Fees Office did now, having seen
all the evidence available. I asked him whether, in light of the
evidence, he accepted that he had not in fact provided the requested
rental valuation in 2002, or at any time before 2010, as required
under the rules. I asked Sir Bob Russell why additional information
about the share ownership arrangements was added to the final
version of his letter of 29 March 2004 which was sent to the House
authorities and why that letter did not mention his own shareholding
or that of his sister-in-law.[106]
68. Sir Bob Russell responded to me on 18 April.[107]
He told me that he was satisfied that he had at all times proceeded
with advice given to him by the House authorities and the then
Commissioners and that he was satisfied that he had "complied
with both the letter and the spirit of the advice so given".
He enclosed a further copy of the letter of 13 May 2002 that he
had sent to an official in the Fees Office.[108]
Sir Bob considered that this letter clearly confirmed "what
I have indicated was the subject of numerous conversations—namely
that the whole point of acquiring Magdalen Hall was as a constituency
office". He considered that this was also made clear
in the letter of 21 May 2002 from the Fees Office, which thanked
Sir Bob for providing his lease and confirmed "that the
lease meets our approval".[109]
He also enclosed a copy of the letter of 12 November 2001 from
him to the then Parliamentary Commissioner for Standards.[110]
He noted that this letter set out his intended stake in the company.
He acknowledged that the letter did not say that he hoped to move
his constituency office into the building in question, but he
considered that he could "state with absolute confidence
this would have been made clear" in "subsequent
conversations (telephone and personally)."
69. I wrote to Sir Bob Russell on 26 April 2012.[111]
I told him that in view of what he had said in his letter of 18
April about his contacts with officials in the Fees Office and
the former Parliamentary Commissioner for Standards, I had decided
that I should take evidence from the former senior official in
the Fees Office to whom he wrote and from the former Commissioner.
70. On the same date I wrote to this former senior
official in the Fees Office and to the former Commissioner asking
them to give evidence.[112]
I asked the former official in the Fees Office whether she had
any recollection of the correspondence or of any meetings or telephone
conversations she had had with Sir Bob Russell about this matter.
In particular I asked whether she could recall him telling her
about the ownership arrangements of the company which was to buy
Magdalen Hall—namely his and his sister-in-law's shareholding—and
if she recalled why she had recommended to him that he should
not be a director of the company.
71. I asked the former Commissioner whether she recalled
the correspondence and her note of a telephone discussion with
Sir Bob Russell and whether she had any recollection of any action
she had taken following these; in particular, I asked whether
she had passed on orally or otherwise to her successor or to the
Fees Office any information about this matter. I also asked whether
she recalled if Sir Bob Russell had told her in conversation at
any time that the property was to be used both by his constituency
party and by himself as a constituency office.
72. I received a response from the former Commissioner
on 4 May.[113] She
said that she did not recall the detail of conversations with
Sir Bob Russell in 2001 but that, as her note of that telephone
conversation demonstrated, she had made notes of all her telephone
conversations with Members. The former Commissioner said that,
had Sir Bob Russell mentioned anything material, other than the
shareholding, it was likely that she would have recorded it.
73. The former member of staff in the Fees Office
responded to me on 8 May.[114]
She noted that these events had taken place a very long time ago
and told me that she did not recall in detail her dealings with
Sir Bob Russell at that time. She said that, as far as she could
recall, she met Sir Bob Russell once and spoke to him on the telephone
"on at least one occasion". She said: "We
discussed his intention to move his constituency office and I
can confirm that I was aware that the new location would be Magdalen
Hall." She told me that she was "not sure"
that Sir Bob Russell had "made clear the exact
nature of the ownership of the property". She said that
she was inclined to think that he had not, as the "standard
advice that we were giving at that time was that whilst renting
from companies in which they had a major stake was not explicitly
against the rules as they stood in January 2002 it would be when
the new rules came into force." The former member of
staff said that she was sure that they never discussed the shareholding
of his sister-in-law. In respect of my question about her advice
to Sir Bob Russell that he should not be a director of the company,
she told me that it was "standard advice" that
Members should not hold an executive position in companies "with
which they conducted parliamentary business".
74. I wrote to Sir Bob Russell on 14 May,[115]
enclosing copies of my letters of 26 April to the former Commissioner
and to the former member of staff in the Fees Office and their
replies of 4 May and 8 May respectively.[116]
I invited him to comment in response to the evidence in those
letters and asked him again to respond to the questions which
I had put to him in my letter of 16 April.[117]
75. Sir Bob Russell sent me a substantive response
on 8 June.[118] In
his letter, Sir Bob Russell told me again that he had had no personal
financial benefit from the arrangements in the establishment of
the company which owned the premises where he leased space for
his constituency office and that he had not used public funds
for purposes other than that for which they were intended. He
considered that the documentation surviving from the period (notably
from his own records) clearly showed that he had sought advice
at every stage, from the autumn of 2001 to the spring of 2002.
He told me that he had sought advice, been given advice and had
followed that advice. "Had I been given different advice,"
he said, "I would have followed that different advice!"
76. Turning to his discussions with the Fees Office
in 2002, he said that it was "impossible" that
he had not mentioned in the course of those discussions that Magdalen
Hall would be his constituency office. He considered that the
evidence from the Director-General that it was "entirely
possible" that he had made known to them his personal
shareholding in Magdalen Hall provided further contemporary evidence
that he was "at all times open and frank with the proposals
relating to my new constituency office". He told me that
"the Department was fully conscious of the ownership of
Magdalen Hall Company Limited" and that he was "saddened"
that "the Department is seeking to distance itself from
the advice it gave me at the time". He suggested that
"what you have gathered from people's memories of a decade
ago is much less reliable, frankly, than my memory and that of
my Office Manager". He said that he concurred
with the recollection of the Fees Office official, except that
he was "confident that I would have certainly explained
the status of Magdalen Hall Company Limited; namely in effect
a not-for-profit mutual company to which I would have no financial
benefit".
77. He noted that his ownership of shares had been
declared annually in the Register of Members' Financial Interests
and that he had been "open and transparent at all times".
On his sister-in-law's shareholding, he told me that it was "perhaps
unlikely" that he would have mentioned it and told me
that he was not sure that he knew at the time that she had shares
in the Magdalen Hall Company Limited. He said that he did not
know the names of everyone who had put money into the project
and that others were responsible for "that side of things".
He considered that "in any event, this is de minimis"
because his sister-in-law's shares represented less than half
of one per cent of the share value. He stressed that he had not
been a "majority owner" of shares in the company,
as the former Head of the Fees Office had described him in his
letter of 3 April[119]—his
stake "represented less than 25 per cent of the shares".[120]
78. On the question of whether he had submitted an
independent rental valuation for the property at the time, he
told me that his Office Manager's opinion was that it was "highly
unlikely" that he had not done as requested. He noted
that the former Head of the Fees Office had observed that he had
no recollection of the Department having received such a valuation.
