SCOTLAND (CADCO PROJECT, GLENROTHES) (Hansard, 1 December 1964)

§ Mr. William Hamilton (Fife, West)

A few years ago, from a small butcher's shop in Victoria Street, Hove, Mr. Dennis Lorraine successfully sold sausages. So successfully that in 1960 the Royal Victoria Sausage Company was started by the same gentleman. This enabled Mr. Lorraine to buy an ex-Government Nissen hut at Partridge Green, from which he made a profit of £7,000 in 1961.

Mr. Lorraine appears to have been something of a genius as a salesman, and probably fancied himself as a tycoon. In 1961, he looked around for capital with which to expand his business, and through business connections, Mr. Lorraine was put in contact with Mr. Thomas Roe, an international lawyer who has lived in Lausanne in Switzerland for several years now.

Mr. Roe is a director of more than 30 companies, but he operates mainly from Lausanne. Roe decided to put up some money for the Lorraine expansion, and Mr. George Sanders, the film actor, and his wife Benita, were also persuaded to put up some cash.

Unfortunately, the proposed expansion in Sussex was refused by the planning authorities, and encouragement was given to the firm to expand in a development district, in fact in Glenrothes, in Fife. The name "Cadco" was that 422 of Mr. Sanders' personal company registered in Curacao in the Dutch West Indies, but operating in Lausanne where Mr. Sanders lives.

By the autumn of 1962, Mr. Thomas Roe had joined Cadco Developments, which had been registered in London. and so, in May, 1963, the project was launched in Glenrothes, in my constituency. It was supported by the Scottish Development Department, by the Scottish Council (Development and Industry), by the Glenrothes Development Corporation, by the Board of Trade, and by the Treasury.

The Scottish Council was clearly impressed by the size of the project and its potentialities, otherwise I do not think that it was involved. Glenrothes Development Corporation was at that time, I think, asked by the Scottish Council whether a credit check had been made on Cadco, and the Corporation assured the Scottish Council that that check had, in fact, been made. That was probably not true, or if it were true, it had not revealed the true facts, as I will try to demonstrate.

That, I think, was the initial error, and the possible explanations of it were, first, that Glenrothes was desperately anxious to get some big project. The failure of the Rothes Colliery is still a very painful memory in that part of my constituency, and, indeed, in Scotland. Secondly, the General Manager of the Development Corporation, Brigadier Doyle, had known Roe in his Army clays, in the 14th Army. There was no personal friendship—Roe was merely known to Doyle as a capable staff officer. But no doubt the other names associated with Cadco appeared to him and to others to be dazzlingly impressive.

To launch the project, Glenrothes Development Corporation needed sanction from the Scottish Development Department and cash from the Treasury. They got both. One million pounds of public money were being committed, yet no one at that point seemed to have probed into the expected profitability of the venture, nor, indeed, into the availability of capital to Cadco, but an extraordinary thing then happened. The Cadco Developments Company had created a whole lot of subsidiary companies, including the Cadco Building Company. Immediately on getting access to Glenrothes and getting permission to go 423 ahead, Cadco Developments Company suggested that its subsidiary, Cadco Building Co., should do the building of the piggeries, the factories and all the rest of it.

There may not have been anything intrinsically suspicious that that should happen, but there appears to have been no check at this point on either the financial or the technical resources of the Cadco Building Company. In fact, the entire paid-up capital of the company was £2. They had to take two architects from Glenrothes Development Corporation and quantity surveyors from outside, too. In other words, they had no financial status whatever, nor had they the technical resources to carry out the projects which they were contemplating getting. Why was a company of such dubious standing given a contract worth more than £1 million when the paid-up capital was £2?

Having got the contract, the Cadco Building Company obtained an initial loan of £160,000 from the Royal Bank of Scotland, guaranteed by Sanders, Roe and others. At this point there appeared to be no consultation whatever between the bank and the Development Corporation as to the financial standing and strength of Cadco Building Company.

From these relatively small beginnings the empire began to grow and the debts began to mount. Each extension of the project was apparently approved by the Scottish Development Department. Whether the extension did or did not make sense in business terms, there is no evidence to suggest that there was ever any detailed examination of the financial status and soundness of Cadco Developments Limited and the associated companies, such as the Building Company, the Haulage Company, the Live-stock Company, the Refrigeration Company, the Royal Victoria Sausage Company, the Victoria Wholesale Meats Company, Superfine Food Products and Loch Ness Foods.

