by Ann Bridge
The most relevant sections of the Report of the Board of Enquiry (Command Paper 3037, 1928) are here printed, by kind permission of H.M. Stationery Office.
REPORT
of the
Board of Enquiry appointed by
the Prime Minister to investigate
certain Statements affecting
Civil Servants
Presented to Parliament by Command of His Majesty,
February 1928
LONDON:
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1928
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Cmd. 3037
Board of Enquiry to investigate certain
Statements affecting Civil Servants
______________________
MINUTE BY THE PRIME MINISTER, DATED
FEBRUARY 1, 1928
The Prime Minister, in consultation with the Secretary of State for Foreign Affairs, directs that an enquiry shall be held forthwith into certain statements made in the course of the case Ironmonger and Company v. Dyne affecting Civil Servants.
The following will be the members of the Special Board of Enquiry:
Sir WARREN FISHER, G.C.B., G.C.V.O.,
Permanent Secretary to the Treasury.
Sir MALCOLM RAMSAY, K.C.B.,
Comptroller and Auditor-General.
Mr M. L. GWYER, C.B.,
H.M. Procurator-General and
Solicitor to the Treasury.
TO THE
RIGHT HONOURABLE STANLEY BALDWIN, M.P.
Sir,
We were appointed by your Minute of the 1st February to enquire ‘into certain statements made in the course of the case Ironmonger and Company v. Dyne affecting Civil Servants’, and we have now the honour of submitting our Report, which we regret has been delayed for reasons to which we refer more particularly below.
2. The case of Ironmonger and Company v. Dyne was heard in the King’s Bench Division of the High Court of Justice before Mr Justice Horridge and a Special Jury on the 26th, 27th, 30th and 31st January and the 1st February, 1928. The Plaintiffs, who are foreign bankers, carrying on business in the City of London, obtained judgment against the Defendant, Mrs A. Bradley Dyne, for £38,938 in respect of foreign currency bought and sold by her. Statements were made in the course of the case to the effect that three Civil Servants, Mr J. D. Gregory, Mr O. St. C. O’Malley and Lieut.-Commander H. F. B. Maxse, all employed in the Foreign Office, had been engaged in speculative transactions in foreign currencies with the same firm, though admittedly none of these transactions were in any way connected with the subject-matter of the proceedings in the High Court. We have interpreted our terms of reference as requiring us to investigate the truth of these statements, to ascertain the nature of the transactions referred to, and to consider whether the three persons above named made use of any official knowledge in these transactions for the purpose of private profit, and whether, even if they did not, the transactions were proper or becoming in the case of a Civil Servant. But we understand also that it is your desire and intention that we should further satisfy ourselves upon the question whether other Civil Servants had been engaged in transactions of a speculative kind of which the propriety might be open to doubt. We have accordingly extended the scope of our inquiry so as to cover all these matters.
7. Towards the end of the year 1922 Mr O’Malley conceived the idea that he might insure himself against the depreciation of certain French franc investments, in which he had a contingent interest, but over which he had no control, by the purchase and sale of French francs, and with this object he entered into business relations with Messrs Ironmonger and Company, whose name had been given to him by his stockbrokers. The contracts which he (and afterwards his two colleagues) proceeded to make were all of a similar type and may shortly be described as follows. The client would initiate the transaction by contracting to buy or to sell, as the case might be, at the price of the day, a certain amount of foreign currency from or to Messrs Ironmonger, for delivery at a date specified in the contract, either one, two or three months forward. The client had no intention in the case of a contract to purchase of taking delivery of what he had bought, and did not possess what he had contracted to sell; and accordingly, at some date before the due date it was necessary for him to reverse the process by contracting to sell or to buy the same amount of currency at the rate prevailing at the moment. If (as was always the case) the two transactions were both carried out with Messrs Ironmonger, it is obvious that when the due date arrived the settlement of accounts would take the form of a sterling payment of differences only, by one party or the other, and that no foreign currency would itself change hands.
