Maxwell, The Outsider

by Tom Bower

  The report had in fact been completed and signed by the inspectors two days earlier although it was presented to the Conservative Minister, John Davies, only five days later. The decision whether to publish depended entirely upon Davies. Some time after the exchange between Maxwell and Stable, the inspector wrote to Silkin announcing that the report had been formally completed. On 10 July Davies, as required by law, had allowed the Pergamon board, including Maxwell, to read a copy of the report. Maxwell was appalled. Silkin, who knew that the courts had no power to prevent the government publishing, urged the DTI to desist because all the undertakings made by the inspectors had been broken.

  Within days, the report's existence was widely known, and pressure intensified, especially from the City, for its immediate release. Lord Shawcross even allowed himself to be named as one of those lobbying the Minister. On 13 July, the Minister agreed. The report was published, sweeping aside Maxwell's imminent re-election to the Pergamon board and changing his life forever.

  Stable and Leach had adopted a style which would do credit to the author of a pot-boiling thriller. Under headings such as 'A False Statement', 'Another False Statement', 'More Misleading Statements' and 'Still More Misleading Statements' they wove a gripping narrative which suggested that ILSC was negligently and deceitfully managed. None of the revelations in their 209-page report would attract more attention than the chapter entitled 'A Remarkable Sale'.

  The date of the 'remarkable sale' was 30 June 1968, the day on which Pergamon, under certain circumstances, became liable to compensate BPC if ILSC's profits did not total £500,000. The sale was for no less than five thousand complete sets of New Caxton encyclopaedias at $70 per set. ILSC's customer was Pergamon's own subsidiary, PPI in New York. At ILSC's board meeting the following day to review the company's profits, Maxwell, according to the inspectors, made no mention of that crucial sale. The inspectors also claimed that on that day ILSC neither had a written order for that sale nor even possessed that number of sets 'in a deliverable state'. The sale, they believed, was arranged in autumn 1968 and 'deliberately ante-dated so that the profit on the so-called sale could be credited to ILSC in the warranty period which ended on the 30th June 1968'. It amounted to a charge that Maxwell was guilty of deception. (Maxwell vigorously denies that the sale was ever credited to ILSC's profits and insists that the inspectors ignored his evidence that ILSC did not make a profit on the transaction, and that he had notified the ILSC board. He has repeatedly criticised the correctness of the inspectors' finding.)

  The report's examination of Maxwell's management of the encyclopaedia business was critical, especially of his dictatorial methods and his utterance of unsupported statements. The inspectors alleged that he had sent a crucial letter regarding the creation of ILSC which was 'misleading and untrue'; that he allowed important documents to be destroyed; that proper records were not kept; that he must have known that the letter to Bernard Schwartz was not true; that his letter of 23 August 1969 that ILSC 'is now trading profitably' was 'calculated to mislead', and that 'the history of ILSC, with regard to what was disclosed, is a series of suppressions of information and of optimism verging on recklessness with the occasional statement which was untrue and calculated to mislead'.

  According to the inspectors' account, Maxwell compounded his wrongdoing while giving his formal evidence on oath. They quote the example of the bid document for Butterworths which contained his reassuring statement that ILSC had 'informed Pergamon that sales and profits for the first three months of operations are running at the level forecast'. During the questioning Maxwell had insisted that the statement had been approved both by his advisers and by the BPC directors at a meeting in Fitzroy Square. In contradiction, Stable and Leach pointed out to Maxwell that not only did the BPC directors deny having seen the draft but they also denied there ever was a meeting in Fitzroy Square. Maxwell replied: ‘I am amazed. That is all I can say. It is incomprehensible to me,' and he added that the circulars were given a wide distribution. Later he said, ‘I can recollect clearing the document with the BPC directors of ILSC.' In their report, the inspectors state that they had requested searches in the files of eight separate principals and advisers - the merchant banks, solicitors, stockbrokers, at BPC and at Pergamon - and not a single original or carbon copy was found of the draft document. On a later occasion, the inspectors asked Maxwell if he himself had yet found a copy of a letter signed by an ILSC director which gave that memorable forecast. Maxwell replied, 'Not yet.' The inspectors therefore concluded, 'Mr Maxwell's assertion ... is inaccurate.' They also pointed out that neither Maxwell nor Kerman had ever, throughout the questioning, sought to 'justify the statement'.

