by Tom Bower
Unknown to the Pergamon directors other than Tom Clark, Maxwell had on 12 June 1969 approved a resolution at PPI's annual general meeting which stipulated that PPI's secretary was not obliged to call a special meeting at the request of a majority of the shareholders. In effect, under the new rules, Pergamon in Britain was deprived of its powers over its own company except at the annual meeting and the next meeting was not due until June 1970. The new rule was approved while Maxwell was in New York negotiating to sell Pergamon to Leasco. He would later produce affidavits to prove that the initiative for the change had been taken by his American lawyers, who believed that the previous rules were outdated, and it is possible that under any circumstances Leasco would have had difficulty in establishing control over PPI. Whatever the reason, Maxwell had cause to be confident at the end of the day in the Connaught Rooms that, because he retained total control over PPI, Leasco's victory was hollow.
In the second half of October, Leasco's accountants began sifting through the files in Oxford looking for the section concerning PPI. The revelation that MSI Inc. owed Pergamon $1.6 million and enjoyed a favourable 'sale or return' contract with Pergamon suggested the real possibility of other unknown agreements. Yet the accountants found that Pergamon's files contained practically nothing relevant to PPI. There were no copies of bank statements, hardly any copies of correspondence or other contracts with MSI Inc., no list of assets and only sparse details of PPI’s contracts with authors and customers. It was a textbook example of Maxwell's compartmentalisation.
At Maxwell's disposal in New York was Detlev Raymond, who had worked for Pergamon since 1950. Maxwell could expect, with Raymond's loyalty and his long experience at PPI, to establish a rival company which would be a direct competitor with Pergamon in Britain. The risk was the more pertinent because the files in Oxford did not reveal whether Pergamon even owned the copyright of the articles in its own journals. Steinberg agreed that it was imperative to end Maxwell's control of PPI. The fight, which began in the last week of October, was ferocious and unrelenting.
Under PPI’s new rules, a director of the company did have the power to call a special shareholders' meeting, and Leasco discovered that James B. Ross, a vice-president responsible for commissioning publications, was sympathetic towards their cause. Leasco's misfortune was that they contacted Ross two weeks after he had submitted his resignation although it had still not been formally accepted by Maxwell. At Leasco's behest, Ross withdrew his resignation.
Ross's next move was to reinstate himself in his office. It was an attempt which was forcibly opposed. Guards from the Burns security agency cut off his telephone, destroyed his mail and eventually manhandled him off the premises. Maxwell had by then accepted his resignation. To confirm Ross's impotence, PPI’s rules were again amended on 30 October, to empower only the president, that is Maxwell, to call a special shareholders' meeting. By then, Ross had appealed to the courts. What followed was a succession of Keystone Kops-type contests between Leasco and Maxwell through the courts of New York, as Ross, financed by Leasco, attempted to call a special shareholders' meeting.
Throughout the contests which followed in New York's courts, Maxwell was represented by Maurice Nessen, a small, charming but brutally aggressive lawyer who had defended Clifford Irving, the 'biographer' of the recluse Howard Hughes, against criminal charges. Nessen's tactic on Maxwell's behalf was to exploit every legitimate device in the lawyers' arsenal to delay and obfuscate Leasco's claims. Nessen's first riposte to Ross was to plead that Maxwell could not attend any court hearing due to a series of 'mandatory votes' in the House of Commons over the following six weeks which needed his constant attendance. This excuse was dismissed by Quintin Hogg MP, QC (later Lord Hailsham) as 'incredible' because 'pairing' allowed MPs to travel. Nessen's next ploy was to deliver an affidavit in which Maxwell swore that d'Avigdor-Goldsmid had requested that he stay as chairman of PPI. Nessen was successfully frustrating Leasco's plans.
