Select Committee on Standards and Privileges Ninth Report

Report submitted to the Britannia Building Society by Herbert Smith Solicitors

Project Offenbach

We have now concluded our investigation into this matter and are writing to you with our advice.

Terms of Reference

We have been instructed to investigate the full circumstances of the mortgage granted by the Society to The Rt Hon Peter Mandelson MP in October 1996 and the involvement and conduct of Wegg-Prosser Farmer ("WPF"), acting on behalf of Mr Mandelson and the Society, and to determine whether or not there has been a fraud on the Society, and to make recommendations on whether:

(i)  Mr Mandelson's details should be entered onto CIFAS and/or the National Hunter System by the Society (bearing in mind the obligations of the Society to other members under the two schemes)

(ii)  WPF's file for the mortgage transaction should be handed to the Law Society's Fraud Officer

(iii)  the files relating to the mortgage transaction should be handed to the police

(iv)  what, if any, action should be taken?

Work Carried Out

We have interviewed the following people: Mr Mandelson, Stephen Wegg-Prosser, Benjamin Wegg-Prosser and Michael McDermott. Where necessary, we have also had follow-up telephone discussions in order to check or confirm points raised by other witnesses. We have drawn up statements for each witness and, where possible, the statements have been checked and approved. Finally, we have considered the Society's papers for this transaction and the original file for the purchase of 9 Northumberland Place ("Northumberland") provided to the Society by WPF.

Factual Position

This is set out comprehensively in the attached Statement of Facts[16] with areas of conflicting evidence highlighted.

The most significant events are as follows:—

(1)  Mortgage Interview at Queensway Branch

There is some uncertainty as to precisely what took place at Mr Mandelson's interview on 30th August 1996 at your Queensway branch.

Mr McDermott could not recall Mr Mandelson disclosing to him details of his constituency property at Hutton Avenue, Hartlepool ("Hutton"), or his mortgage on the property, either during the initial discussion on the proposed transaction, or at any other time. In relation to the questions asked by Mr McDermott from the mortgage application form, Mr McDermott is confident that he would have accurately noted Mr Mandelson's answers.

Mr Mandelson cannot now precisely recall exactly what was said at the interview (one of many appointments he had during that day alone) but cannot believe that he would not have mentioned his constituency home, and the mortgage, particularly as there was no reason for him to have withheld this information when this liability was to be discharged upon the sale of Wilmington.

Benjamin Wegg-Prosser, who recalls being present for only part of the interview (Mr McDermott's recollection is that he was there throughout), cannot confirm that Mr Mandelson disclosed this information but he thinks that it is unlikely that Mr Mandelson would have forgotten to mention this as Benjamin Wegg-Prosser believes (but cannot now recall) that he would have briefed Mr Mandelson prior to the interview and this item would have been covered.

Both Mr McDermott and Mr Mandelson did agree that the interview was "rushed" towards the end which may mean that little time was available for Mr Mandelson to check the form before signing. (This may explain why obvious errors—Mr Mandelson being described as a "Minister" of Parliament—were not spotted and corrected by Mr Mandelson at the review). Mr Mandelson confirmed also that he did not take a copy away with him so as to check its accuracy when more time was available to him, and that he recalled only giving the form cursory attention.

(2)  Payment of the Deposit

Our investigation has revealed that the Rt Hon Geoffrey Robinson MP was involved in the purchase of Northumberland earlier than the Society had first thought. After questioning Stephen Wegg-Prosser at interview as to the source of the deposit monies, we were informed by him in a subsequent telephone call that his son, Benjamin Wegg-Prosser recalled collecting a cheque for the deposit monies from Mr Robinson and delivering this to WPF. Whilst WPF's Monies Received Form records the money having been received from Mr Mandelson, Stephen Wegg-Prosser maintained at interview, and at all times since, that he could not recollect personally ever seeing the cheque, and that he was not aware of Mr Robinson's involvement in the transaction until the 14th-15th October 1996.