The overdraft with the Royal Bank of Scotland gradually mounted to £460,000. Mrs. M. M. Elliott then placed with the Royal Bank of Scotland securities to the extent of £200,000 against the overdraft which I have mentioned. Mrs. Elliott is a very wealthy lady, who lives off the Finchley Road. 424 I have not her telephone number. She has substantial interests in the manufacturing of plastic goods. I understand that her assets are mostly outside the United Kingdom. She is a very great friend of Mr. Dennis Lorraine, the sausage maker. It is anybody's guess as to why Mrs. Elliott invested her money. Apparently she was given personal indemnities by the other directors of Cadco, including Lorraine.

During the last two weeks, Mrs. Elliott has been to Italy to see Lorraine, and she has issued a very curious statement since that visit in which she states that she has been repaid her £200,000 by Mr. Lorraine, who enjoys her confidence. I am sure that he does. In what form did Lorraine repay Mrs. Elliott? On what bank was the cheque drawn? Was she paid in cash? If so, in what currency? Where is the money now? Most important of all, where did Lorraine get the cash? Five years ago he was a small-time sausage butcher in Hove. There is very strong evidence to suggest that the moneys raised for the Cadco project in Glenrothes have been transferred to other associated companies outside that town and also overseas.

I might give an example from the report of the proceedings at a meeting of the creditors of Cadco Building Company on 7th October. They show that £241,000 had gone to Cadco Developments, £100,000 to Victoria Wholesale Meats, £48,000 to Royal Victoria Sausages, £4,000 to Cadco Livestock, £1,000 to Andromeda Films, £31,000 to Superfine Foods and £12,000 to Loch Ness Foods. Enormous sums, in addition to these, have left the country in the form of travellers' cheques and business allowances and the like. This is why the Treasury is now, despite its denial in the House, investigating possible infringements of exchange control. This was reported in the Fifeshire Advertiser on 21st November this year.

In addition, there has been enormously wasteful expenditure in other directions, for instance on the purchase of motor cars. Mr. Lorraine had a Jaguar Mk. X, a Rover 3-litre, an Aston Martin and a fleet of cars in Glenrothes. There was lots of air travel, all first-class, and of staying in first-class hotels, all on unnecessary jaunts. The Treasury, the Board of Trade, the Development Department and the Development Corporation 425 were supposed to be keeping a check on the wonderful 2,000 jobs in the pipeline—the prospect held out to us.

At least one high official in Glenrothes had an Italian holiday at Cadco's expense and was offered a senior executive job with Cadco Italiano, which was supposed to process fruit and vegetables in Italy. It may be that that is why the money has gone from Glenrothes—to finance the project in Italy. This high official in Glenrothes—and I have been given his name—was in a position of great trust and responsibility. I have no evidence, and I do not think that there is any evidence, that he was corrupted by this holiday or the offer, but it shows—to put it no higher—the kind of naive, unbusinesslike approach which made some contribution to the collapse of this project.

Indeed, one of the characteristics of this whole operation was that anyone connected with Cadco was tainted by various means. Cadco was unceasing in its endeavours to obligate people. Repeated warning signs of the coming crash were ignored or brushed aside. I have given some examples already. I can give one or two others. I understand that in September, 1963, Cadco applied to the Board of Trade Advisory Council for a substantial grant. I was given a figure, but I will not quote it here.

The refusal of the Board of Trade came in August this year. In other words, it took B.O.T.A.C. very nearly a year to reach that decision. Anyone who has had dealings with B.O.T.A.C. knows that it goes thoroughly into the applicant's accounts. It must do. It is the law. B.O.T.A.C. must, therefore, have had access to the financial records of Cadco. Did it not see the warning signs in those accounts? If it did, did it not convey its findings to the Glenrothes Development Corporation, or the Scottish Development Department?

There was another warning sign. In July of this year, £250,000 was due to be repaid to the Royal Bank of Scotland. It was not paid, yet the bank does not appear to have warned either the Scottish Development Department, or the Development Corporation, and nor did either of those bodies appear to have sought information from the bank. I myself heard numerous and ominous 426 rumblings here in London from hon. Members opposite, southern England Members, Devon Members, as long ago as last February and March. I wrote to the General Manager of Glenrothes Development Corporation on 30th March saying what I had heard.

