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Anger as Mandelson threatens to sue HBOS merger challengers

By Tom Gordon, Scottish Political Editor

SOURCES CLOSE to Alex Salmond last night accused Lord Mandelson of trying to "stack the deck" against those challenging the merger of HBOS with Lloyds TSB after they were threatened with huge legal bills unless they dropped their case.

Lawyers acting for Mandelson, the business and enterprise secretary, told the Merger Action Group (MAG) that unless it halted its legal fight, Mandelson would "pursue costs against each of the group's identified members".

However if the six-member group, which challenges the merger proposals at the Competition Appeal Tribunal in London tomorrow, were to drop its case, Mandelson would "wholly exceptionally waive his claim for costs".

The ultimatum was delivered to MAG's lawyers on Friday afternoon, demanding they withdraw their appeal by 5pm the same day. The group declined.

Malcolm Fraser, the spokesman for MAG, said last night: "I can confirm that our lawyers did receive a letter from Lord Mandelson's legal team on Friday inviting us to withdraw our appeal. This invitation was declined.

"In the public interest, we are determined it should go ahead."

The letter, from Adam Chapman of the Treasury's Litigation and Employment Group, which represents Lord Mandelson's Department of Business, was addressed to Ian Forrester, the Brussels-based Scottish QC representing the action group.

The six named are Dan Macdonald, of Macdonald Estates; Malcolm Fraser, the architect; Peter de Vink, the Scottish financier; David Alexander, of property firm DJ Alexander; Tim Noble, of Noble and Co; and Mark Shaw, chief executive of Hazledene Group.

A source close to the first minister said: "This indicates real concern in the UK government that there is a substantial case to answer about the behaviour of Lord Mandelson towards his responsibilities and the clear lack of the promised level playing field.

"We think the Department for Business, Enterprise and Regulatory Reform has been badly spooked by Mr Justice Barling's wise decision to hold the case under Scottish jurisdiction despite the protestations and intense lobbying of the Treasury's legal team. Lord Mandelson ... would do well to leave the tribunal to determine the case instead of attempting to stack the deck yet again."

MSPs opposed to the merger urged MAG to refuse to knuckle under to "undemocratic bully-boy tactics."

Independent MSP Margo MacDonald, who fears merger would mean huge job losses in her Lothians seat, said: "I find it breathtaking that a group of responsible people whose only motive is the public interest can be subjected to such threats and intimidation by a member of the UK government.

"Why is Lord Mandelson's legal team employing these outrageous bullying tactics? Is it, perhaps, because they think they are going to lose?"

She added: "I would be very surprised if the pursuit of the MAG members for legal costs is a matter for Peter Mandelson. I would have thought that it is for the tribunal to decide on costs."

The SNP's Alex Neil, who on Friday tabled a motion at Holyrood calling on Mandelson to refer the merger to the Competition Commission, said: "It seems to me that Lord Mandelson wants a pair of jackboots for Christmas so he can boot his way right through the UK legal system to get his own way."

MacDonald, Neil, and Scottish Liberal Democrat leader Tavish Scott pledged support for the challenge when they met MAG spokesman Malcolm Fraser at Holyrood last week.

Scott later raised the matter at First Minister's Questions, calling on the Scottish government to consider assisting with MAG's legal costs.

He said last night: "The tribunal is meant to be a way for small business to challenge big government. It is wrong for the Labour government to be so heavy handed.

"I want to know if ministers authorised this letter. Were Lord Mandleson and Alistair Darling aware of this letter?"

The case at the Competition Appeal Tribunal will be held under Scots law, meaning any appeal would be heard at the Court of Session in Edinburgh.