  Among several other deals questioned was the sale of Pictorial Knowledge for £200,000 from ILSC to Pergamon on 12 August 1969 which according to the inspectors betrayed 'an element of desperation' to boost ILSC's profits. Concerning that alleged contract, stated the report, 'Not a single director of Pergamon [other than Mr Maxwell] admitted ever having seen [the contract] or been aware that Pergamon had made this purchase.'

  But the report was also, in some instances, unfairly biased against Maxwell. In the case of Hedley Le Bas and Rod Jenman, the two Caxton encyclopaedia executives who bore tarnished reputations within the encyclopaedia trade, the inspectors sided absolutely with Maxwell's critics although both had been dismissed for alleged dishonesty. Both Robert Fleming and Chalmers Impey were gently chided in the report but then seemingly excused by statements such as 'Flemings too had lost faith in Mr Maxwell and his integrity,' or 'Mr Briggs, due to a severe impediment in his speech, is at a great disadvantage.' Although other personalities involved, like Kerman, Ormrod and Clark, were criticised, the overwhelming preponderance of blame for the sins committed was placed on Maxwell. BPC's directors, who in many instances were also to blame, were censured but with considerably less emphasis. As Maxwell retorted, ‘I am constantly being amazed by the evidence from the BPC side.' But whenever contradictions of evidence were cited, the inspectors invariably concluded that Maxwell's version was to be disbelieved.

  Probably the inspectors best revealed their standpoint by their emotive explanation about how Maxwell recruited the Caxton sales team in South Africa. Describing what is normally called 'headhunting', the inspectors stated, 'Poaching is a polite [description]: sabotaging is a more robust description, but the complaint is sabotaging by poaching.' The inspectors conceded that some might say that the poaching was 'a perfectly standard commercial tug of war' but they felt that 'such a standard leaves much to be desired'. The inspectors were prim and naive about common business practices and demonstrated clear bias against Maxwell. Overall, the report revealed a lack of balance and a propensity to exaggerate where the bald facts appeared sufficiently discreditable.

  The report's conclusions concentrated exclusively upon Maxwell. The catastrophic mismanagement of ILSC, the inspectors claimed, was principally due to Maxwell, of whom they said:

  He is a man of great energy, drive and imagination, but unfortunately an apparent fixation as to his own abilities causes him to ignore the views of others if these are not compatible. This is very evident in the recurrent (and frequent) changes of personnel in ILSC which were one of the factors which contributed to the disaster. Neither his fellow directors, his professional advisers, nor his employees were able to sway his views and actions. The concept of a Board being responsible for policy was alien to him.

  We are also convinced that Mr Maxwell regarded his stewardship duties fulfilled by showing the maximum profits which any transaction could be devised to show. Furthermore, in reporting to shareholders and investors he had a reckless and unjustified optimism which enabled him on some occasions to disregard unpalatable facts and on others to state what he must have known to be untrue. . . .

  We regret having to conclude that, notwithstanding Mr Maxwell's acknowledged abilities and energy, he is not in our opinion a person who can be relied on to exercise proper stewardship of a publicly
quoted company.

  The publication of the last paragraph on 13 July 1971 was unprecedented, unmerciful and devastating. It amounted to nothing less, as a judge later said, than his 'business murder'. Maxwell had finally been crucified and, beyond his family and his closest advisers, there were few who expected or even willed a resurrection. At a press conference, Maxwell denounced the 'so-called City Establishment' who had been let off very lightly. The report, he said, was 'a smear and a witch-hunt'. The inspectors had gone beyond their powers in what was a Star Chamber procedure and their unwarranted conclusion had virtually barred him from the possibility of making a living. Overnight, all Maxwell's hopes of election to the Pergamon board were utterly crushed. The inspectors' indictment, which was so warmly welcomed in the City, had intentionally made him a leper within the business community.