Sir Bob Russell asked why, if he had not submitted the required
valuation, he had not been sent a reminder; why the Department
had paid the rent for his constituency office without an independent
rental valuation, and why the absence of an independent rental
valuation had not been noticed by the Department's internal or
external auditors.
79. On his dealings with the then Parliamentary Commissioner
for Standards, he said that he was "not surprised"
that she did not recall the detail of conversations with him.
He said that he was "bound to observe" that the
fact that her "relatively brief" note of their
conversation did not mention the purpose of his shareholding in
the Magdalen Hall Company Limited—"namely as my
new constituency offices"—did not mean that he
had failed to mention that. He said that it was "inconceivable
that, noting all my conversations with others, I did not mention
this to [the Commissioner] as well". He concluded:
"The balance of probability is that I did; I would have
had no reason not to".
80. In the same letter, Sir Bob Russell told me that
his secretary from that time, now re-designated as his Office
Manager, vividly recalled "how particular I was in seeking
advice from the House authorities and only proceeding on that
advice". He added that she was "prepared to testify
to that effect". Given that I had taken evidence from
witnesses who could not confirm Sir Bob Russell's recollection
of his conversations, I considered it was fair and necessary to
accept Sir Bob Russell's invitation to seek evidence from his
Office Manager. I accordingly wrote to her on 12 June.[121]
81. Sir Bob Russell's Office Manager wrote to me
on 17 June to inform me that she would be unable to respond to
my request for evidence until her return from a two-week break.[122]
I was concerned about the inevitable delay and on 20 June wrote
to Sir Bob Russell to ask whether he wished to await her evidence
or forgo her evidence and move directly to the interview that
would conclude my inquiry.[123]
Sir Bob Russell wrote to me on 28 June and said that his Office
Manager could not "bring any new material evidence"
to that which I already had.[124]
I accordingly withdrew my request.
82. Having considered all of the evidence I had received,
I considered that it would be helpful to meet Sir Bob Russell
for an interview and did so on the date he requested— 5
July.[125] Having confirmed
the facts of the arrangements for the purchase of Magdalen Hall
and his claims for renting his constituency office, I asked him
about his interpretation of the rules promulgated by the Fees
Office in their letter of 22 January 2002, which had said that
Members must not lease accommodation from an organisation in which
they had an interest.[126]
He said that he had "had the meeting to interpret the
rule". His interpretation of the term "interest"
was that "you plan to sell the shares, to try to make
a profit". I asked him whether he considered therefore
that a shareholding was not an interest. He said that he had had
a meeting to discuss that question.
83. Sir Bob Russell said that it was necessary to
read the rules "with the interpretation of what Parliament
intended: that no Member should gain from the public purse".
When I asked whether he was arguing that Parliament intended to
allow a Member to lease from an organisation in which he or she
had an interest, provided that no profit was made, he replied
"Yes, absolutely". He said that he had had "no
benefit whatsoever" from being a shareholder. He acknowledged
that "there was a potential" benefit but said
that "that was never the intention. The intention was
to provide me with the best possible constituency offices".
84. Sir Bob Russell had told me in a letter of 8
January that he had decided to divest himself of his shares by
donating them to the party because of information from the "fledgling
IPSA".[127]
I asked him whether I was right to conclude that, under the new
IPSA rules, he would have had to divest himself of them anyway.
He replied: "You've made the case for me". I
noted that the rule in question had come into effect in May 2010
and that his shares had been transferred in June. He explained
that he had made the decision before the election, but that "by
the time all the paperwork was done, it was June". When
asked what he would say to the suggestion that he had transferred
his shares when he did because he knew that it was contrary to
the IPSA rules which had been promulgated in March 2010, he said
that "the arrival of a new charging system was a good
opportunity to do what could have been done at any time up to
then. It was just a trigger."
85. I asked Sir Bob Russell if he had considered
whether the fact that he did not lease the property directly from
the company in which he had an interest meant that the restrictions
on leasing did not apply, since the rule did not mention sub-leasing.
Sir Bob Russell responded that he had not made a profit from his
arrangements and that his argument was that, since he had not
made a profit, the rule on leasing did not apply.
86. I asked Sir Bob Russell whether he accepted that
the company had an interest in having him as a sub-tenant. He
said: "I was quite flattered, actually—they took
out "key employee" insurance to cover me. Without me,
they would have been left without a tenant. There was no guarantee
that the party would hold the seat, or that my successor would
want to keep the lease." He told me that the constituency
party had not had offices before moving to Magdalen Hall; he had
no idea whether the constituency party paid rent to the Magdalen
Hall Company Limited for their share of the property. He said
that he had "no reason to doubt" that the constituency
party paid over his rent in full to the company.
87. I noted that the new Green Book which came into
force in March 2009 made no specific reference to the leasing
restrictions. I asked whether Sir Bob considered that the restrictions
on leasing did not apply between March 2009 and May 2010. He told
me: "It was seamless. It made no difference to me."
88. Sir Bob Russell had
described the company as a "not-for-profit mutual"
in his letter of 8 June.[128]
I asked him whether it was not in fact a private company limited
by shares, as set out in the articles of association.[129]
He acknowledged that that description was "factual"
but said: "You've got to deal with the reality here,
not what might have happened". He also acknowledged that
such companies had legal obligations, namely "the annual
return to Companies House". I noted that, if he had wanted
to ensure that there was no return on the investment, it would
have been possible to have set up a company limited by guarantee.
Sir Bob Russell accepted this, but said that "the reality
is that it was a not-for-profit mutual."
89. I asked Sir Bob Russell why, given the importance
of these matters to his plans for his constituency office, he
had not set out the arrangements in writing. He commented: "We're
talking about this with the benefit of ten years' hindsight. I
was calling people, having meetings, writing letters."
He added: "This letter of 31 January does what you've
said. It does."[130]
I noted that the letter did not mention his shareholding in the
company. He replied: "That's why the Fees Office official
told me to step down [as a Director]".
90. The Speaker's introduction to the Green Book
in 2003—and subsequently—stated that Members themselves
were responsible for ensuring that their use of allowances was
above reproach. Sir Bob Russell had told me in his letter of 8
June that he had sought advice, been given advice and followed
that advice.[131] I
asked him whether his argument was that, as long as a Member followed
advice, that Member could not be in breach of the rules. He said:
"I would say that if the Fees Office give you advice and
you follow it, that's one thing. If they give you advice and you
don't follow it, that's another thing." He did not think
that a Member who followed wrong advice could be in breach of
the rules. He noted that we were "talking about the top
man here"—that is, the then Head of the Fees Office.