9. Mr O’Malley’s first contract with Messrs Ironmonger and Company, initiated on the 24th January 1923, involved a sum of in all 150,000 French francs. It was closed on the 1st February, and the profit on the transaction was £64 9s 7d. A second transaction, initiated on the 5th February 1923, and involving 75,000 French francs, was closed on the 14th, and resulted again in a profit of £32 5s 2d. A further three transactions, each involving 100,000 French francs, were initiated on the 17th February, 15th and 22nd March 1923, respectively, and finally closed on the 19th June. This series involved losses of £113 8s 1d and £163 6s 10d in two cases and a profit of £65 11s 7d in a third.
10. Thus by the 19th June 1923, Mr O’Malley had completed five separate transactions, which involved the sale and re-purchase, or purchase and re-sale, of 525,000 French francs, the gross profit on which amounted to £162 6s 4d, the gross loss to £276 14s 11d, making a net loss of £114 8s 7d. At this point Mr O’Malley’s direct relations with Messrs Ironmonger and Company ceased. He decided, he explained to us, to cut his losses and discontinue business. He did not, however, adhere to this resolution. At a later date he became interested in other contracts effected between Mrs Dyne, Mr Gregory, or both of them, and Messrs Ironmonger, and there were certainly payments by him in the course of 1924 both to Mr Gregory and to Mrs Dyne, amounting in all to less than £200. None of the three parties were able to tell us what exactly these payments represented, except that the greater part was probably in respect of not more than three franc transactions. We accept Mr O’Malley’s statement that he had nothing in the nature of a running account with either of the other parties, and we are satisfied that he had no other dealings in exchange and no other transactions to which attention need be drawn.
11. The case of Mr Gregory, to which we now pass, is much more complicated. At the beginning of 1923 Mr Gregory was put in touch with Messrs Ironmonger and Company by Mr O’Malley. His first transaction with them was initiated on the 25th January 1923, that is the day after that on which Mr O’Malley began operations, and covered a sum of 75,000 francs. Thereafter, acting either on his own account or in a kind of partnership with Mrs Bradley Dyne, who was afterwards the defendant in the case of Ironmonger and Company v. Dyne, he became involved in speculations of growing magnitude, which ultimately involved both of them in heavy losses. Mrs Dyne was the wife of a former school-fellow of Mr Gregory, with whom she and her husband had long been friends. For a few months in 1917 she had been temporarily employed in the Foreign Office. Mrs Dyne and Mr Gregory had already, before 1923, carried out on behalf of their respective families a certain number of business transactions, but there had been nothing in the nature of currency speculations. In the course of 1923, Mrs Dyne learned of the speculations of Mr Gregory and Mr O’Malley, and eventually her house became the regular meeting place of the circle who were interested in the subject, including at a later date Lieutenant-Commander Maxse.
12. Neither Mr Gregory nor Mrs Dyne appear to
have kept any regular account of their engagements with Messrs Ironmonger and Company. Still less did they keep any account showing the extent to which either was interested in transactions with Messrs Ironmonger entered into formally by the other. It thus becomes a matter of extreme difficulty to present a separate and complete picture of Mr Gregory’s individual engagements, but it will perhaps be sufficient for our present purpose to indicate the position in broad outline. During the year 1923 a number of contracts were made with Messrs Ironmonger in the name of Mr Gregory for growing amounts, and it is clear that Mrs Dyne had a share in the proceeds of some of those contracts, though to what extent we are unable to say. Towards the end of 1923, or the beginning of 1924, Mr Gregory informed Messrs Ironmonger and Company that Mrs Dyne had authority to operate on his behalf as she had done previously for a short period during his absence abroad, and he transferred to the account of Mrs Dyne in Messrs Ironmonger’s books certain credits to which he was entitled in respect of his outstanding contracts with the firm. The position as between the two parties was already confused, but after the transfer we cannot even attempt to unravel it. There is no doubt, however, that Mrs Dyne dealt with Messrs Ironmonger on joint account during the greater part of 1924, and that Mr Gregory had no direct dealings with them until the following year. Mrs Dyne’s operations led to disastrous losses, which ended in a crisis in April or May. After fruitless efforts to disentangle their respective liabilities, Mr Gregory and Mrs Dyne eventually agreed to share the loss more or less equally, and debts amounting to approximately £34,000 to Messrs Ironmonger and Company were cleared off.
