Select Committee on Culture, Media and Sport Minutes of Evidence

Examination of Witnesses (Questions 120 - 139)

MONDAY 13 MAY 2002


120.  If this was put into the public domain do you think it would prevent Wembley happening?

  (Mr James) Given the nature of the media and the manner in which the media would write these matters up, I think it must be highly critical if this report came in the public domain. We should also not lose track of the fact that the report might be deemed to be implying criticism of certain individuals which could give rise to litigation, which would be another feeding ground for the media.

Mr Doran

121.  I can see the point that you are making, Mr James. This is not the point I wanted to come in on but if I could follow it up. Reading your own report—and I have not had the chance to absorb it totally, I have only read it once—my immediate impression, particularly from Paragraph 6, is that basically there is a gun to the head of WNSL and that is the reason the project should go ahead and that is the reason why you are encouraging it. An awful lot of what is raised in the Tropus report is, from the evidence and what we have heard today, certainly accurate and suggests there may still be a lot of concern about whether the FA and WNSL are appropriate bodies to be involved in the expenditure of £120 or £150 million of public money.

  (Mr James) You are touching on the issue there of the conflict between preserving the value of the money that has been spent and the loss of that company in a potential insolvency. I note in the hour and a quarter that this dialogue has been going on that the word "solvency" has not occurred once.

122.  It is the next line of questioning I want to follow.

  (Mr James) Solvency is a theme that runs centrally through a great deal of this dialogue and anybody's perception of the appropriate way forward.

123.  In your report you mentioned the possibility of the loss of £75 million. Presumably that is money which has already been spent and that will not take account of the £120 million of public money?

  (Mr James) It does indeed because that effectively means that there will be an uncovered liability for the debts of WNSL in the event that this project does not go forward.

124.  I understand that.

  (Mr James) And it would be extremely difficult to see how WNSL could have anything other than an insolvent outcome at that time. In that connection I think it is important to note, particularly given the last exchange of questions that you have had with Mr Cunnah, that although the shareholding is owned by the Football Association, the Football Association does not have any guarantees relating to the solvency of its subsidiary and therefore the technical feasibility of any repayment of the £120 million (after the net value of any realisable value of Wembley if it was not going to be built) does not imply that there is a liability which would fall on the Football Association and that would lead to insolvency and the virtual impossibility of a repayment of the grant.

125.  You have answered the questions that I wanted to get into. If we hypothesise for a little bit, if for some reason this scheme does not go ahead and the German banks pull out—and I take it that the German banks are still involved and that is still the case?

  (Mr Cunnah) Indeed.

126.  So you are agreeing to that proposition. If they did pull out, then there would be no protection at all for that £120 million except for what may or may not be realisable on the piece of real estate to which WNSL would be the title-holder. Is that the case? That would be the only asset?[17]

  (Mr James) That is how I was always given to understand it.

127.  So the money has been handed over and there is no protection for it whatsoever? It would be quite an irony, I think, if the FA escape in exactly the same way that Carlton and Granada have so far escaped. You are saying that your understanding of the legal position is that that is exactly what they would be able to do?

  (Mr James) That is my understanding.

128.  Some of us felt when the Football League got into negotiations with ITV Digital that ITV Digital did not stand a chance. We are seeing now maybe DCMS or Sport England do not stand much of a chance if the thing collapses. I take the point you are making about adverse publicity, but it is important, of course, that we exercise our responsibility as far as this public money is concerned. Are you making any suggestion in relation to how we should handle this?