I asked what would happen if the Head of the Fees Office gave
wrong advice. Sir Bob replied: "If advice is wrong, then
it's wrong. But how could a Member tell the Head of the Fees Office
that he was wrong? If he had told me it would be a breach of the
rules, I wouldn't have done it." I asked Sir Bob if his
argument was that the Fees Office had at the time given him the
right advice, but that officials were now going back on their
advice. He said "Yes, and I am saddened that they are
doing so."
91. I told Sir Bob Russell that the Director-General
had told me in his letter of 21 February that had the Department
been aware of the ownership of Magdalen Hall Company Limited in
June 2003, he believed that they would have ruled that the arrangements
did not comply with the Green Book rules.[132]
I asked him why he thought the Director-General was wrong. He
replied: "I know he is wrong. My memory of something I
was so close to at the time is superior to his." I asked
whether he had pressed officials at the time on their advice;
he said he had not. I asked whether the advice had surprised him.
He told me that his letter of 31 January 2002 had confirmed it.[133]
92. I asked Sir Bob whether he had told the Fees
Office that he was a major shareholder in the company. He said
he was "certain that they knew", and referred
to his letter of 31 January 2002, which said "as a result
of your advice I have decided to step down as a director".[134]
He accepted that being a shareholder was not the same as being
a director, but said that "in the context of the discussions
we were having, it [his shareholding] would have been known".
He said he would describe the likelihood that the Fees Office
were not aware of his shareholding as "zero".
When I asked whether he had a clear recollection of having told
the Fees Office of his shareholding, he said that he "would
have said it to numerous people" and that he had had
"numerous meetings and phone calls, including with the
Fees Office". I asked whether he had told the Fees Office
before January 2002; he said "yes, it was part of the
process". He drew my attention to his entry in the Register
of Members' Financial Interests and said "I couldn't have
been more transparent—it's all on the record."
93. I said that when Sir Bob Russell wrote to the
Fees Office in 2004 he had added to the letter information about
the ownership of the company but made no mention of his own shareholding.[135]
I asked Sir Bob Russell whether it was possible that his discussion
in 2002 with the Fees Office could have been held without mentioning
his personal shareholding. He told me that there had been a series
of conversations, and said "You can't take one letter,
one meeting, in isolation." I noted that it would have
been possible for him to have written his letter of 31 January
2002 even if he had overlooked to mention his shareholding.[136]
He said that it was "inconceivable" that he wouldn't
have mentioned it and told me: "I am absolutely convinced
that I mentioned it. It was such an important part of my life:
I would not have fouled it up. I went to extreme lengths to take
advice. I can't explain why their memories differ from mine. I
had a meeting."
94. The Director-General had accepted that it was
entirely possible that if Sir Bob's shareholding had been raised
the advice would have been that his arrangements were within the
rules then, but not after April 2003.[137]
I asked Sir Bob Russell why he thought that it was not conceivable
that he had been given that advice. He said, "because
it would have been a pointless exercise to do it for about 9 months.
If they'd said that, either the project wouldn't have gone ahead
or we would have found another way to do it." He thought
that it was not possible that he had been given the advice but
forgotten it.
95. I asked whether Sir Bob Russell believed he had
not been aware of his sister-in-law's shareholding at the time.
He told me that he could not remember and that he may or may not
have known of it. He told me that he was not aware of the full
list of shareholders, but had perhaps been sent fortnightly updates.
In commenting on the interview note, Sir Bob Russell said that
those updates had been of "donations. Not names".
96. I asked Sir Bob Russell why he thought that he
must have provided an independent rental valuation. He said he
believed he had "because the Fees Office would have asked
for evidence. The Hall might not have existed". He added:
"There must have been a valuation for them to have paid
the rent. If not, why wasn't I chased for one? The internal audit
would have picked it up. There had to have been one: it's as simple
as that." He told me that an independent rental valuation
had been made by a reputable local firm of surveyors;[138]
he thought that there may have been such a valuation before 2010.
97. I asked Sir Bob Russell
whether, overall, he thought he should accept any responsibility
for the way in which his arrangements had been made. He told me
that his "responsibility was to ensure that what I was
doing was correct. I was satisfied that it was correct then, and
I'm satisfied now." He reiterated that he had had no
financial gain from the arrangements, had taken advice from the
Fees Office and had conveyed what he was doing to the Commissioner.
He said that he could not find fault with what he had done and
that his conscience was "totally clear". He did
not think that the complaint was justified, because he had not
gained financially and he had not misused public funds. He told
me that what records he had confirmed "beyond reasonable
doubt that I sought advice, took advice, and followed advice."
98. Finally, I summarised the specific allegations
against Sir Bob Russell and invited any further comments he wished
to make. In respect of the allegation that he had been in breach
of the rules restricting leasing from a company in which the Member
had an interest, he said "I do refute that. It would be
different if I still had the shares, but this complaint came 18
months later. My interpretation of "interest" is something
which brings me financial gain." On the allegation that
he had not given the Fees Office information about his shareholding
before they agreed that his arrangements complied with the new
rules, he said "I totally refute that. My letter on 31
January 2002 confirms the opposite. It says "thank you for
confirming that my arrangements comply with the rules.""[139]
In respect of the allegation that it was more likely than not
that Sir Bob Russell had not lodged with the Fees Office an independent
rental valuation for his constituency office in 2002, he said
that he could not prove that he had done so, but that he knew
he must have done because he was claiming rent. He added: "The
only other possible conclusion is that the Fees Office paid rent
without the documentation, and the internal audit and the external
audit didn't spot it." He said that it followed from
this that he had sent the valuation to the Fees Office.
99. In conclusion, Sir Bob Russell referred to the
views of his then secretary, now his office manager. He said:
"All she could have told you was that I went to great
lengths to ensure that I complied with the rules. She can vouch
for that."
100. Following our interview, Sir Bob Russell wrote
to me on 11 July.[140]
He said that the facts of the inquiry were quite simple: first,
that the House of Commons had stated that no Member should gain
financially from the receipt of public money provided to assist
him or her with constituency office costs, and that that was the
"clear intention" of the Parliamentary rules;
second, that all the evidence showed that he had not gained "a
single penny" from the arrangements for his constituency
office; and third, that all the evidence showed that every penny
he had received from the Fees Office had been used for the purpose
for which it had been provided. He concluded: "I therefore
trust that this malicious complaint can now be disposed of with
the contempt it deserves".