I quote his reply, dated 1st April: The reports of which you speak have, of course, been filtering through to us and we had, in fact, two Lobby Correspondents on to us earlier this week for our comments on such reports. I have been in contact with Roe, the Chairman, to whom I put the situation bluntly, and I am attaching a copy of his reply. He went on: I think myself that one of the problems this Group has had to face is that plant for this type of industry is changing almost overnight, and rather like the aircraft industry, before plant is installed it is overtaken by improved patterns, and Cadco have been trying to get in the most up-to-date plant. It was a plant of a different kind from what he was talking about. He went on: They were further delayed, of course, by the 'go-slow' in the building trade … the building industry has clamped down on anything more than 10 hours overtime per week … There were all the excuses in the world about why this project was not going according to plan.

I have the Telex message from Mr. Roe which was attached to that letter and in which he said: We are prepared to have a press conference in London or Scotland to dispel any rumours. We are as you know in correspondence with the Board of Trade and we are at their request compiling a number of accounts and financial statements regarding the Group. I do not know whether they were presented at that time. If so, what action was taken about them? Mr. Roe said that it was hoped to get into production by 31st May, but there is no production yet; the group is in liquidation.

In some quarters there was a strong demand to start investigations months ago. Impartial investigations of the project were made and reported to the Development Corporation months ago. The then Government stalled because of the imminence of the General Election. I am not making any criticism of the present Government. The previous Government are to blame for this, as I shall try to show.

427 The project was played up by the former Secretary of State for Scotland as a glittering and exciting example of the then Government's success in attracting industry to Scotland. I am now accusing all the then Government Departments responsible—the Treasury, the Board of Trade, the Scottish Office, and the Development Corporation of a grave dereliction of their duties.

There is now a liquidator. The Cadco Building Company has collapsed. The liquidator will no doubt adequately investigate the affairs of the building company, but he will not investigate the role of the Government Departments in the affair, nor the rôle of the Development Corporation. I am well aware that the Development Corporation would rather that I kept quiet about this whole affair. Curt letters have passed between myself and the Development Corporation and I have made my objection to the terms of them to my right hon. Friend. It has refused to provide me with documents essential to the performance of what I conceive to be my public duty, and documents which I know exist.

It points to the fact that it has now some wonderful assets: the finest piggeries you ever saw in your life are in Glenrothes—which a lot of people on housing lists would like to live in—and the most modern food processing plant in Europe, standing idle. Glenrothes says, "Fine, they are ours." But they have been got at the expense of the bankruptcy of several small building firms which cannot get their money, including firms in other constituencies than mine, including the constituency of my hon. Friend the Member for Kirkcaldy Burghs (Mr. Gourlay), who provided me with information, and that of the hon. Member for Fife, East (Sir J. Gilmour). Although he has not bankrupt firms, he has got firms which are in very great financial difficulties as a result of this experience. Further, great hardship has been caused to many workers who have been thrown out of a job.

What I am asking my hon. Friend for is a completely independent inquiry—not a Departmental hushing-up inquiry, but a completely impartial, independent one; or the handing over of the entire case to the Crown Office for criminal proceedings. At the best, this has been 428 a story of unexampled negligence and incompetence; at worst, a tale of fraud and corruption on a gigantic scale.

§ The Under-Secretary of State for Scotland (Dr. J. Dickson Mabon)

The whole House is grateful, I am sure, to my hon. Friend the Member for Fife, West (Mr. William Hamilton) for raising this matter tonight. Since he has a Question down for answer by the Chancellor of the Exchequer on 15th December concerning Treasury investigations in Glenrothes, he will not expect me to anticipate the reply. Nor will my hon. Friend, I am sure, expect me to comment on fresh rumours which have appeared in the Press concerning alleged currency offences. I can assure my hon. Friend, however, that I have taken very careful note of all that he has said, and I am sure that the Corporation will do the same. With this in mind I propose to invite the Corporation to discuss the whole history of the project with me. During the course of our analysis I have no doubt we shall look at these past events in sequence and in some detail.

As my hon. Friend said, the Royal Victoria Sausage Company sought Board of Trade permission to expand its factory in Sussex. This was refused, and the company was invited by the Board of Trade to consider a development district. Glenrothes was selected by Royal Victoria Sausage Company and negotiations began between the company, and the Glenrothes New Town Development Corporation. These were superseded in May, 1963, by the parent company of Royal Victoria Sausage which was described to us as Cadco Developments Limited.