Mr Mandelson confirmed that Mr Robinson had provided the deposit monies in order to allow him to keep to the vendor's strict timetable for completion by exchanging contracts on 3rd October 1996. Originally Mr Mandelson's mother was to put up the deposit as well as the balance of completion monies. However, Mr Mandelson explained that he had only borrowed this money on a temporary basis from Mr Robinson when, immediately prior to exchange, his mother had started to waver on providing the purchase monies. Despite his mother's change of mind, Mr Mandelson believed this to be only temporary and concluded that at completion she would put up the necessary monies. Had he not reached this conclusion, we are instructed that he would not have exchanged contracts.

(3)  Mother's Gift

Mr Mandelson told us that, before making any offer for Northumberland, he had been told by his mother that she would "gift" him the money he needed for the balance of the completion monies.

Mr Mandelson said that his mother had changed her mind at the last minute, possibly under pressure from his older brother, and that because of this, and in order to avoid the purchase falling through, he had had to borrow the deposit from Mr Robinson (who had not previously been involved in any way in financing the purchase). Mr Mandelson has told us that he believed that between exchange and completion his mother would become reconciled to the proposal that she should advance the balance of purchase monies and that she would ultimately put up the necessary monies, thus allowing Mr Mandelson to repay the deposit to Mr Robinson. However Mr Mandelson became worried when he visited her, after exchange, at the distress his request was causing and, only at that stage, we were told, did he raise with Mr Robinson the possibility of Mr Robinson lending the monies required for completion, and doing so on a long-term basis. Mr Mandelson could not recollect precisely how the matter of the loan from Mr Robinson was raised, only that Mr Robinson dealt with the matter very casually.

(4)  Sale of Mr Mandelson's flat at Wilmington Square ("Wilmington")

It is clear that both Mr Mandelson and Stephen Wegg-Prosser realised from mid to late September that, despite Mr Mandelson's flat at Wilmington being on the market at the date of the application for a mortgage, it was unlikely that a sale would be arranged as quickly as the purchase timetable demanded by the vendor of Northumberland.

Both Mr Mandelson and Stephen Wegg-Prosser confirmed that no contracts were sent out for Wilmington until after the purchase of Northumberland (as no firm offers were received during the early period) and that it was clear from as early as mid to late September that there would be no simultaneous sale and purchase (which explains the lack of reference to a sale on Stephen Wegg-Prosser's file). A buyer was only eventually found after Mr Mandelson dropped the price on Wilmington, with contracts being exchanged on 17th January 1997.

The Legal Position

The offence of "mortgage fraud" is more particularly that of "obtaining a pecuniary advantage by deception" which can be found in Section 16 of the Theft Act 1968:—

"a person who by any deception dishonesty obtains for himself or for another any pecuniary advantage is liable on conviction on indictment to imprisonment for a term not exceeding five years ..."

Two crucial elements of this offence are that the deception must be the effective cause of the advantage, and there must be a dishonest intent on behalf of the perpetrator. Furthermore, although there must be a causal connection between the deception and the pecuniary advantage obtained, it is not necessary that the person deceived suffered any loss arising from the deception—R-v-Kovacs [1974].

There is also a separate offence of being part of a conspiracy to obtain a pecuniary advantage by deception. The same elements must be present as for the principal offence but with the additional requirement of two or more people sharing the same intent to work together to obtain dishonestly a pecuniary advantage by deception.

Mr Mandelson's Position

There is no doubt that Mr Mandelson failed to ensure that all material information was disclosed in the mortgage application form when he signed it and submitted it to the Society. It is also clear that Mr Mandelson failed to inform the Society of material changes to the nature of the transaction: in particular, the loan from Mr Robinson (first, the deposit and, then, the balance) and the delay in the sale of Wilmington.

However, the following matters should be borne in mind in relation to these failures:—

(1)  There was no obvious reason/motive for Mr Mandelson not to disclose details about Hutton when that mortgage was to be discharged as part of the transaction.