101. Finally, in preparing the evidence for this
memorandum, my office noticed an apparent discrepancy in the start
date for the rental increase from £8,235 a year to £9,365
a year. My office raised this with the House authorities, and
they confirmed on 18 July 2012 that the start date for the rental
increase was in fact May 2005, and not April 2006 as suggested
in the Director-General's letter. They also provided revised figures
for Sir Bob Russell's claims to take account of this.[141]
102. Sir Bob Russell made some additional points
summarising his evidence when he responded on 1 August[142]
to the draft of the factual sections of this memorandum, which
I had sent him on 19 July.[143]
He told me that he felt that, in the interests of natural justice,
it should be noted that officials were recalling from memory what
may or may not have happened when he sought their advice in the
period from late 2001 to May 2002. He said that he, as the person
most directly involved, had "a much firmer grip on what
occurred, backed up by contemporary correspondence" which
supported his recollection. He felt that "the jogging
of people's memories" was not fair on him. He questioned
whether those who had been asked about their dealings with him
would be able to have "memory recall" of their
dealings with other Members. He noted that the Director-General
had stated in his letter of 21 February 2012 that "from
this limited information base we cannot answer a number of [the
Commissioner's] questions with any certainty".[144]
He suggested that the accuracy of some recollections was perhaps
put further in doubt by the late evidence of 18 July 2012 from
the House authorities that they were wrong with their original
evidence about the backdating of the rental increase.[145]
103. In setting out his own conclusions, Sir Bob
Russell said that the House of Commons had ruled that no MP should
make a personal financial gain from the receipt of public funds.
He said that he had not done so. He said that every penny had
been used for the purposes for which it was intended—namely,
the running costs for his constituency office. He had contributed
£25,000 of his own money so that he could have a "fit-for-purpose
constituency office", which was of benefit to his constituents
and better value for the public purse than renting a commercial
office. He emphasised that he had sought advice, been given advice
and had followed that advice.
104. Sir Bob Russell noted that the House authorities
had destroyed most of the records from the period in question.
He said that the contemporary documentation that did survive,
which he said had mainly been provided by him, confirmed that
he had sought advice. He considered that it was "contrary
to natural justice" for people ten years on to seek to
distance themselves from "what was the case at that time"
when they accepted they could not be entirely accurate with
their recollections. He concluded that, to the best of his knowledge
and belief, he had complied with "both the spirit and
the letter of the rules and regulations."
Findings of
fact
105. In 2001, Sir Bob Russell was looking for suitable
accommodation for his constituency office. Magdalen Hall, then
called St Mary Magdalen Church Hall, was for sale. Members of
Colchester Liberal Democrats and others formed the Magdalen Hall
Company Limited and that company bought Magdalen Hall on 30 April
2002. Sir Bob Russell owned 100 of the total 244 shares in Magdalen
Hall Company Limited; the value of his shares was £25,000
and he was the largest single shareholder. The next largest group
of shareholders owned ten shares each. Sir Bob Russell's sister-in-law
owned two shares at a cost of £500.
106. Magdalen Hall Company Limited leased the whole
building to the Colchester Liberal Democrats, who in turn sub-let
half of the building to Sir Bob Russell for his constituency office.
Sir Bob Russell's constituency office has been based at Magdalen
Hall ever since. Between 2002-03 and 2009-10 Sir Bob Russell made
claims from his parliamentary expenses for the costs of renting
this accommodation. The annual rent was £8,235 from April
2002 and rose to £9,365 from May 2005. Over the total period
these claims amounted to £97,162.34, of which £70, 847.83
was for rent. The House authorities made these rental payments,
at Sir Bob Russell's request, to Magdalen Hall Company Limited
between July 2002 and March 2004, and thereafter (on Sir Bob Russell's
instruction) to the constituency party. In June 2010 Sir Bob Russell
divested himself of his shareholding by donating it to his constituency
party.
107. On 22 January 2002, the Head of the Fees Office
wrote to all Members setting out new restrictions on leasing office
accommodation where the costs were being met from parliamentary
funds.[146] With effect
from April 2003, Members would not be allowed to claim the cost
of leasing accommodation for their constituency offices from themselves,
from close associates or from or any organisation in which they—or
a partner or family member—had an interest. They were required
to lodge the lease with the Fees Office and, if leasing from a
political party or constituency association, to provide an independent
rental valuation. The letter also told Members that they would
be required to avoid any leasing arrangement which could give
rise to an accusation that they, or someone close to them, was
obtaining an element of profit from public funds or that public
funds were being diverted for the benefit of a political organisation.
108. In November 2001, Sir Bob Russell wrote to the
then Parliamentary Commissioner for Standards about his proposed
shareholding, which he said was to enable the purchase of the
church hall by the Colchester Liberal Democrats.[147]
The then Commissioner advised him to register his shareholding.[148]
Following a telephone conversation with the then Commissioner,
Sir Bob Russell wrote to her to explain that his shareholding
was provisional and to say that he would register it once the
details were confirmed.[149]
Neither that letter nor the Commissioner's note of the telephone
conversation refers to the additional use of the property as constituency
offices. On 23 April 2002 Sir Bob Russell wrote to her successor
to register his shareholding, in an entry which listed as a registrable
shareholding "Magdalen Hall Company Limited; company formed
to facilitate the purchase of the former St. Mary Magdalen Church
Hall, Colchester, by Colchester Liberal Democrats".[150]
That entry remained in the register from 2002 to 2010.
109. In late January 2002, Sir Bob Russell attended
a meeting with the then Head of the Fees Office and another senior
Fees Office official to discuss the arrangements he was making
for his constituency office. After that meeting, Sir Bob Russell
wrote to the Fees Office on 31 January 2002 to note that he would
follow their advice not to become a Director of the company which
was to own Magdalen Hall (although this was not contrary to the
rules) and to thank them for confirming that his arrangements
complied with the new rules.[151]
110. The Director-General's evidence is that, had
the Department been conscious of the ownership of Magdalen Hall
Company Limited in June 2003 (when the Green Book rules were updated
with the restrictions on leasing office accommodation), he believed
that they would have ruled that the arrangement did not comply
with the Green Book rules, and would have approached Sir Bob Russell
accordingly. The Director-General's evidence is that he could
see nothing in the available documentation that in itself suggested
that Sir Bob Russell held shares (or at least shares with other
than a nominal value). His evidence is that it was "entirely
possible" that the substantial personal shareholding
was disclosed at the meeting between Sir Bob Russell and the Fees
Office in January 2002. But in his view it was difficult to see
how Sir Bob Russell could then have been led to understand that
his arrangements complied with the new restrictions on leasing
office accommodation sent to all Members on 22 January 2002.[152]
He thought it very unlikely that the shareholding of Sir Bob Russell's
sister-in-law would have been discussed and there was no reference
to her involvement in any available correspondence. The Director-General's
evidence is that the only independent valuation held by the Department
was the March 2010 valuation,[153]
but it was possible that one had been supplied in 2002. The Director-General
expressed "extreme caution" about drawing inferences
from the period in question, since the transactional records and
most of the correspondence relating to the period between 2002
and 2004 had been destroyed. He considered that the few records
that remained might support more than one explanation.