  The publication was timed to coincide with Maxwell's return to the Pergamon board. That was no longer possible. Maxwell withdrew to Headington Hall. The Establishment, he felt, knew how to keep outsiders firmly beyond the pale.

  If Maxwell has ever suffered a trauma, it was reflected on his face when he read for the first time the inspectors' report published in July 1971. Indelibly engraved on Maxwell's brow is the inspectors' damning judgement about his management of Pergamon. Ever since, he has insisted that his fight through the courts to reverse their indictment was successful. That is not true, but understanding his persistent and erroneous insistence helps to explain both the inner dilemmas of Maxwell and the environment in Britain in which he desperately sought to succeed. Whether he would ever have been satisfied by any inspectors' report is most unlikely, but his initial apprehension about the inspectors' conduct of that inquiry, the realisation of those suspicions and the attitude of Britain's judges towards both Maxwell and the inspectors confirmed for Maxwell the Establishment's prejudice, dishonesty and vindictiveness.

  On the day of publication, Silkin issued a writ seeking a court declaration that the inspectors had failed in their obligation to be fair and accurate as required by the rules of natural justice. At the court hearing in September, Silkin asked Mr Justice Forbes to prevent two further reports being published - the first on Pergamon itself and the second on MSI Inc. - until the trial concerning the inspectors had been completed.

  Mr Justice Forbes was sympathetic. In his view, Maxwell should have been given the opportunity to defend himself: 'Surely, before they started making their swingeing criticisms they should have said to Mr Maxwell, "Now look, we are minded to say this. You tell us why we should not.'" Counsel for the DTI insisted that the inspectors had said those words but Maxwell had failed to grasp the opportunities to defend himself. Forbes was unconvinced, especially after the inspectors admitted that they had not repeated every tentative accusation to Maxwell because it would be 'unnecessarily burdensome'. All they needed to do, they claimed, was to make sure that Maxwell realised that his 'conduct was open to question'. Forbes disagreed. The inspectors' failure, he judged, to allow Maxwell a proper opportunity to rebut their criticisms amounted to a denial of natural justice. He cited what Lord Denning had said in 1970: 'Before they condemn or criticize a man they must give him a fair opportunity for correcting or contradicting what is said against him.' That requirement, said Forbes, had not been followed and he criticised the inspectors for intentionally adopting a standard substantially below that set by Denning and very different to the procedure which they had originally pledged themselves to observe.

  Although Forbes had given valuable ammunition to Maxwell, he emphasised that the inspectors had not been unfair but had simply not followed the correct procedure. On a technicality he refused to grant Maxwell's application for an injunction but urged a speedy trial on the substantial issue, which, he speculated, Maxwell would probably win and as a consequence there would have to be a new inquiry. This was welcome but nevertheless cold comfort. A single judge could not eradicate the damnation inflicted by the inspectors' concluding paragraph.

  Maxwell did not appeal against the Forbes judgement but instead waited months for the trial to be heard. John Silkin was allowed to represent his interests on the Pergamon board while he remained as an unpaid consultant and still controlled PPI. But his opportunities of management were strictly limited.

  On 11 April 1972, the DTI published the inspectors' second report, which concentrated upon his original entry into the encyclopaedia business in 1965 with the purchase of Newnes and upon his subsequent highly publicised world tour to sell Chambers encyclopaedias. In some respects, the report was more mellow, which suggested that the Forbes judgement might have caused the inspectors some concern. Greater allowances were made for the possibility of genuine accounting errors, but the overall effect, based on the evidence, was a severe criticism of Maxwell's management and his deliberate overstating of profits.