(2)  The Britannia mortgage application form in use at that time was not specifically designed to extract details of second properties/second mortgages—it is therefore conceivable that Mr Mandelson was not properly focused by the questions in sections C and D on his ownership of Hutton.

(3)  The interview was clearly "rushed"—Mr Mandelson informed us and it is clear from obvious mistakes in the form that it was not properly checked by Mr Mandelson before it was signed.

(4)  A copy of the mortgage application form was not provided by the Society to WPF (it is not the Society's usual practice so to do). Accordingly, Stephen Wegg-Prosser could not later correct any failure by Mr Mandelson to disclose information during the interview nor, indeed, was he aware of any inaccuracies.

(5)  Mr Mandelson was not advised at any time by Stephen Wegg-Prosser to disclose material changes in the transaction to the Society, as he should have been—he was let down by his adviser.

(6)  The transaction took place immediately proceeding, during and immediately after, the last Labour Party Conference before the 1997 General Election. Mr Mandelson was the principal organiser and, we are told, was working round the clock. It is clear that Mr Mandelson's mind would have been fully focused on the conference and preparations for the forthcoming General Election throughout the whole of this period.

(7)  There was never any financial risk to the Society in any of the actions/omissions because of the nature of the transaction and the value of the equity in Northumberland. The Society had a first charge over Northumberland. The interest arrangement agreed between Mr Mandelson and Mr Robinson in respect of the latter's loan was that interest was not immediately payable but would accrue and only become payable on an eventual sale of Northumberland. Accordingly, there was no risk that interest payments to Mr Robinson would prejudice in any way Mr Mandelson's ability to pay interest to the Society on his mortgage with the Society.

Whilst the press release issued by the Society on 8th January 1999 stated that the Society was satisfied that the information provided by Mr Mandelson at the time of the mortgage application form had been correct, it is clear that this statement was accurate at the time it was made. The Society was not aware until receipt of a letter on 22nd January, during its enquiries of WPF, about the existence of another mortgage on Hutton.

Stephen Wegg-Prosser's Position

It is clear that Stephen Wegg-Prosser (and thus his firm, WPF) ignored express instructions given to him by the Society. He breached the overall duties he owed to the Society. He failed to advise Mr Mandelson to make various disclosures to the Society as the transaction proceeded regarding the changing nature of the transaction. Stephen Wegg-Prosser admits to his failings in these respects.

Stephen Wegg-Prosser ought to have informed the Society as soon as he was aware that

1.  there would be no simultaneous sale and purchase of Wilmington and Northumberland, and

2.  Mr Robinson was providing the balance of the completion monies.

As to why Stephen Wegg-Prosser failed in the above respects, we can only speculate. However, it is our view that he was "star struck" in acting for Mr Mandelson and, on his own admission, he did rather a sloppy job. When we interviewed Stephen Wegg-Prosser he told us that he had reviewed his file and was somewhat ashamed of it. He told us that he normally maintained a meticulous file and accepted that he had not done so on this occasion.

A further relevant factor was the fact that, shortly before this transaction started, Stephen Wegg-Prosser's father was diagnosed as terminally ill with cancer and he died on Monday, 7th October 1996—just four days after exchange, and a week before Stephen Wegg-Prosser's first contact with Mr Robinson. It is clear that such a family tragedy would have been, at the very least, a distraction for Stephen Wegg-Prosser from his work on this matter. His father was living at the family's country home and Stephen Wegg-Prosser spent a great deal of time with him there and was thus absent from the office at a key stage of this transaction.

Practical Position

As there is no proof that Mr Robinson was involved, or likely to be involved, at the date when Mr Mandelson signed the mortgage application form, the only information missing from the form concerned Mr Mandelson's ownership of Hutton and, obviously, details of the mortgage.

It is clear from our interview with Mr McDermott that, if this information had been disclosed and Mr Mandelson had also said that the mortgage would be discharged out of the Wilmington sale proceeds, Mr McDermott would still have recommended this transaction to the Society, albeit conditional upon both transactions taking place simultaneously. This was, we believe, Mr Mandelson's original (genuine) intention.