111. The evidence of the former Parliamentary Commissioner
for Standards is that she does not recall the detail of her conversations
with Sir Bob Russell in 2001. She believes, however, that had
Sir Bob Russell mentioned anything material, other than his shareholding,
it is likely that she would have recorded it.
112. The evidence from the former senior official
in the Fees Office is that she does not recall in detail her dealings
with Sir Bob Russell at the time. She is not sure that Sir Bob
Russell made clear the exact nature of the company; she is inclined
to think that he did not. She is sure that the shareholding of
Sir Bob Russell's sister-in-law was never discussed.
113. The evidence of the former Head of the Fees
Office is that, while he had no recollection of being consulted
on this matter, he was certain that if the full extent of the
Member's involvement with the Magdalen Hall Company Limited had
been fully disclosed at the time to him or to the former senior
official in the Fees Office it would not have been seen as complying
with the new rules which were to come into force at the end of
March 2003. He could not recall either approving or confirming
Sir Bob Russell's arrangements, but said that the approval could
not have been granted in full knowledge of all the circumstances
of the Member's involvement with the Magdalen Hall Company Limited.
He had "no recollection" of the Department receiving
an independent valuation of the market rent for Sir Bob Russell's
constituency office.
114. Sir Bob Russell's evidence is that he is certain
that he would have told the Parliamentary Commissioner that the
building the Magdalen Hall Company Limited intended to acquire
was to be used as his constituency office. As evidence of his
openness he notes that his shareholding was registered in the
published Register of Members' Financial Interests from 2002 to
2010. Sir Bob Russell is equally certain he told the Fees Office
in January 2002 of his shareholding in the Magdalen Hall Company
Limited as well as the use of the building as his constituency
office. He is clear that, after he had provided this information,
he was advised by senior officials—including the then Head
of the Fees Office—that his arrangements would comply with
the rules restricting the leasing of constituency offices which
would come into effect in April 2003. He accepts that there is
no written evidence that he told the Fees Office about his shareholding,
but he is sure that he did so. He notes that his letter to the
Fees Office of 31 January 2002 confirms that he sought advice.
In respect of his sister-in-law's shareholding in the company,
Sir Bob Russell's evidence is that he cannot remember whether
he was aware of it at the time. He thinks it is "perhaps
unlikely" that he would have mentioned it in his discussions
with the Fees Office. He notes that her shareholding represented
less than half a percent of the total value of the shares. His
evidence is that he accepted the advice he was given by the officials
involved because he believed that his shareholding did not constitute
an "interest" under the rules, since he did not expect
or intend to profit from it. He is "saddened"
that the Department is now seeking to distance itself from the
advice it gave him at the time, particularly as the relevant officials
accept that they either cannot now recollect being consulted or
cannot recall the detail of their dealings with the Member.
115. On the question of whether Sir Bob Russell provided
an independent rental valuation for his constituency office, as
required by the rules, his evidence is that he must have done
so, on the basis that the Fees Office would not have paid the
rent for his office if he had not done so. He notes that Fees
Office records from that time have been destroyed.
116. Sir Bob Russell considers that the complaint
against him is malicious and made by a political opponent to discredit
him in the eyes of the electorate. His evidence is that he sought
advice, received advice and acted on that advice at all times
and, in doing so, ensured that his arrangements for his constituency
office were fully within both the spirit and the letter of the
rules. His evidence is that he did not gain financially from the
receipt of public funds—rather, he used his own money to
help provide a constituency office.
Standard of
Proof
117. When considering allegations against Members,
the Commissioner and the Committee normally require allegations
to be proved on the balance of probabilities, namely, that they
are more likely than not to be true. Where the Commissioner and
the Committee deem the allegations to be sufficiently serious,
a higher standard of proof will be applied, namely, that the allegations
are significantly more likely than not to be true. In this case,
there are judgments to be made about what Sir Bob Russell told
the Fees Office officials in 2002 about his shareholding and that
of his sister-in-law, and about whether he provided the required
independent rental valuation in 2002 or subsequently. In all the
circumstances, I consider that I can apply the normal standard
of proof to these judgments, although I have been ready to consider
applying the higher standard if the particular circumstances justify
it.
Conclusions
118. The question I have to resolve is whether Sir
Bob Russell was in breach of the rules of the House from 2002
to 2010 by having a substantial shareholding—and his sister-in-law
a much smaller shareholding— in a company which owned the
property which he sub-let for his constituency office and whose
rent he claimed from parliamentary allowances.
119. Sir Bob Russell decided on the arrangements
for his constituency office as long ago as 2002. It was bound
to be difficult to find reliable evidence about the genesis of
those arrangements after such a passage of time. But I considered
it necessary to investigate this complaint for two reasons. First,
because of the length of time over which the conduct complained
of had continued, ending only in the first month of the current
Parliament. And secondly, the amount of money involved—a
little over £70,000 in rental payments. I therefore sought
and received the Committee's agreement to going back more than
7 years.
120. But it is understandable and inevitable that
records from and memories of 2002 are much less certain than they
are likely to be of more recent events. Partly because of that,
Sir Bob Russell has by his own account spent much time in preparing
his responses to my inquiries. I am grateful to him for that—as
I am to others who gave evidence. As a result, the inquiry has
spanned the year. The time taken to resolve inquiries depends
generally on the complexity of the allegations, the speed and
fullness with which Members and any witnesses are able to respond
and the nature of these responses. In this case, a combination
of these factors has meant that this inquiry has taken much longer
than I would have liked.
121. In considering whether or not Sir Bob Russell
was in breach of the rules of the House, I have considered the
following questions:
1. Were Sir Bob Russell's claims for his constituency
office from 2002 to 2010 within the rules of the House at the
time?
2. Were the Fees Office in receipt of all the
relevant facts before approving the arrangement?
3. Did Sir Bob Russell provide the Fees Office
with an independent rental valuation for the property before 2010?
Were Sir Bob Russell's claims for his constituency
office from 2002 to 2010 within the rules of the House at the
time?
122. Before April 2003 the rules were silent on whether
a Member could lease accommodation from an organisation in which
he or she—or a partner or family member—had an interest.
But in June 2003 the Green Book included in the section for meeting
Members' claims for office and surgery accommodation new paragraphs
headed "Principles" and "Propriety". They
had come into effect that April. The "Principles" paragraph
required Members to ensure that their office arrangements were
above reproach and that there could be no grounds for a suggestion
of misuse of public money. And they required that there should
be no profit to the Member or benefit to a political organisation.
123. Under a separate paragraph on "Propriety",
the rules said that "the allowances must not be used to meet
the costs of leasing accommodation from ... any organisation in
which you—or a partner or family member—have an interest."