  (Mr James) I could make several suggestions, sir. If I might before I do so go back to a point that the Chairman made earlier and just correct some ambiguities which may have been read into the opening paragraph of the letter of 17 December to which you have drawn attention, sir. I will come back to your point then, if I may sir. In fact, the second sentence: "In order to meet the present, and we understand inflexible, deadline for a decision" is obviously in a letter written by myself to Sir Rodney Walker with whom I was in quite close contact and I am talking about something else at that time. At the risk of being unintentionally mischievous, I perhaps ought to explain what I was talking about at that time. This letter, as you will see, is dated the 17th which was the evening of Monday 17 December but a sequence of events had begun to unfold a week earlier on Tuesday 11 December which I think will help you to understand what ensued. On that day we had submitted a draft report—we being my colleagues from Paisner and myself—to Sir Rodney, who was at that time out of the country. That report purported then to be as far as we could go unless we were to be given access to further interviews which we considered very important. We believed that the report was so important that when we heard later that week from colleagues in WNSL that they were expecting a press announcement supported by the statement by the Secretary of State on the following Monday the 17th, which was likely to be favourable to an announcement that Wembley was chosen, I became extremely concerned that that announcement should not go forward without the Secretary of State and the Department of Culture being aware of the existence of this report in its relatively final form. This was a point of view with which Mr Cunnah was entirely sympathetic and he worked with me to obtain contact with the then Chairman at that time with a view to bringing the report to his attention. We were only able to do so on the evening of Friday 14 December by which time we were only a weekend away from an announcement that was due to be made by the Secretary of State, which I believe still to this day was intended to be favourable to the selection of Wembley. During the Saturday I was contacted by the DCMS and by WNSL to be told that the Permanent Secretary for the DCMS, having been given a copy of my report by WNSL, quite correctly, had discussed it with the Secretary of State and that there was an immediate requirement to review this report with myself and the WNSL team and with Berwin Leighton Paisner through Sunday 16 December. Through Sunday 16 we met at the offices of the Football Association with Sue Street, Permanent Secretary at the DCMS, and the WNSL team and we presented the report and the conclusions. At the end of that time—and this was still, you understand, an open report, it anticipated further interviews and certain completions to go through—it was put to me there was no longer really any feasible time to complete the rest of the report and that it was probably no longer feasible to proceed with the announcement the following day but, after a great deal of debate, it was decided that we could at least foresee the possibility that the media presentation of the result could be deferred by two days until the 19th, the Wednesday. One of the pressure points was the rising of the House. Therefore the deadline which is being referred to in this first paragraph is not the decision, as such, as to how far a decision can be extended, it is the decision which is being driven by the prior intention of the Secretary of State and the Department to make an announcement, and my concern that the report in circulation, at least in draft form, must be brought to their attention beforehand. Unfortunately it only got into their hands on the Friday night as a result of the unfortunate delay earlier in the week.


129.  That is extremely helpful, Mr James, and I am grateful to you for clarifying that. We were, of course, aware of the turmoil which was taking place at that time and the problems the Secretary of State had in making her statement, including the problems relating to parliamentary privilege which had to be safeguarded. It is also interesting, by no means your responsibility, that the 19 December statement was the last statement the Secretary of State ever voluntarily made to the House of Commons on this matter; the two 10 April replies giving us her 30 April deadline were in response to questions. It would be a matter which we may have to raise with her as to why she allowed so much time to go by without keeping the House of Commons informed. Could I just ask one other question. It is curious, although I have been through this report several times what I do not have is a date for publication of the Tropus Report. We know it was commissioned last July. Well, it was not published, it has never been published, but when was it delivered?

  (Mr Cunnah) It is technically still in draft but it was delivered in its current form to WNSL I think at the end of August or the beginning of September.

130.  End of August last year?

  (Mr Cunnah) Yes. I would need to confirm that date.[18]

131.  On what date, if you can recollect, was a copy provided to the Secretary of State?

  (Mr Cunnah) I honestly do not know.

132.  But it was provided? She had a copy? If your advisers wish to say that rather than passing you a note, they are welcome to do so.

  (Mr James) Sunday 16 December.
  (Ms McLeman) That is the Berwin Leighton Paisner report.
  (Mr James) It was also the Tropus report. The same day they read it.

133.  Thank you, that is helpful. I have read this extremely judicious report, and one would expect nothing else from you, and your letter. We have had Mr Cunnah talking about the fact that the house has been put in order now. Without impugning his integrity, plainly the house has been put in order now. In paragraph 2.1 of your letter you say, "The process adopted by WNSL is unlikely to satisfy the best practice standards as usually deemed necessary in any project involving Government or Lottery funding . . .", and you say that this could give rise to censure by the National Audit Office. One has seen the balance you have assessed in coming to the conclusions you have made, but I would take it that that is a very severe criticism.