Cadco Developments Limited, as my hon. Friend has emphasised, was to purchase three advance factories which were to be adapted and extended to form a major food processing unit. The ultimate cost was to be about £2 million and the employment over 2,000. At the time the project held out every prospect of a substantial move forward for the new town. This was, no doubt, the reason why so many Departments concerned gave endorsement to the idea. The Corporation might well have been open to criticism if it had missed this opportunity of helping to provide such employment.

429 In addition, to this, there was every evidence that the company was fully committed to carrying through the scheme. The terms negotiated with the company provided for the purchase of the buildings by the company over a period of 20 years at a rate of interest which would bring a profit to the Corporation. These terms were similar to those negotiated for earlier projects with other firms at Glenrothes and other new towns. The Corporation look up bankers' references for the company, and, in the usual way, obtained from the company a form of indemnity under which, if anything happened to prevent the completion of the scheme, the company would pay for work done on its behalf.

The proposal was that building works were to be carried out by the Cadco Building Company, a subsidiary of Cadco Developments Limited, at a cost certified from time to time by an independent quantity surveyor. Sanction was given by the Scottish Development Department on 20th September, 1963. Work went ahead on building and adaptation works for a first phase development to the value. including existing buildings, of about £1 million.

In September, 1964, it became clear that the Cadco Building Company was in financial difficulties and unable to meet the claims of its creditors. It then emerged that the building company had itself loaned money to its parent, Cadco Developments Limited, and to other associated companies, all of which my hon. Friend has mentioned, and following that it seemed that the whole project was accordingly in jeopardy.

Despite these difficulties, it was hoped for some time that the building company would be able to raise sufficient funds to complete the buildings and meet the creditors' claims, but at the beginning of November one of the creditors forced the liquidation of the firm. It is important to make clear that once the Development Corporation had paid the amounts due to the Building Company under its contracts, it had no knowledge of, or influence over, the disposal of these funds by the company to its associates or otherwise.

It is true that recently it has been made public that in August of this year the Board of Trade turned down the company's application for a standard grant 430 under the Local Employment Act. It may be argued, as my hon. Friend has argued, that the Corporation should not have embarked on expenditure until the outcome of the grant application was known. Prior to this, however, the company had assured the Corporation that it intended to proceed with the scheme whether or not assistance approved by B.O.T.A.C. was given, and this assurance was repeated even after the Board of Trade turned down the company's application for a standard grant under the Local Employment Act.

To return to the original agreement—and I am sorry that I have to rush this—the Development Corporation undertook to provide the buildings to the company's requirements, and the company was itself to be responsible for the installation of special fittings and plant. The contract provided for the first deposit to be paid by the company to the Development Corporation before the end of August this year, and it was open to the Corporation, if the payment was not made within 14 days of the due date, to renounce the arrangement, and any fittings installed by the company became the Glenrothes Development Corporations' property. This, of course, is what happened.

So far as the Corporation's relationship with the Cadco Building Company is concerned, the Corporation's position was fully safeguarded. In the first place, the agreement provided that work done would be paid for on certificates granted by an independent quantity surveyor, and at rates settled by an independent quantity surveyor on the basis of prevailing rates for comparable work in the area. Payments would be made in instalments as the work proceeded, subject to the retention of a proportion of the sums due at each stage.

Once again, bankers' references were taken up, and the Corporation was informed that the bank concerned would make available more than sufficient funds to finance building operations over the period until payments for work done became due. The building company made it clear that it was interested in establishing itself as a major contractor in the area, and, I believe, subsequently tendered for other public contracts.

Cadco Developments required a particularly tight time schedule, and this the Cadco Building Company claimed to be 431 able to meet. In a case of this kind, where the buildings are to be purchased by the occupier and the reimbursement of the cost is therefore provided for, it is not unusual for a nominated contractor. to be employed.

No money was paid by the Development Corporation to Cadco Developments Limited and, subject to one exception, the only money paid to the Cadco Building Company is the total due under the various certificates granted by the quantity surveyors, less the retention 432 moneys still held by the Corporation. The exception is a limited sum, to be offset against a payment due for architectural services provided by Cadco Developments Limited—