It is this rule against which Sir Bob Russell's arrangements need
to be judged. That rule had taken effect in April 2003 and remained
in place until the Green Book was substantially revised in March
2009, when the reference was dropped. The Independent Parliamentary
Standards Authority subsequently restored this rule with different
wording in its first expenses rule book which came into operation
on 7 May 2010.
124. In my judgement it was open to Sir Bob Russell
to claim the rent for sub-leasing his constituency accommodation
from an organisation in which he had a major shareholding from
May 2002, when his arrangement started, until the end of March
2003. Any claims he made over this period were not in breach of
the rules of the House.
125. Equally, given that the Green Book of March
2009 was silent on this type of arrangement, I consider that Sir
Bob Russell's arrangements could not be held to be in breach of
the rules after that date. That Green Book referred to the principles
that claims should be above reproach and that they must not provide
a benefit to a party political organisation or give rise to an
improper personal financial benefit. I have no evidence—and
do not believe—that Sir Bob Russell breached any of these
principles.
126. I consider, however, that the claims Sir Bob
Russell made from April 2003 until March 2009 were clearly in
breach of the then rules of the House. This was because the rules
prevented Members leasing accommodation from any organisation
in which they had an interest. In my view, Sir Bob Russell undoubtedly
had an interest in the company which owned the property. He was
by far its largest shareholder. In my judgement the rule clearly
and specifically prohibits such an arrangement. Equally, the smaller
shareholding of Sir Bob Russell's sister-in-law was a breach of
the rules. The rules included no threshold below which any interest
did not apply and the sum invested—£500—was not
negligible.
127. Sir Bob Russell has sought to argue that the
rules requiring Members not to make a profit from their claims
apply to and qualify the leasing restriction. He has argued that
since neither he nor his sister-in-law made a profit—or
intended to make a profit—the leasing arrangement was permitted
under the rules.
128. I accept that Sir Bob Russell believes strongly
that the only criterion is whether or not he—or his political
party—made a profit from the arrangement and, since he argues
no such profits were made, the leasing restriction did not apply
to him. This is in my view a genuine misunderstanding and misreading
of the rule, but a misunderstanding and misreading nonetheless.
In the June 2003 Green Book the rule against making a profit from
public funds is in a separate paragraph from that imposing the
leasing restriction. They are in my view separate rules. I accept
that in the April 2005 and June 2006 Green Books these two provisions
were included in the same paragraph. But there is no evidence
that the intention was to qualify the absolute effect of the leasing
restriction and the revised positioning of the two provisions
makes no attempt to do so. Indeed, were the rule intended to be
simply that Members must not make a profit from their arrangements,
there would have been no need to include the leasing restriction
in the 2005 and 2006 Green Books (as it is not included in the
2009 Green Book).
129. In my view the intention of the leasing restriction
was to prevent Members appearing to benefit—financially
or otherwise—an organisation in which they had an interest.
That is an absolute restriction, additional to and separate from
the requirement to avoid making a profit from public funds. By
sub-leasing his constituency office from an organisation in which
he had an interest, Sir Bob Russell broke that rule. While the
rule does not require a benefit to be established, I consider
that there would have been some benefit to the company in having
Sir Bob Russell in its property: he was an assured payer, and
completely compatible with the head leaseholder, the Colchester
Liberal Democrats.
130. Sir Bob Russell has also sought to argue that
he did not in fact have an interest in the company because his
shares never made him any money. For this purpose he seeks to
define an interest as that which releases a profit. I do not accept
this argument. I have no doubt that a shareholding in a company
gives the shareholder an interest for the purpose of the interpretation
of this rule. Any shareholder—even in companies not paying
dividends—has an interest in the company in which he or
she holds shares. Sir Bob Russell recognised he had a significant
financial interest through his shareholding when he registered
it in the Register of Members' Financial Interests. By the same
token he should have recognised that his significant shareholding
constituted an interest for the purpose of the Green Book's leasing
restriction.
131. I have considered also whether the fact that
Sir Bob Russell was sub-leasing the accommodation meant that the
prohibition on leasing accommodation from an organisation in which
the Member had an interest did not apply. He was not leasing it
directly from that organisation. But that could not have been
the intention of the rule since it would then have been very easily
circumvented. To make such a narrow interpretation—which
in fairness Sir Bob Russell has not sought to make—would
undermine the effectiveness of the provision which, as the heading
makes clear, was intended to ensure propriety in the arrangements
Members made for leasing accommodation.
132. It follows that I do not consider it material
in meeting this rule that Sir Bob Russell had a sub-lease from
his constituency party rather than a head lease from the company,
or that up to 2004 his rental claims were paid by the House authorities
direct to the company and then from that date were paid to the
constituency party. There would appear to have been no practical
effect in the change in the payment arrangements. I accept Sir
Bob Russell's evidence that after 2004 the rent for his constituency
office would have been paid over to Magdalen Hall Company Limited—the
property company in which he had the largest shareholding.
133. In my view, Sir Bob Russell was mistaken when
he appeared to suggest twice at interview that his situation would
have been different had he not divested himself of his shares
in June 2010. That may affect the public perception of his arrangements,
but it does not affect the application of the rules at the time.
What matters is whether the ownership by Sir Bob Russell—and
his sister-in-law—of shares in the company which sub-leased
to him his constituency offices on which he claimed Parliamentary
expenses complied with the Green Book rules as they were from
April 2003 to March 2009. I have concluded that they did not.
Were the Fees Office in receipt of all the relevant
facts before approving the arrangement?
134. Sir Bob Russell says that in discussions he
had with two senior members of the Fees Office in January 2002—and
in previous discussions with the Fees Office—he certainly
would have mentioned that he was a shareholder in the company
buying the property in which he planned to establish his constituency
office. His evidence is that the Fees Office approved his arrangement
in full knowledge of that fact.
135. The House authorities—namely the Director-General
whom I consulted and the two retired officials involved at the
time—consider it difficult to believe that the two officials
could have given their approval if they had been told of Sir Bob
Russell's shareholding. The Director-General speculates that they
might have approved the arrangement up until March 2003, but advised
Sir Bob Russell to change it after then. But there is no evidence
that they did so.
136. There is no record of the conversations, and,
understandably, neither Sir Bob Russell nor the officials involved
have a firm recollection of what was said. Sir Bob Russell's case
is that it is "inconceivable" that he did not tell them.
I agree that it is inconceivable that he did not tell the Fees
Office that he wanted to use part of the property for his constituency
offices. It seems likely that he told them his party was establishing
a company to make the purchase. I accept he told them he was to
be a Director of the company. None of that is at issue. The question
is whether Sir Bob Russell also told them of his personal shareholding
in that company.
137. I need to consider, therefore, whether on the
balance of probabilities it is more likely to be true than not
to be true that Sir Bob Russell did not provide information about
his personal shareholding to the Fees Office in 2002.
