An Inquiry into the Culture, Practices and Ethics of the Press
December 2010 – July 2011: The Rt Hon Jeremy Hunt
December 2010 – July 2011: The Rt Hon Jeremy Hunt
¶and the Department for Culture, Media and Sport 5.1 The delicacy of the task for which Mr Hunt assumed responsibility should not be
underestimated. From a political perspective the decision was inherently controversial, "a hot potato" as the Prime Minister put it.223 From a procedural point of view, Dr Cable's apparent bias had caused News Corp considerable concern about, and lack of faith in, the process up to this point, as is plain to see from its solicitors' subsequent correspondence.224
¶5.2 Mr Hunt's own comments about the bid, whilst not enough to prevent him from taking on
the task, were such as to generate unease on the part of opponents to the bid. Consequently, as both Mr Kilgarriff and Mr Stephens had astutely recognised, there was a need to take particular care going forward.225 Mr Hunt had to be scrupulously fair to both sides and had to be seen to be so. He was walking a tightrope.
¶5.3 This Report first considers the formal handling of the bid by Mr Hunt and DCMS before
separately considering the lobbying which was happening concurrently behind the scenes and the various unsolicited submissions and representations which were made to the Secretary of State.
¶5.4 The handover of responsibility was executed promptly. It involved the transfer of 70 or so
staff from BIS to DCMS and a high level meeting on the morning of 22 December 2010.226 Mr Stephens described these immediate steps, identified the main DCMS attendees at the meeting, and emphasised that the requirements of a quasi-judicial process were addressed at the meeting:227
1352"Given the circumstances surrounding the transfer of responsibility, I was particularly conscious of the need to establish robust processes to support the Secretary of State's new responsibilities. I also had to oversee the immediate transfer of some 70 or so staff from BIS to DCMS, with their responsibilities and budgets. I identified Jon Zeff, then Director, Media, as the lead policy official and he ensured that the relevant BIS officials and lawyers were present at a meeting the next day (the 22nd December) with the Secretary of State. I also attended that meeting, along with Jon Zeff, a DCMS lawyer, and Adam Smith... At that meeting BIS officials briefed the Secretary of State on his functions and responsibilities, the decision already taken and the next steps. In particular they reinforced the advice in the Department's submission to the Secretary of State of 12th November that this was a quasi-judicial process and set out what that required..." I
¶PART I | The Press and Politicians
¶5.5 Mr Hunt was sure that the term quasi judicial was used when his role in the process was
outlined at the meeting. He had not himself exercised a quasi judicial role before.228 But he was well aware of the sensitivities:229
"LORD JUSTICE LEVESON: [I]t was abundantly clear to you, wasn't it that enormous care had to be exercised? One of the things in the note from BIS was a reference to the fact that the Secretary of State for BERR – the decision to intervene in the Lloyds HBOS merger [-] was judicially reviewed on the basis that his discretion had been fettered by comments by the Chancellor, so great sensitivity around all these decisions?
¶A. Absolutely right."
¶The OFT and Ofcom reports
¶5.6 The OFT reported to Mr Hunt on 30 December 2010, predictably concluding that the
proposed transaction, if executed, would constitute a European relevant merger situation. This formally confirmed that the Secretary of State did have jurisdiction to make a reference to the Competition Commission under Article 5(3) of the Enterprise Act (Protection of Legitimate Interests) Order 2003 ("the 2003 Order") to address any media plurality concerns if he believed that the relevant statutory conditions were satisfied.230
¶5.7 The following day, Ofcom delivered its keenly anticipated report on plurality, recommending
a fuller second stage review by the Competition Commission.231 Ofcom put its advice and conclusion in this way:232
"Ofcom's advice, based on the evidence and reasons set out in this report and summarised in the executive summary, is that it may be the case that the proposed acquisition may be expected to operate against the public interest since there may not be a sufficient plurality of persons with control of media enterprises providing news and current affairs to UK-wide cross-media audiences. In reaching this view we do not rely on the dynamic effects discussed in full in Section 6. Therefore we believe there is a need for a fuller second stage review of these issues by the Competition Commission to assess the extent to which the concentration in media ownership may act against the public interest, and we advise the Secretary of State accordingly."