In the meantime, Ross formally announced a shareholders' meeting for the end of November. In reply, Maxwell, claiming to be the protector of PPI, sent the same shareholders a letter condemning the 'reckless' Ross for his 'unauthorised and illegal' action. Within three weeks the contest had sped through the judicial process up to the New York Supreme Court, and there Maxwell won. Leasco had no option but to wait until June 1970. For Maxwell, the victory was fundamental to his recovery. He gained a vital break which he would use to persuade d'Avigdor-Goldsmid to recognise his indispensability in the management and survival of Pergamon, while psychologically it boosted his will to fight against the avalanche of writs and investigations which, by the beginning of November, had enveloped him.
The first writs were delivered in New York on 2 November by Leasco alleging conspiracy for 'fraud and deceit' and a claim for damages of $22 million. Those receiving the writs were Maxwell, Isidore Kerman, Robert Fleming, Chalmers Impey and the Maxwell family trusts. The writs alleged that Maxwell and his advisers had conspired to mislead Leasco about Pergamon's real financial status. Initially, Hodes had expected to sue Maxwell in Britain, but was advised that under British law the chances of success were extremely slim because neither Flemings nor Chalmers Impey owed a special duty of care to Leasco and so could not be liable even if they negligently endorsed false statements in the annual report. There was also, the British lawyers told Hodes, no claim whatsoever against Maxwell since his assurances had always been oral and therefore difficult to prove. He had not signed any documents which showed more than possible irresponsibility and anything else was based upon the certified accounts. Maxwell's only commitment in writing had been his letter to Schwartz on 17 May, but that was ambiguous. Because American financial laws were much stricter and because, according to Leasco, the take-over agreement was negotiated and signed in New York at Maxwell's request, the writs were issued in New York.
Maxwell's defence and counter-claim was that Leasco had deliberately sought to depress the value of Pergamon shares in order to buy the company cheap, that he had never encouraged Leasco to buy Pergamon shares before the formal offer was accepted, that Leasco misrepresented its own financial position, and that, as a result of Leasco's mismanagement of Pergamon, the value of Maxwell's own shares had fallen.
John Briggs's defence was that he had acted in good faith and that, since he did not even know about Maxwell's negotiations with Leasco, he could not have been party to any conspiracy. Richard Fleming filed a defence claiming that he was only on the periphery of the deal, that he had not made any detailed representations and that he was present during the New York negotiations not as a representative of Maxwell but to protect the interests of the bank's unit trusts. Leasco's case against Kerman was eventually dropped.
But the first argument which Nessen deployed, and which would keep the dispute simmering for the following four years, was that the American courts had no jurisdiction because the dispute involved a British company and all the pertinent documents and witnesses were in Britain. That argument would be finally heard in the state Supreme Court.
Meanwhile, Maxwell was under investigation by two inquiries in Britain, both of which had begun formal hearings in late September. The first was mounted by the Board of Trade and the second was the independent audit by Price Waterhouse which would determine Pergamon's 1968 accounts. His attitudes to the two were sharply different.
Still suffering from the injustice he felt Shawcross had meted out at the Take-over Panel hearings, Maxwell feared that the Board of Trade inquiry might similarly maul his reputation without allowing him the opportunity to defend himself adequately. Therefore, before agreeing to appear, he asked the two inspectors to explain the procedures they would adopt and to assure him that he would enjoy the normal protections of a British court of law. Owen Stable QC and Ronald Leach were unwilling to give those guarantees. They argued that the efficient conduct of the inquiry depended upon informality and flexibility, which would be suffocated if they were to be 'bound hand and foot' by leg
alisms and procedures. On 22 September, Maxwell arrived for the first session. He gave his name and address, stated that he was the holder of the Military Cross and a Member of Parliament. Then he refused to answer any further questions. Instead, he applied to the High Court for an order requiring the inspectors to adopt a more formal procedure.
Since the Court would not hear the case for some months, the inspectors started their inquiry. Their first witness was Ian Fraser, followed in succession by Godfrey Hodgson, Jacob Rothschild, Rupert Murdoch and Richard Millett. Maxwell's fear that the inspectors were giving a platform to his enemies seemed to him to be fully justified.