138. Sir Bob Russell has suggested that the conclusive
evidence was his letter to the Fees Office of 31 January 2002
where he recorded the outcome of his discussions with officials.
He states in that letter that officials, including the Head of
the Fees Office, had confirmed that the arrangements for his constituency
office complied with the new rules set out in the letter from
the Head of the Fees Office of a few days before. I accept that
Sir Bob Russell's letter represents strong evidence that the Fees
Office agreed to his arrangements. But it does not necessarily
follow from the text of that letter that Sir Bob Russell referred
specifically to his personal shareholding. Sir Bob Russell is
adamant—and has been from the beginning of this inquiry—that
he did tell the officials of this fact. The two officials fairly
tell me that they cannot remember the details of the conversation,
but that, had they known, they would not have advised that it
was within the rules.
139. In consulting the witnesses, I showed them all
the relevant evidence I had received in the course of my inquiry.
This was in accordance with my normal practice, since I consider
it fair that, in a process that is intended to be inquisitorial
and not adversarial, witnesses—including Members—are
aware of what is being said about them before being invited to
respond, particularly when their involvement could reflect on
their personal reputation and professional competence. I regret
the way that Sir Bob Russell has sought to criticise both the
current and retired officials of the House for the evidence they
have given. I consider that they have been open and honest about
their interpretation of the available documentation and about
how much—and how little—they can remember, ten years
on. I do not accept Sir Bob Russell's suggestion that officials
have changed their interpretation of the rule as it was at the
time. I am satisfied that the officials have given their evidence
in the utmost good faith—as has Sir Bob Russell himself.
140. I found it difficult in advance of his oral
evidence to secure Sir Bob Russell's specific evidence on whether
he informed officials of his shareholding, as opposed to discussing
with them his intention to use part of Magdalen Hall as his constituency
office. Had he failed to tell officials of his shareholding (or
that of his sister-in-law), it would have been quite possible
for them to have agreed the arrangements as set out in his confirmatory
letter of 31 January 2002. And—were it not for the shareholdings—that
agreement would have been fully consistent with the forthcoming
change in the rules. There is no reason to suggest that the Parliamentary
Commissioner's office had a responsibility to check Sir Bob Russell's
arrangements against the Green Book—or that House officials
had a responsibility to check the Member's Register entry. The
Commissioner's office had all the information it needed to advise
on registration matters. The question is whether the Fees Office
officials had all the information they needed to advise accurately
on expenses matters.
141. Sir Bob Russell's description of his shareholding
in his evidence to me as akin to a donation (which for 8 years
it was not) and of the company as a mutual (which it never was)
must raise some doubts about how clearly and accurately he would
have explained the ownership arrangements to officials in 2002.
While these are, in my view, reasonable doubts, what I have to
decide is whether there is sufficient evidence to enable these
doubts to be substantiated on a balance of probabilities.
142. Having weighed carefully all the evidence and
in particular the statements from Sir Bob Russell and the two
retired officials, I do not believe, on the balance of probabilities,
that the evidence that Sir Bob Russell did not tell the Fees Office
of his personal shareholding is sufficiently strong to permit
me to conclude that he was wrong in his recollection. But neither
is the evidence sufficiently strong to say that the House officials
did know and made what I consider to be an obvious and fundamental
error in their advice. Given the seniority and the experience
of the officials concerned—and the immediacy of the new
rules—that would certainly be surprising.
143. In reaching my conclusion, therefore, I make
no criticism and cast no aspersions on the standing or reputation
of those officials. The question I have had to resolve is whether
the evidence is sufficient to say—ten years on—that
Sir Bob Russell's strongly asserted recollection is wrong. I cannot
and do not do so. I conclude, therefore, on the balance of probabilities,
that Sir Bob Russell did tell Fees Office officials of his personal
shareholding as well as the other details of the arrangements
for establishing what was to be his constituency office, as indeed
he had previously told the then Parliamentary Commissioner for
Standards before making his registration. I accept too that the
fact that he made this registration of his shareholdings meant
that he was open about this aspect of his arrangements—they
were on the public record from 2002 to 2010. In respect of the
shares of Sir Bob Russell's sister-in-law, I consider that the
evidence, not least from Sir Bob Russell himself, suggests that
it is more likely than not that he did not refer to this shareholding
in his contacts with officials in 2002.
144. I do not accept the argument that if a Fees
Office official, however senior, advises a Member about the interpretation
of the rules—even if he or she is in full possession of
all the relevant facts—the Member themselves cannot be held
to have breached those rules. The long established principle is
that Members themselves accept personal responsibility for keeping
the rules. That responsibility cannot be delegated or transferred
to a House official. It is however very strong mitigation that
a Member has consulted the appropriate House officials and taken
and acted on their advice if, in the event, they are subsequently
found to have breached the rules of the House. In my judgement,
and recognising and giving full and fair weight to the uncertainties
of conversations held over 10 years ago, Sir Bob Russell is entitled
to that mitigation.
Did Sir Bob Russell provide an independent rental
valuation for the property before 2010?
145. The Green Book rules required Sir Bob Russell
to provide in 2003 an independent rental valuation on the part
of the property which he was to lease from his constituency offices.
This is because the offices were to be sub-let from his constituency
party. The provision was to ensure the Member paid a fair and
not inflated market rate. There is no documentary evidence that
Sir Bob Russell submitted such a valuation to the Fees Office.
Sir Bob Russell's evidence is that he had no recollection of sending
it to the office, but he must have done so since the Fees Office
paid his claims without demur and the auditors never questioned
them.
146. There is no evidence that Sir Bob Russell paid
an inflated rent for his constituency offices.The subsequent independent
valuation made in 2010 provides no grounds for suggesting this.
But there is no assurance that the rent was established after
making an independent valuation in 2002 or when in 2006 a rise
was backdated to 2005. And, if any such valuations were made,
there is no assurance that they were sent to the Fees Office.
But equally, there is no evidence to the contrary. Without such
evidence I do not consider it fair to conclude on the balance
of probabilities that Sir Bob Russell failed to forward the independent
valuation to the Fees Office as required under the rules. I do
not, therefore, find that he was in breach of the rules in this
respect.
Overall Conclusions
147. My finding, therefore, is that from April 2003
to March 2009 Sir Bob Russell was in breach of the rules of the
House in sub-leasing offices in a property which was wholly owned
by a company in which he and his sister-in-law had an interest
through their shareholdings. His rental claims for that property,
therefore, were not in accordance with section 5.12.2 of the 2003
Green Book rules—and its subsequent editions before March
2009.
148. I conclude that the evidence is not sufficient
on the balance of probabilities for me to conclude that Sir Bob
Russell omitted to tell Fees Office staff in 2002 of his substantial
shareholding in this company before they approved his arrangements,
although it is more likely than not that he did not refer to his
sister-in-law's shareholding.