¶5.8 Ofcom's work had drawn into focus a wider issue concerning the adequacy of the regulatory framework and in particular the lack of a mechanism with which to address a threat to I plurality arising from the organic growth of a company. Whilst this lacuna was not immediately relevant to the bid, the recommendation is highly relevant to the Terms of Reference and
1353¶Chapter 6 | The BSkyB Bid
is further analysed below.233 For present purposes it is sufficient to note and endorse the recommendation which Ofcom made in Chapter 7 of its report:234
"Under the current statutory framework, a media public interest consideration of plurality can only be triggered when there is a proposed merger involving media enterprises. The future market developments considered in this report suggest that the current statutory framework may no longer be fully equipped to achieve Parliament's objective of ensuring sufficient plurality of media ownership. The market developments identified include the risk of market exit by current news providers, or a steady organic growth in audience shares and increase in ability to influence by any one provider. For example, in a situation where a company grows organically through entirely legitimate business strategy which does not involve any anti-competitive behaviour but finds itself in the relevant media market with 90% share of audiences. While this may not have raised competition concerns, it very clearly may raise plurality concerns. While there is a clear statutory framework for remedying competition concerns which may arise in the context of a merger, the same is not true of concerns related to plurality more generally. This means that if a transaction is found not to operate against the public interest in relation to plurality at the time, there is no subsequent opportunity or mechanism to address or even to consider any plurality concerns which develop over time. ... We therefore also recommend that the Government consider undertaking a wider review of the statutory framework to ensure plurality in the public interest. Specifically, we believe there may be value in providing for intervention where plurality concerns arise in the absence of a corporate transaction involving media enterprises and which are not safeguarded by the current media ownership rules." (emphasis added)
¶Procedural arrangements and meetings with James Murdoch 5.9 Mr Hunt's formal task, having received the above reports, was to decide whether or not to
refer the proposed transaction to the Competition Commission. The applicable test was (and is) that provided by article 5(3) of the 2003 Order which states:
1354"3) The Secretary of State may make a reference to the Commission if he believes that it is or may be the case that – (a) arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a European relevant merger situation; I (b) one or more than one public interest consideration mentioned in the European intervention notice is relevant to a consideration of the European relevant merger situation concerned; and (c) taking account only of the relevant public interest consideration or considerations concerned, the creation of that situation operates or may be expected to operate against the public interest."
¶PART I | The Press and Politicians
¶5.10 As is the case at the intervention stage, the test at the referral stage contains a discretion.
The discretion allows a low threshold for intervention. Mr Hunt was bound by article 5(5) of the 2003 Order to accept the decision of the OFT on jurisdiction which, in any event, was uncontroversial. That disposed of the consideration under article 5(3)(a) of the test. In effect it remained for him to decide whether or not to follow Ofcom's recommendation to refer the bid to the Competition Commission in this case.
¶5.11 Before addressing the substantive decision, Mr Hunt had first to consider procedure. In
particular, Allen & Overy, solicitors acting on behalf of News Corp, had lost no time in writing to him on 23 December 2010, complaining in strong terms about his predecessor's handling of the matter and requesting to know how Mr Hunt intended to proceed.235 DCMS replied promising a redacted copy of Ofcom's report when it was available and assuring News Corp that it would be given: "reasonable opportunity to make written and oral representations before the Secretary of State takes his decision..."236
¶5.12 Allen & Overy wrote again on 5 January 2011 pressing for progress and expressing fears about
how long the process might take.237 By this time The Treasury Solicitor (TSol) was acting for the Secretary of State and replied, explaining that he did not wish to delay the decision, and that Mr Hunt was prepared to meet News Corp.238 It is entirely understandable, in the exceptional circumstances that the bid had come to him, that Mr Hunt should have done so.
¶5.13 The meeting with News Corp took place on 6 January 2011. Mr Hunt had conferred with
his officials and legal advisers the previous day in preparation, and an aide memoire was prepared for him.239 The Secretary of State was accompanied at the meeting by Mr Zeff, Mr Kilgarriff, Adam Smith and his Private Secretary. News Corp was represented by James Murdoch, Mr Michel and others. A detailed note was taken and it was expressly recorded that those present would be open about the fact of the meeting:240
"It was agreed that subject [sic] of these discussions would be kept confidential at this stage but both sides would be open about the fact meetings that [sic] had taken place. It was expected that the OFCOM and any News Corp submissions would be released no later than the SoS' decision on referral."
¶5.14 According to the minute Mr Hunt broke the news at the meeting that he was minded to
refer the proposed transaction to the Competition Commission, explaining that Ofcom's recommendation, together with advice which he had received from counsel, had caused him to reach this provisional view. He referred to the "very low" threshold set by the statutory test. A redacted copy of the Ofcom report was to be provided to News Corp the following day and the company was to have a week to make written submissions, if it so wished, before
¶I Mr Hunt made a final decision. These submissions were not to be a re-submission of News
1355Corp's evidence to Ofcom. If, as a result of such submissions, or certain clarifications which Mr Hunt wished to seek from Ofcom, Mr Hunt became minded not to refer the deal then other interested parties would be given the opportunity to state their cases.