Maxwell's attitude towards the Price Waterhouse inquiry was quite different. If he was to retain his credibility, both commercial and moral, he had no choice but to co-operate since he had staked his reputation upon his company's profitability. Moreover, Steinberg had agreed to bid for the remaining shares within two months of the accountants' report and, as Maxwell had announced that he would make a counter-bid, it was vital for Maxwell to persuade Price Waterhouse to accept his version of the 1968 accounts.
Martin Harris, a mild-mannered senior partner of Price Waterhouse, led the investigation, which the firm had initially been reluctant to carry out on account of the fear of endless litigation. Only after Maxwell sent written confirmation that both he and his family trusts would unconditionally co-operate, including the provision of any necessary documents, had Price Waterhouse committed itself. Within weeks that undertaking would be thwarted. MSI Inc. claimed that, on legal advice, it could not disclose any documents which would prejudice its defence against Leasco's suits. For the moment, the legal distinction between the trusts and Maxwell defeated the accountants.
Price Waterhouse adopted a textbook approach to its investigation. Maxwell, accompanied by Nessen, answered the accountant's questions for more than forty full days. Eight accountants divided into four teams worked through the files in Oxford. By the end of November, they had prepared a thick 'summary of the facts' which was presented for comment to everyone who had been involved in preparing Pergamon's accounts. Over the following three weeks, daily from 9 a.m. until 7 p.m. in Price Waterhouse's Cheapside offices, there were four simultaneous interviewing sessions where the Pergamon directors and their auditors were invited to 'indicate our errors'. Questions were asked and answers written down in long hand. Voices were never raised and suspicions were never mentioned. But every night, when the team gathered for debriefing sessions which often continued until the early hours, the day's revelations swept aside their professional taciturnity. 'Accountants are professional cynics,' recalls one of the investigators, 'and there was pure joy in unravelling the complex paper trail.'
The questioning of Maxwell personally was 'a poker game. We had to treat him gently to make sure that he stayed.' It was characteristic of Maxwell when difficult questions were posed that he rambled into tangential areas. Whether it was intended to confuse the questioners or just, as Peter Stevens surmised, the common Czech inability to stay on a straight line, is debatable.
The result was that Maxwell spoke at great length, giving an uninterrupted explanation, filled with facts and figures, which was all faithfully recorded. A couple of days later, the same question would be posed. Very often, Maxwell could not recall the identical facts and figures which he had so authoritatively cited just forty-eight hours earlier. 'We quoted back to him what he had said earlier and it unnerved him,' recalls one of the accountants.
At the end of the year, Harris handed Maxwell his preliminary conclusions. As he read though the thick folder, Maxwell recognised that it consisted of remorseless censure. Price Waterhouse had decided that Pergamon's audited 1968 profits of £2.1 million should be reduced by £1.6 million and that the remaining half million pounds would be swallowed up by the ILSC losses. According to Price Waterhouse, Pergamon had actually made a loss in 1968. 'Maxwell was furious when he read our interim report,' says a witness of the occasion, 'so we offered him a cup of tea and spoke about the weather.' To the accountants it seemed that Maxwell had placed himself inside a straitjacket.
Among the papers which they had discovered in Oxford was a contract, signed by Maxwell, for the resale of the Spanish translation rights from MSI Inc. back to PPI. The contract was dated 6 October 1969, just four days before the EGM. Maxwell had little choice but to agree that Pergamon could not claim the £104,000 as profit. Similarly, R.M. & Co. had in August returned to Pergamon books worth £149,000 from its warehouse in Wolverton. Finally, Pergamon's massive £1,250,000 'sale or return' deal for back issues signed on 30 August 1967 with MSI Inc. was clearly revocable and therefore had to be removed from Pergamon's income. In effect, the accountants had discovered that in the weeks before Maxwell's removal from Pergamon, Pergamon's profits had been depressed.
The beleaguered executive could count on few sympathetic ears for his explanations. In the era of Emil Savundra, Bernie Cornfeld's IOS and the sudden demise of the washing-machine salesman John Bloom, a certain seediness had infected the image of British business. Maxwell was afraid that he was being tarnished by the same brush, especially since his reputation had been severely damaged by newspaper and television coverage of Pergamon's tribulations. Again, none was more wounding than the accounts which appeared in Lord Thomson's newspapers.