149. Had the evidence been sufficient to conclude
that Sir Bob Russell had failed to give information about his
shareholding to Fees Office officials before they approved his
arrangements under the new rules, I would have regarded this as
a serious breach. But the seriousness is strongly mitigated by
that finding. It is also fair to point out that Sir Bob Russell
received no personal financial benefit from the arrangement at
any time. And the evidence suggests that the rent charged by his
constituency party for Sir Bob Russell's offices was a fair market
rent. So the party received no undue financial benefit. All these
factors seem to me substantially to mitigate the seriousness of
Sir Bob Russell's breach.
150. On the balance of probabilities, I accept that
Sir Bob Russell lodged a market rental valuation with the Fees
Office, as requested by them and as required by the rules, in
2003. He was not, therefore, in breach of the rules for not having
done so.
151. This inquiry may serve as a reminder of how
important it is for Members to give as full and clear an account
as they can of the details of their arrangements when—commendably—they
seek advice from the authorities. And to make sure they identify
the reasons for the advice they are being given. As Sir Bob Russell
very fairly told me, had he realised in 2002 the problem that
his arrangements would cause 10 years later, he could have found
a different way of supporting the project to which he attached
such importance. And, as this report suggests, I believe that
that would have been the better course.
8 August 2012 John Lyon CB
21 WE 1 Back
22
Not included in the written evidence Back
23
Not included in the written evidence Back
24
WE 2 Back
25
WE 5. The rent was in fact paid directly to the Magdalen Hall
Company Limited until March 2004, and thereafter to the Colchester
Liberal Democrats (see WE 22). Back
26
Sir Bob Russell received a knighthood in the New Year Honours
List 2012. Back
27
Not included in the written evidence Back
28
WE 2 Back
29
WE 3 Back
30
WE 4 Back
31
WE 5 Back
32
WE 6 Back
33
WE 7 Back
34
Not included in the written evidence Back
35
WE 9 Back
36
Not included in the written evidence Back
37
WE 8 Back
38
WE 1-7 Back
39
WE 10 Back
40
WE 11 and 8 Back
41
Sir Bob Russell confirmed in his letter of 22 January 2012 that
his shareholding was 100 of 244 shares, or around 40% of the total
(WE 29). Back
42
Not included in the written evidence Back
43
Not included in the written evidence Back
44
WE 18 Back
45
WE 12 Back
46
WE 15 Back
47
WE 13 Back
48
WE 14 Back
49
WE 20 Back
50
WE 22 Back
51
An e-mail of 18 July 2012 from the same official showed that the
rent increase was effective from May 2005 and not April 2006 as
previously stated (WE 57). Back
52
WE 17 Back
53
See WE 37 for the final version of this letter as sent to the
Fees Office. Back
54
WE 21 Back
55
WE 19 Back
56
WE 16 Back
57
WE 23 Back
58
Not included in the written evidence Back
59
In fact, as explained by Sir Bob Russell in his response of 22
January, the original value was £250 a share. Sir Bob Russell
therefore paid £25,000 for his shares, and his sister-in-law
£500.When the company decided to subdivide the shares, the
number of shares increased, but not their total value. Sir Bob
Russell acquired no further shares above his initial investment
(see WE 29). Back
60
WE 24-28 Back
61
WE 25 Back
62
WE 26 Back
63
WE 27 Back
64
WE 29 Back
65
WE 15 Back
66
WE 24-28 Back
67
WE 16 Back
68
WE 31 Back
69
WE 32 Back
70
WE 9 Back
71
WE 13 Back
72
WE 14 and 15 Back
73
WE 34 Back
74
WE 35 and 36 Back
75
WE 37 Back
76
WE 17 Back
77
This description is not in the draft (WE 17) provided by Sir Bob
Russell on 8 January. Back
78
WE 38 Back
79
WE 39 Back
80
Not provided by the Director-General Back
81
Not included in the written evidence Back
82
WE 18 Back
83
WE 40 Back
84
WE 33 Back
85
WE 57 Back
86
WE 34 Back
87
WE 37 Back
88
WE 13 Back
89
WE 9 Back
90
In considering the factual accuracy of the draft factual sections
of this memorandum, Sir Bob Russell commented: "The recollections
of the Director-General are inconsistent with my memory of discussions
from the beginning of 2002, notably borne out by my letter of
31 January 2002 to the Fees Office (WE 13). It simply is not good
enough for him to concede that something I had said was "entirely
possible" and then to seek to distance himself from the advice
I was given at the time by making reference to "one possible
explanation". My letter of 31 January 2002 is crucial-it
confirms my recollection; there is nothing to confirm what the
Director-General is seeking to portray ten years later!" Back
91
WE 35 and 36 Back
92
WE 18 Back
93
WE 41 and 32 Back
94
WE 42 Back
95
WE 9 Back
96
WE 13 Back
97
WE 43 Back
98
WE 9 Back
99
Not included in the written evidence Back
100
WE 44 Back
101
WE 13 Back
102
Sir Bob Russell has contested this evidence-see paragraph 68 (WE
46) and paragraphs 75 to 80 (WE 53). Back
103
WE 15 Back
104
Sir Bob Russell has contested this evidence-see paragraph 68 (WE
46) and paragraphs 75 to 80 (WE 53). Back
105
WE 45 Back
106
WE 17 and 37 Back
107
WE 46 Back
108
WE 14 Back
109
WE 15 Back
110
WE 24 Back
111
WE 47 Back
112
WE 48 and 50 Back
113
WE 49 Back
114
WE 51 Back
115
WE 52 Back
116
WE 48-51 Back
117
WE 45 Back
118
WE 53 Back
119
WE 44 Back
120
Sir Bob Russell confirmed in his letter of 22 January that his
shareholding was 100 of 244 shares, or around 40% of the total
(WE 29). Back
121
Not included in the written evidence Back
122
Not included in the written evidence Back
123
Not included in the written evidence Back
124
WE 54 Back
125
WE 55 Back
126
WE 9 Back
127
WE 11 Back
128
WE 53 Back
129
WE 4 Back
130
WE 13 Back
131
WE 53 Back
132
WE 32 Back
133
WE 13 Back
134
WE 13 Back
135
WE 37 Back
136
WE 13 Back
137
WE 32 Back
138
WE 18 Back
139
WE 13 Back
140
WE 56 Back
141
WE 57 Back
142
WE 58 Back
143
Not included in the written evidence Back
144
WE 32 Back
145
WE 57 Back
146
WE 9 Back
147
WE 24 Back
148
WE 25 Back
149
WE 26 and 27 Back
150
WE16 Back
151
WE 13 Back
152
WE 9 Back
153
WE 18 Back
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