  (Mr James) Yes, Sir. For the last two years I have had the opportunity to watch the processes of the NAO in close up through the Dome—

134.  As we know well!

  (Mr James) As I shall not forget easily! One of the reasons why I was so particularly concerned I should be able to choose the investigative team to work with me on this review was because Berwin Leighton Paisner had undertaken a review of the appropriations procedures at the Dome and so had a lot of detailed prior experience of government appropriations to assess. So the views we formed together came from that point of view. There is much in here that is in parallel with the process of the Dome and some of the difficulties which were encountered, but my paragraph 2.1 is really a recognition of the position which is described in the Tropus report but which in essence is effectively two separate appropriations procedures being run in parallel and one group of people being unaware of the existence of the other tendering process. So you have two tendering processes running together, one of which is the open tender in which eleven people participate, and the other one, on a completely separate basis which, instead of going for three separate stages of the project each to be separately costed and tendered, is one overall global review being solicited. When eventually the latter one, the global review, finds favour, inadequate time is provided to allow the other eleven to alter their perception in order to pitch. That is clearly absolutely not acceptable, and that is such a severe criticism there is really no excuse which can be offered for it, but one then has to look to why that situation occurred and what can be done as to the issue of governance which it discloses. That brings us again to the governance issues, and brings me back again to the unanswered question to this gentleman as to what should be done about the future, and I have a slightly contradictory approach to the unanswered question. The first is that I formed a very strong impression that there was one problem here which was very nearly the same as the problem experienced by the board of the New Millennium Experience Company. The board of WNSL and the board of the New Millennium Experience Company both had a significant shareholder or shareholding sitting on top of them which they assumed effectively to be providing the direction and the overall view and governance, whereas the board at the secondary level, which actually carries ultimately the solvency responsibility—a factor common to both boards—did not believe that its solvency problem was significant because it would be taken care of or resolved by the ultimate execution of the project. In this particular case, I do not believe the WNSL board has anything like the same security as to its solvency from the FA as did the New Millennium Experience Company, and we know what problems they got into. So in this particular case, the recommendation I would make—and I am not quite sure how it could be addressed at this time—would be two-fold. The first is that apart from the issues of governance, it should perhaps be that the Football Association, if it is to be effectively a 100 per cent owning party to this venture, should in some way be asked to set in place some appropriate form of guarantee from its own resources with which to address any deficiency in the business of WNSL if it is going to have the same degree of control and direction. If not, then the WNSL board should in some way be established on such an independent basis—and it would be much more than Mr Cunnah's requirements as he has addressed them for experienced construction and marketing, it will have to go to the whole issues of financial management execution and governance in the wider sense—to ensure these issues in the future are conducted much, much better than they were in the process leading up to this extremely poor appropriations procedure.

135.  I have one or two more questions in relation to Mr James' letter. You have wisely, shrewdly and appropriately in the end dumped this decision into the lap of the Government. In your final paragraph you make an on-balance decision yourself or take an on-balance view yourself, but in your final sentence, which is impregnable in my view, you say, "Government in turn will wish to establish its own view as to the issues of propriety and safety before addressing the advantages this project offers in the national interest." That is very fair and it is perfectly right that if the Government has decided to involve itself in this project—extremely unwisely, in my view but the Government has made such a decision—you have dumped that exploding parcel in their lap and it is the appropriate lap for it to be dumped in. You use language very judiciously and it is appropriate but, nevertheless, you say in paragraph 2 (iii) on page 5 of your covering letter, "I conclude there is an unavoidable element of risk which cannot be dissociated from the contract as negotiated". You say in paragraph 6 of your conclusions on page 6 of your covering letter that: "There is no evidence of any criminality or impropriety having occurred to date in this matter"—that does not mean there has been no criminality or impropriety, simply there is no evidence of it—"but . . .", you say, ". . . there is no means by which all questions or"—I take it the "or" should be "of"—"of propriety can be eliminated to the extent that the contract could ever be regarded as one hundred per cent safe." So you make that very clear in your letter. I am not going to ask you some stupid questions such as, "If this was not a national stadium project you were being asked to invest in, would you invest in it personally", but at the same time you have made very clear that in the end the considerations are such that it is appropriate for the Government to take a view on issues of propriety and safety. That is where you left it. Have you had any reason in the six months since you wrote that letter to change your view of the criteria which you named here by which the Government should judge it?