  Quoting Maxwell's own oral evidence, the inspectors showed that while Maxwell had claimed that he had relied upon his experts, Briggs and Bennett, the accountants had testified that Maxwell bullied them into recording profits which they disputed. 'I think', Bennett told the inspectors, 'there is a limit how far one can argue when one is an employee.' The inspectors accepted Bennett's evidence that Maxwell had forced him to record unrealistic profits but at times also accepted that Maxwell had support for his creative accounting from Chalmers Impey. The inspectors also suggested that Maxwell had submitted to them as evidence phony documents and had used 'bogus' invoices to justify his claims of record profits. Concerning the press conference at the Dorchester on his return from the world tour, the inspectors stated, 'We are firmly of the opinion that the claims which Mr Maxwell made were exaggerated and that he knew that they were.' His management, they reported, fell below the standards one should expect of the director of a public company.

  At the end of this report, the two inspectors sought to defend themselves against the charges that they had breached the rules of natural justice, but by default they partially demonstrated the truth of Maxwell's complaints. 'When we came to write this report', they stated, 'and following our normal practice of checking we realised that we had not put to Mr Maxwell the effect of the evidence which we had heard on the question of his world tour and the press conference which he is alleged to have held shortly after his return to the U.K. In order to remedy this oversight on our part Mr Stable wrote to Mr Maxwell's solicitor, Mr Silkin, a letter dated 14 July 1971 '

  The coincidence that the letter should arrive the day following the publication of the first report was unfortunate. Stable had suggested that Maxwell give his answers within fourteen days but Silkin replied that they needed time for research, and suggested a session after 18 August. Amid quibbling over dates and a refusal by the inspectors to guarantee that Maxwell's answer would be included in their final report, the dispute escalated. Silkin insisted that Maxwell's only recourse was to reapply to the courts. This the inspectors interpreted as a deliberate tactic to delay the completion of their reports. 'Our own conviction', they stated, 'is that Mr Maxwell was given by us a fair and reasonable opportunity to deal with and comment on the matters raised. . . .'

  The report's publication passed virtually unnoticed. For most, Maxwell was already commercially 'dead' and the inspectors' findings served only to place another layer of cement over his grave. Maxwell, however, had become determined to avenge the injustice and was spending many hours every week with John Silkin and his assistant, John Levy, to prepare their arguments for the initial court case; namely a declaration that the inspectors were bound by the rules of natural justice which they had ignored.

  The task for his lawyers was arduous. Only the publication of the first report, they would later explain, had caused Maxwell fully to understand the gravity of the charges against him and had spurred him to produce the documentary evidence which rebutted the inspectors' report. Even so, their endless consultations in his office would be repeatedly interrupted by his telephone calls to brokers, bankers, lawyers or editors occupied in producing Pergamon's scientific
journals. His ability to glide apparently without a moment's pause from one complicated subject to another, often switching languages between simultaneous telephone conversations, was impressive. But, above all, they appreciated that as they worked amid a shower of curses and loud exhortations, his resilence was impenetrable. In one particularly difficult all-night session where two lawyers and three secretaries were editing one hundred pages of a closely argued legal submission, Maxwell was urged: 'Do us a favour, Bob. Just go away and let us get on with it.' To the lawyers' surprise, their client for once obeyed. At 6.00 a.m. he returned. Everyone assumed he had been asleep but he was dressed in the same clothes. 'I didn't go to bed,' he roared, 'I've been earning your fees.' Maxwell had been to the Les Ambassadeurs gaming club and had won over five thousand pounds. Winning the case against the government inspectors before Mr Justice Wien which started on 20 November 1972 was not as easy.

  Sam Silkin QC MP, John's older brother, appeared for Maxwell and ran into difficulties immediately. Speaking in slow and measured terms which invited interruption, Silkin opened his argument by suggesting that, had the inspectors properly heard Maxwell's case, they would have written a different report. Even before lunch on that first day, Wien seemed to be fidgeting. By the end of the afternoon, he displayed unmistakable signs of impatience and interjected that he would not hear any arguments about facts or about the quality of the evidence. If was, he said, a case about procedure. An unedifying skirmishing started as Silkin persisted and Wien reprimanded him.