14. The extent of Mr Gregory’s dealings may be illustrated in another way by reference to the total amount of currency purchased on his account in the years in question, and the following table is, we think, substantially accurate (a sale, say, of a million francs subsequently repurchased is reckoned as a million francs and not as two million).
Year 1923: 8,075,000 French francs.
Year 1925: 17,550,000 French francs.
Year 1926: 120,000 Norwegian crowns.
22,000,000 French francs.
1,500,000 Lire.
2,000,000 Belgian francs.
To these figures must be added his share (whatever it may have been) of the contracts placed in Mrs Dyne’s name in 1924. These involved, so far as we can ascertain, over 250,000,000 francs.
15. On returning to the Northern department in December 1923, Lieutenant-Commander Maxse, as he informed us, resumed his friendship with Mr Gregory, and some time early in 1924 first learned that Mr Gregory and Mr O’Malley were dealing in francs. We accept his statement that he had no dealings in exchanges up to that time, and that when he resumed duty after sick leave he came into a going concern. He was aware of the operations of the others, and discussed them with them, but refrained until the middle of 1924 from any dealings. About that time, however, yielding, it would seem, to persuasion, he agreed that Mrs Dyne should undertake some small transactions in her name on his behalf. Later he took a share – occasionally 10 per cent – in some of Mr Gregory’s transactions, but he was unable to inform us of the extent of these transactions, as no account of them had been kept. They continued until July 1926, by which time he had made a profit of £500 or £600. In September 1926 he began operations for the first time in his own name, having, as he told us, come into a legacy of a few hundred pounds, and being reluctant to dissociate himself from his friends. He had, between the 17th September 1926, and the 21st January 1927, three transactions or sets of transactions with Messrs Ironmonger and Company, which involved in all 2 million French and Belgian francs, and ended in losses of £1,426 18s 10d, £1,314 12s 4d, £1,020 16s 6d, making a total loss of £3,762 7s 8d. On balance, therefore, his aggregate loss was in the neighbourhood of £3,200.
16. It is plain that all the above transactions, so far as Mr Gregory, Mr O’Malley and Lieutenant-Commander Maxse are themselves concerned, would be described colloquially as gambling transactions, inasmuch as at no time did they ever intend to take or give delivery of any foreign currency, and probably would seldom, if ever, have been financially in a position to do so. In saying this we do not, of course, reflect in any way upon Messrs Ironmonger, who on their side acted in the ordinary course of business, and, as we have already explained, covered themselves in the case of each separate transaction by means of a sub-contract placed elsewhere in the market, looking solely for their profit to their ‘turn’ of about one-half per cent.
18. We are fully satisfied that Mr Gregory, Mr O’Malley and Lieutenant-Commander Maxse neither used, nor endeavoured to use, any official information for the purpose of their transactions, and that there is no foundation for a suggestion which has come to our notice that Mrs Dyne was operating as the agent of a syndicate of Civil Servants with the assistance of advance information furnished by them. In our opinion, however, a course of speculative transactions such as we have described above ought never to have been entered upon by any Civil Servant. Least of all ought foreign exchange speculation to have been undertaken by those to whom, from the nature of their work, the sensitiveness and suspicions of foreign countries with regard to such dealings in their currency cannot have been unfamiliar. By engaging in those transactions at all, these three persons acted, as it seems to us, in a manner inconsistent with their obligations as Civil Servants. It is painful to us to write thus of any of our colleagues in the Service, but the facts leave us no alternative.