The second part of the Sunday Times profile had appeared on 12 October, two days after his epic defeat at the Connaught Rooms. According to the newspaper's heading, 'Robert Maxwell Has Lost His Empire'. In the centre of the article was a photograph of Maxwell and Gaitskell laughing together in 1962, the caption stating that the Labour leader had been a 'friend since the fifties', the era which was associated with Simpkin Marshall and so on. Maxwell was still a Member of Parliament and, with a general election due within two years, the article questioned his suitability.
By 1969, Maxwell's parliamentary career had barely progressed. His appearances and interventions in the chamber had sharply declined in number compared to earlier years and only his management of the House of Commons Catering Committee had been rated a success. The Sunday Times suspected that even that success was a mirage and approached Richard Crossman, who had originally nominated Maxwell. Crossman praised Maxwell's 'staggering success'. He continued, 'He took over a department totally demoralised, whose staff included a number of prostitutes and thieves, all of whom he sacked without a strike. ... He purged the gross abuse and pilfering; legs of mutton and rounds of beef were being regularly removed under their raincoats by members of the staff. All that is now stopped. ... He took over a restaurant which was incurring gigantic losses in order to provide excellent food and drink. . . .' The published article ignored Crossman's favourable comment and dwelt on the accounts, which the journalists believed were controversial. Described as the 'ballet of Robert Maxwell, caterer extraordinary', it lampooned his management technique and questioned his accountancy methods: 'It displays all the classic movements in the Maxwell repertoire - the Amazing Leap from the wings with Loud Promises of Modern Efficiency; the Masterly Treatment of Accounts; and the Rapid Disappearance, just before the audience starts to throw things.'
That cameo, in Maxwell's view, proved that the Sunday Times was determined to destroy his career, and he complained to the House of Commons Committee of Privileges. After thirteen meetings, his complaint was rejected, although the committee stated that there was no evidence that his conduct was 'in any way improper or departed from normal procedures in compiling the accounts'. The issue, and Maxwell's reputation, were left dangling.
Political life irked Maxwell. He was perplexed and frustrated that despite his ideas, energy and abilities, he had not won the Prime Minister's admiration. Equally, he was disillusioned by the government's policies. Despite the noble promises, British science and industry had not fared well; the government's tax policies and especially the Selective Employment Tax had been disastrous; the perpetual lurch through a succession of apparently insoluble financial crises had opened the door t
o the International Monetary Fund to act as sole arbiter of Britain's financial management; while the Labour movement lamentably persisted with a wave of suicidal strikes in the face of an unenforceable prices and incomes policy. Even Maxwell's own efforts to reform the inept management of the party headquarters at Transport House had been spurned. Within the Labour Party and inside the House, Maxwell was an awkward misfit who, though pleading for enterprise and for the rapid dismantling of Britain's pretensions to world-power status, had not managed to create an identifiable political cause for himself. His only success was to pilot through the Commons with the flamboyant Conservative Member, Sir Gerald Nabarro, an extension of the Clean Air Acts.
Yet in his constituency his efficient organisation and his apparent relish for looking after his constituents' interests had earned him considerable popularity - not an easy achievement for a Labour MP representing a Home Counties constituency. Much of his success was owed to his political secretary, Judith Ennals, who managed and executed the bulk of the parliamentarian's routine and time-consuming chores. Constituents were encouraged to write with their problems, which Ennals researched and settled before obtaining Maxwell's endorsement and signature. Although this was an unusual arrangement for a Labour MP, the arrangement was common practice in the Conservative ranks. Under Ennals, Maxwell's political office scoured the announcements columns in the local newspapers and automatically sent congratulations or condolences to those advertising births, marriages or deaths. Even the victims of road accidents would receive a 'get well' card from their MP. His motives were realistic. Every vote in the next election would count.