As stated above, on the information given to us, there was never any financial risk to the Society in lending on the security of Northumberland. Indeed this statement is borne out by the fact that Northumberland is expected to sell in the near future for at least £750,000.


Whilst there are some inconsistencies in the information given to us, as a result of our investigation (not least from our interview of Mr Mandelson) we have concluded that Mr Mandelson did not have any dishonest intent at any relevant time and did not consciously mislead the Society.

Certainly there were some irregularities and WPF's handling of the matter was sloppy.

Nevertheless, taking into account all the matters set out above, it is our recommendation that the Society should close its file in relation to this transaction.

In so advising, we are particularly conscious of the fact that any action taken by the Society (such as completing an entry on the CIFAS or the National Hunter Systems) increases the chance of this matter becoming public and this would have a serious and detrimental effect on Mr Mandelson's future career. In view of our conclusion that there is no dishonesty here, such a consequence would be wholly inappropriate.

We know from our instructions that, normally, where there is some irregularity and a suspicion of fraud, further action, at least involving entries on CIFAS and the National Hunter System is taken. That is because the Society wishes to put other lenders on notice of the possibility of a fraud having taken place.

In this case, because of the sensitivity of the individuals concerned, the Society has (in our view, quite properly) fully investigated the matter and this enquiry has concluded that no dishonesty exists. In those circumstances, it would be wholly wrong for the Society to proceed as though such were not the case. Indeed, we believe that you could be criticised for taking the matter any further in these circumstances.

Our comments above relate, of course, to the position of Mr Mandelson. It is necessary to consider the position of Stephen Wegg-Prosser and his firm separately.

There is no doubt that the firm let the Society down. As indicated above, it is our view that Stephen Wegg-Prosser failed to follow instructions given to him from the Society and as a result some considerable embarrassment has been caused to the Society although there has been no financial loss, beyond the costs of the present investigation.

Contractually, WPF are in breach of their duties and you would have a claim against them for professional negligence. However, because no loss has been suffered, it is unlikely that you would recover any damages. You may be able to argue that WPF should pay the costs of this investigation but the firm would certainly have an argument that such a claim was too remote and that the costs did not necessarily flow from the breach of contract and negligence.

We suspect that, in those circumstances, the Society would decide not to embark upon expensive, public and possibly protracted proceedings where the outcome is uncertain. There would be little commercial gain to the Society in so proceeding, particularly after taking account of the irrecoverable costs necessarily expended in litigation.

On the basis of our conclusion that there was no dishonest intent by any of the individuals concerned, WPF's file should not be passed to the Law Society's Fraud Officer. We have also considered whether you should refer the matter either to the Office for the Supervision of Solicitors (OSS), which is the complaints body of the Law Society.

The OSS investigates complaints that relate to the conduct of solicitors as opposed to matters of professional negligence. Although WPF may have acted negligently, that is not to say that they acted in a manner which would be regarded as breach of professional conduct. They could be criticised for their lax office procedures, notably in relation to their procedures for the receipt of monies. However, there is no suggestion whatsoever that they have misappropriated clients monies or, indeed, not properly maintained at all times a separate client account (a cardinal sin). There is also no suggestion that they have benefited in any way, beyond their normal professional fee, for anything that took place here.

For all of those reasons, an investigation by the OSS is unlikely to result in anything more than a letter of rebuke to WPF, if that. The Society might also wish to bear in mind that if a complaint to the OSS is made, there is a very great likelihood that the subject matter of this investigation will become public.

What action can be taken against WPF?

In our view the Society would be justified in removing WPF from its panel of solicitors. The Society may also consider writing to WPF setting out your reasons for taking that action. In our view it would accord with the rules of natural justice to explain to WPF why you are so proceeding and to give them a chance to respond.

We suspect that WPF will not seek to challenge the decision, particularly as we believe that they have not acted for the Society before.

We would be pleased to answer any queries you have on any of the advice given above.

22 March 1999


16  Not received. Back

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 1 July 1999