20. The case of Mr O’Malley is to be distinguished from that of Mr Gregory by the infinitely smaller volume and the shorter duration of his transactions. But Mr O’Malley was the initiator of the whole business, and occupied an official post in the Northern department only less responsible than that of Mr Gregory himself. It is not open to him to urge that he yielded to the temptation of others, and in his case, also, we cannot doubt that he knew well what he was doing.
21. For Lieutenant-Commander Maxse we think that some extenuating circumstances may be admitted. After service in the East followed by sick leave in this country he came back in December 1923, as he told us, into ‘a going concern’. His two seniors had already been engaged in speculation, one of them to a very large extent, and Lieutenant-Commander Maxse followed the ill example which had been set him, if, indeed, he was not actually induced to follow it. His own later transactions, it is true, were on a much larger scale than Mr O’Malley’s had been; but we are not disposed to regard this as being in the circumstances necessarily an aggravation; and the blame attaching to Lieutenant-Commander Maxse is not, in our opinion, as great as that which we must assign to Mr Gregory and in a less degree to Mr O’Malley.
25. There has come to our knowledge one such other case, and it is right that we should state that the official concerned, Mr G. H. Villiers, C.M.G., a Counsellor at the Foreign Office since 1921, volunteered at the earliest moment a complete statement to his superiors, which he repeated afterward to us, of the transactions in which he had taken part. Mr Villiers in no way and at no time was associated with Mr Gregory’s and Mrs Dyne’s circle. He heard at the beginning of 1923 that Mr Gregory was dealing in francs, and received from him the name of Mr de Wael, a partner in Messrs Ironmonger and Company. He made four contracts with Messrs Ironmonger, to an amount in all of 500,000 francs, between the 29th January and 23rd March 1923, the last of which was closed on the 25th June 1923. These resulted in a net loss of £72 (£200 loss reduced by £128 profit). Since then he has never had any similar transactions.
26. The impropriety of Mr Villier’s action is plain; though we are satisfied that it represents an isolated adventure bearing no resemblance, except in form, to the systematic operations of the members of the circle whose cases we have already examined. We are sure that he made no use whatever of any official information.
29. In one case only did it seem to us that a transaction, now over seven years old, of which full particulars were frankly laid before us, might be said to have a speculative complexion. In November 1920, Mr M.
W. Lampson, as he then was, a First Secretary in the Foreign Office, purchased jointly with his wife £1,000 worth of French francs, which he sold 2½ months later at a profit of £135. Both the purchase and the sale were cash transactions and were made through his bank in London, and there is no question of any official information being used. The francs were not bought for family or holiday purposes, but in the hope of an appreciation in value, and we regard such a purchase of foreign currency by a member of the Diplomatic Service as undesirable, even though it was a single transaction only, and had nothing at all in common with a gamble in differences.
59. We content ourselves with laying down these general principles, which we do not seek to elaborate into any detailed code, if only for the reason that their application must necessarily vary according to the position, the Department and the work of the Civil Servant concerned. Practical rules for the guidance of social conduct depend also as much upon the instinct and perception of the individual as upon cast-iron formulas; and the surest guide will, we hope, always be found in the nice and jealous honour of Civil Servants themselves. The public expects from them a standard of integrity and conduct not only inflexible but fastidious, and has not been disappointed in the past. We are confident that we are expressing the view of the Service when we say that the public have a right to expect that standard, and that it is the duty of the Service to see that the expectation is fulfilled.
We have the honour to be,
Sir,
Your obedient Servants,
N. F. WARREN FISHER
MALCOLM G. RAMSAY
M. L. GWYER
Treasury Chambers,
Whitehall, S.W.,
February 25, 1928
A Note on the Author
Ann Bridge was born in 1889 in Hertfordshire. Bridge’s novels concern her experiences of the British Foreign Office community in Peking in China, where she lived for two years with her diplomat husband; her works combine courtship plots with vividly-realized settings and demure social satire.