¶Chapter 6 | The BSkyB Bid
¶5.15 Amongst a number of points, News Corp expressed serious concerns about Ofcom's work,
and warned that the practical effect of a referral would be to decrease the likelihood of the sale being completed and reserved its legal rights. Those speaking on behalf of the company also made clear its fallback position, which was that a further meeting would be sought if its written submissions were not successful, in order to discuss those submissions and potential remedies as necessary. By remedies News Corp was referring to undertakings in lieu of referral ("UIL") which the Secretary of State has the power to accept under the Enterprise Act:241
"The Secretary of State may, instead of making such a reference and for the purpose of remedying, mitigating or preventing any of the effects adverse to the public interest which have or may have resulted, or which may be expected to result, from the creation of the European relevant merger situation concerned accept from such of the parties concerned as she considers appropriate undertakings to take such action as he considers appropriate."
¶5.16 The terms of the Departmental aide memoire, which are realistic, give an insight in to
the thinking in DCMS; it suggests that Mr Hunt was not going to be easily moved from his provisional view but that he was open to a further meeting to discuss any written submissions which News Corp might produce:242
"I have carefully read the Ofcom report and I find it very difficult on the basis of what I have seen to date to see any grounds which would allow me to not refer this case to the Competition Commission, especially given that the threshold for referring is relatively low. ... I will consider carefully any arguments you subsequently put to me and would be happy to have a further meeting on the substance of the report. But my feeling at this stage is that that [sic] you will have to identify some very serious flaws in Ofcom's facts or analysis before I could consider not referring..." (original underlining)
¶5.17 Formal "minded to" letters were sent by Mr Hunt to both News Corp and BSkyB on 7 January
2011 enclosing both the OFT report and a redacted version of Ofcom's report. The letters explained that the Secretary of State was minded to refer the matter but, as is required by the Enterprise Act 2002,243 consulted the relevant parties likely to be adversely affected by the decision if it was confirmed. In this case the letters did so by inviting written submissions and offering a meeting.244
¶5.18 On 10 January 2012, Mr Hunt, Mr Smith and officials met Ed Richards, the CEO of Ofcom. This
was to seek clarification on various aspects of the Ofcom report.245 I
¶5.19 On 13 January 2011, BSkyB made detailed written submissions to the Secretary of State,
1356urging him to reject Ofcom's advice and to permit the transaction to complete without a referral.246 These submissions were followed very shortly afterwards by those of Allen & Overy, on behalf of News Corp, which were delivered on 14 January 2011 in both confidential
¶PART I | The Press and Politicians
and redacted format. Their very detailed submissions amounted to a sustained full frontal attack on the Ofcom report, tantamount to an allegation of bias:247
"News [sic] believes that Ofcom has failed to approach the effects of this Transaction with an open mind and has carried out a review process with the intention of identifying concerns. Ofcom has been noticeably more receptive to submissions made by third party complainants than it has been to submissions made by News and has chosen to present the evidence in a one sided way (in some cases selectively omitting relevant evidence)".
¶5.20 Conspicuously, the submissions did not conclude by throwing down the gauntlet to the
Secretary of State, although they were careful to preserve News Corp's legal position. Instead they culminated by indicating a willingness on the part of News Corp to give UIL which would "remedy, mitigate or prevent all of the effects adverse to the public interest which Ofcom erroneously identifies may result from the Transaction".248 It was on this potential alternative to a referral which News Corp thereafter focused its effort, following up its submissions of 14 January 2011 with draft UIL under cover of a letter dated 18 January 2011.249
¶5.21 News Corp's proposal was to "spin off" Sky News as an independent company so as to
guarantee its continued editorial independence and to commit to a long term carriage agreement so as to ensure the commercial viability of the hived off entity. The arrangements were summarised by Allen & Overy in a covering letter expressed in these terms:250
"The attached UIL proposal involves a commitment from News that Sky News will be spun off as an independent UK public limited company (Newco), with its shares publicly traded. Shares in Newco would be distributed to the existing shareholders of Sky, as far as possible, in the same proportions as their existing shareholding (so that News will retain only the same shareholding in Sky News as it currently has in Sky, 39.1%). The corporate governance structure of Newco will also replicate the effect of the existing governance structure of Sky, which has been in place for a number of years. In particular, after closing: (a) The voting agreement dated 21 September 2005 between the Sky [sic] and News which prevents News from exercising more than 37.19% of the votes will be replicated in respect of Newco;
(b) a majority of the board of Newco shall comprise non-executive Directors determined by the board to be independent;
¶I (c) material transactions between Newco and News/Sky will require the approval
1357of Newco's Audit Committee, which will consist exclusively of independent non-executive Directors. In addition Newco's constitutional documents will provide that such transactions may, depending on materiality, require an independent fairness opinion or Newco independent shareholder approval (by virtue of Newco applying controls that have equivalent effect to those imposed by Chapter 11 of the Listing Rules).