  (Mr James) I think you have asked me two groups of questions there which I will try and separate, if I may, Sir. Can we go back to paragraph (iii) on page 5 at the very end? May I draw your attention to words which I do not think you did read out. "within the jurisdiction of WNSL". I would be as confident as I am able to on the thoroughness of the review that we did[19] that there was no illegality or criminality anywhere within this particular project which we were identifying within the areas within our investigation. I do not alter my opinion on that. I think to that extent it is clear and clean. Why I am saying that I am unable to give the comfort that this will always be safe is because we live in a world which is much more devious than the simplicity of a single company and a single project. Here I believe I am speaking in a privileged situation and I am okay in that sense as to what I say. We can only investigate where we could shine our torch, and we could not shine our torch outside the jurisdiction of the business of WNSL. We could not look into the affairs of other events and other companies going on at the same time elsewhere, and we could not therefore form any view as to any interrelationship of these issues with any parallel affairs elsewhere.

136.  Could I ask you one other question, and I am just trying to turn up your words because they are very important words.

  (Mr James) Did you want me to answer the second part of your question?

137.  I will find the words as we go along, I can ask the question without having the exact words. If I may summarise your conclusions, but please tell me if my summary is inaccurate or unfair, what you are saying is there are lots and lots of problems about this, there are lots of doubts about it, but if you do want a national stadium, this is the route to go down. Let us just take away those words, which I have said, "If you really do want a national stadium" and let us put aside that criterion. If this was a construction venture which did not have national implications and something which the Government has taken a view on, is it in your view a project which a company finding its own money would have been well advised to pursue?

  (Mr James) That will be the answer to your second question indeed and my last paragraph. I, in forming a view here, tried to take a view as a "company rescue" man as much as anything else, because this seemed to me to be potentially a company which was about to go bust, so I was looking at it from the point of view of how does one maximise value, how does one recover something from the wreckage. It seemed to me that here we have a situation where a great deal of government money had already been spent on buying something—effectively they had bought an option on the creation of the future national stadium—and everything they had allowed that money to be spent on still existed as an opportunity. They had reached first base, to the extent there was a design, there was a working dialogue as to finding the funding, and there was a reasonably wide acceptance within the media this was an appropriate course of action in the national interest. Had they decided at that stage to go down any course of action which had abandoned it, a number of very unfortunate things would have happened. Certainly I could see no way whereby the grant could be repaid; there would have been a loss therefore of funds which would never be put to any value—and having seen as much money as I have go down with the Dome—

138.  Whose funds?

  (Mr James) Lottery funds.

139.  But many people would say they are lost anyhow.

  (Mr James) But sometimes it is possible to recover something of value and if there was a desire for a national stadium, it seemed the first base had been reached, and that although there might have been a number of very serious imperfections on the journey to first base one at least was there. The likelihood of this being overturned by challengers to the propriety I have marked and evaluated and decided the risk was there but it was not great. Secondly, provided the board put its governance in place correctly for the future, and particularly sorted out its relationship with the Football Association and one or two other points which, if you wish, we can turn to, this was probably the cheapest option the Government were ever going to get to have their national stadium, because they were being offered a defined fixed price at that time. The likelihood then was that Barclays were going to come into line with financing, and I was asked by Mr Cunnah to help with dialogue with Barclays at that time, which I did, in order to explain to them the background and I believe then they were satisfied, and that there was every reasonable prospect therefore the timetable could be met so that sometime around the year 2004 a stadium would be reborn somewhere in North West London. The alternative to that was the loss of that project, the loss of the money which had been invested already, the bankruptcy and the non-recovery of any funds or equivalent value of the Lottery arising from it, and the probability that if somebody now wanted to go down the course of trying to create a new stadium elsewhere there would first of all be a duplication certainly of all the development costs which had been spent out of the first £120 million, there would be a longer delay in finding such a stadium and by that time the escalation of costs to build it. Pragmatically, it seemed to be very unlikely that the Government would ever have a better option than creating another stadium of this consequence within the definable parameters of the funding available and effectively passing the bulk of that funding into the private sector to provide. So I thought it was a reasonable recommendation to say, "Go for it."

17   Note from WNSL: see evidence given before the Committee on 21 May 2002 by Wembley National Stadium Limited and The Football Association. Back

18   Note by WNSL: the report provided to WNSL by Tropus was headed "3rd Draft" and dated 2 August 2001. Back

19   Note by Mr David James: The scope of Berwin Leighton Paisner's review and investigation is set out in paragraphs 5 to 17 of Section A of their report (see HC 843 (2001-02), Memorandum). Back

previous page contents next page

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

© Parliamentary copyright 2002
Prepared 10 July 2002