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The week in which a watchdog came under a heavy Shelling

Daily Telegraph: The week in which a watchdog came under a heavy Shelling

“Sir Philip Watts is hardly going to enjoy being linked with Robert Maxwell but he probably owes the fat fraudster rather more than he realises.”

City comment

Edited by Neil Collins, City Editor

(Filed: 17/09/2004)

Sir Philip Watts is hardly going to enjoy being linked with Robert Maxwell but he probably owes the fat fraudster rather more than he realises. It was Maxwell, twisting in front of the Department of Trade, who forced the concession that he should be allowed prior sight of the findings of the bits of any inquiry that related to him.

Since then, some sort of “Maxwell clause” has been inserted into most relevant bits of legislation, including the Financial Services and Markets Act, under which the FSA operates. Sir Philip has managed to keep quiet while he watched his lifetime’s work and reputation being put through the shredder, but the devastating report into Shell’s downgrade of its reserves was the last straw.

Where Maxwell swung the scimitar and claimed denial of natural justice, Sir Philip’s solicitors from Herbert Smith have preferred the stiletto, although they seem to have inflicted multiple stab wounds on the FSA. They say that the Authority has breached its statutory obligations to ensure a fair process, and on the face of it, they seem to have the regulator banged to rights.

The reserves downgrade was a shocking spectacle, especially coming from Shell, and the FSA’s report was devastating. It did not actually name Sir Philip, but anybody with the slightest interest in the affair knew who was being blamed. As Herbert Smith fulminates, speed of publication seems to have been achieved at the expense of being fair to their client.

Measuring oil reserves is rather more difficult than checking your car’s petrol tank, and you can only be absolutely sure on the day you pack up production and abandon the field, decades after its discovery. Sir Philip’s defence is that Shell’s processes were a good deal more rigorous than it has been given credit for, and that many others were involved in the decision-making when it came to booking reserves.

This is quite important, not only for Sir Philip in his attempt at restoring something of his reputation, but also for Shell’s own defence against the lawsuits being cooked up in America.

The letter rounds off a bad week for the FSA. It’s having a torrid time in court against Legal & General, and now it looks set for another clash with Sir Philip. That will be in public, too.

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