¶Chapter 6 | The BSkyB Bid
There will also be a number of commercial agreements between News/Sky and Newco, including a long-term carriage agreement which will provide Newco with a significant and committed long term revenue stream. None of the commercial agreements between News/Sky and Newco will give News /Sky any right to influence the editorial content of Sky News. A business plan for Sky News and a latter from News' financial advisers regarding the suitability of Sky News for admission to trading will be made available to the Secretary of State in due course."
¶5.22 The thinking behind the proposal was that by preserving a separate legal identity for Sky News
and by safeguarding its editorial freedom, Ofcom's plurality concerns would be sufficiently addressed. Allen & Overy argued:251
"Ofcom states in paragraph 5.46 of the Report that: "As a result, today [Sky News] makes a strong and positive contribution to plurality. [...] The proposed transaction would result in Sky ceasing to be a distinct media enterprise from News Corp." The attached UIL proposal, under which Sky News would be spun off as an independent legal entity, will fully safeguard the status quo as regards the editorial independence of Sky News and will ensure that Sky News remains as a distinct media enterprise and independent broadcast voice. This fully addresses all of the concerns identified by Ofcom in its Report and relied upon by Ofcom in recommending to the Secretary of State that he refer the Transaction to the CC. The UIL will therefore remedy, mitigate or prevent any purported effects resulting from the Transaction which have been identified by Ofcom as potentially adverse to the public interest."
¶5.23 Mr Hunt's initial reaction was that the UIL was: "...a pretty big offer. I mean they were basically
saying – this was a decision I had about news plurality, and they were saying that they would exclude the one news organisation that's part of BSkyB from the whole deal."252
¶5.24 On 20 January 2011, a second high level meeting between Mr Hunt and James Murdoch
took place to enable News Corp to expand upon its written submissions and to speak to its proposed UIL. Both parties took the meeting very seriously. Mr Hunt was accompanied by a number of DCMS officials, independent specialist counsel, and both of his SpAds. Mr Murdoch brought Mr Michel and others. At the outset Mr Hunt explained that he was still minded to refer the case to the Competition Commission, notwithstanding News Corp's written submissions. He maintained that the low threshold for referral combined with the clear disagreement between Ofcom and News Corp was leading him to the view that a referral for further investigation was the reasonable approach. He would though be prepared to consider UIL as an alternative to referring the matter. I
¶5.25 Undeterred by Mr Hunt's clear indication that he was minded to refer, the minutes show
1358that News Corp maintained its furious rebuttal of the Ofcom report with a lengthy series of points, although there is no indication that they moved Mr Hunt from his provisional view. The Secretary of State was much more receptive in principle to the UIL, which were discussed next, but he was not prepared to be rushed when it came to the detail. He concluded that:
¶PART I | The Press and Politicians
"...he was prepared to explore the proposal but would want to look very closely at the detail, including the implications for financial viability of an independent Sky News."253
¶5.26 Next steps were outlined. They involved publication of redacted versions of the Ofcom report
and of News Corp's written submissions. Mr Hunt would announce that he was minded to refer the bid to the Competition Commission but that he was first going to explore the potential remedy offered by News Corp. Mr Hunt would start this process by reverting both to Ofcom and the OFT for further advice. The involvement of these regulatory bodies at every turn, even when not required by statute, was to become the hallmark of Mr Hunt's formal approach to the bid. An undertaking that the representations and UIL reflected the position of BSkyB was sought together with fully worked up UIL. The Secretary of State made it clear that in the event that he was minded to accept the UIL, there would be a statutory public consultation.
¶5.27 Mr Hunt described Mr Murdoch as "very cross" about the continued involvement of Ofcom
because "...he considered that was tantamount to wanting to kill the deal, because he believed that Ofcom would use every mechanism at their disposal ...".254 It is certainly the case that this was one of a number of steps which Mr Hunt took during the process which were not to News Corp's liking.
¶5.28 At a meeting between lawyers on 21 January 2011, Allen & Overy advanced arguments which
appear to have been designed to reduce the role of OFT and Ofcom, or even to dissuade the Secretary of State from reverting to them. The firm also argued that early publication of the Ofcom report would harm the process. These arguments, although properly made, were not accepted and are mentioned because they are illustrative of the procedural history and the careful approach of DCMS and its advisers in relation to News Corp.255
¶Consideration of the proposed UIL: advice and consultation
¶5.29 Fully worked up draft UIL were provided by News Corp on 24 January 2011 and the next day
Mr Hunt made a written statement to Parliament explaining the timeline and process which he had followed up to that point, as well as making public the fact that he was minded to refer the bid to the Competition Commission but was first considering the UIL offered by News Corp. His meetings with News Corp and Ofcom were covered and the statement was accompanied by publication of the December reports from OFT and Ofcom, the latter in redacted form, the Secretary of State's "minded to" letters and the resulting submissions from both BSkyB and News Corp (in redacted form). On their face, the written ministerial statement and associated press release appeared to be models of transparency. But, as is explored further below, there had in fact been a considerable volume of private communication with News Corp going on
¶I behind the scenes which is not mentioned in the statement.256
¶5.30 Formal letters were sent by Mr Hunt both to Ofcom and the OFT on 27 January 2011. Ofcom
1359was asked, pursuant to s106B Enterprise Act 2002, "...for advice on the extent to which you think that the enclosed News Corp undertakings in lieu (UIL) address the potential impact
¶Chapter 6 | The BSkyB Bid
on media plurality identified in Ofcom's report..."257 The OFT was asked, pursuant to s93 of the same Act, "...to consult both merging parties with a view to discovering whether those undertakings are in your view practically and financially viable, so that they would be acceptable to me...".258 The day before these letters were sent, Operation Weeting commenced. At that stage, Mr Hunt regarded phone hacking at News International as having no bearing on his consideration of News Corp's bid. He said in evidence "...my perspective at this point is: this is a police matter".259
¶5.31 Both regulators were asked to respond within 14 days and both met that deadline with
responses dated 11 February 2011. Ofcom recognised the proposed UIL as a significant step by News Corp and regarded UIL, in principle, as a solution to its plurality concerns. However, it did not consider that the UIL proposed by News Corp afforded sufficiently tight governance arrangements to meet those concerns and it outlined four governance requirements which it felt had to be met:260
"The Board of Newco should consist of a majority of independent directors, "independent directors" being directors who have no other News Corporation or News Corporation associated interest; The Board of Newco, including the independent non executive directors, should have a combination of both senior editorial and business experience/expertise; The Chairman of Newco, should be an independent non executive; There should be a sub-committee of the Board of Newco to oversee editorial independence and integrity of Newco's services ("the Board Editorial Committee")."
¶5.32 Ofcom had been in contact with News Corp which had responded to Ofcom in terms indicating
a willingness to meet the first two concerns and proposing an alternative solution in respect of the fourth: an alternative which was described by Ofcom as "a promising basis from which to work".261 The sticking point was the third of the points listed above, the requirement for an independent Chairman. On that point, Ofcom's advice was:262
"Without such an undertaking, it would be open to the Newco Board to appoint a Chairman who is affiliated with News Corporation. Given the nature of Newco and its relationship with News Corporation as set out above, we consider this would undermine the effectiveness of the proposed UIL in meeting our plurality concerns and the credibility of the undertakings."
¶5.33 The OFT set out a number of additional undertakings which it considered that it would be
1360necessary for News Corp to give in order to ensure that the UIL were practical and viable in the short to medium term. It also identified an "essential structural limitation" in that the I carriage agreement at the heart of the scheme was of finite duration, warning that: "The OFT, however, considers that the finite duration of the carriage agreement, in particular, entails
¶PART I | The Press and Politicians
a material risk to the long term viability of Newco and hence the UIL."263 Ofcom appears to have been less concerned about this factor, considering the proposed ten year duration for the carriage agreement to be long term in the context of the industry dynamics of the media sector.264 Otherwise Ofcom did not have anything to add to the OFT's assessment.
¶5.34 DCMS officials advised Mr Hunt to permit more time to see whether News Corp was prepared
to amend its UIL so as to meet the regulators' concerns.265 Mr Hunt did so but set News Corp a very tight deadline of 24 hours in which to indicate in principle that it would make the necessary changes.266 It amounted to an ultimatum, the core part of which was worded in the following terms:267
"There are therefore four critical matters which need to be resolved if I am to consider accepting your undertakings: The Board of Newco would need to be independently chaired. I agree with Ofcom's assessment that, without such an undertaking, the Newco Board could appoint a Chairman who is affiliated with News Corporation which would undermine the spirit and potentially the practical effect of undertakings designed to address concerns about plurality. There needs to be a non-reacquisition commitment as set out by the OFT. Whilst I understand that it is proposed that this could lapse after 10 years, I quite understand the OFT's concern that there should not be a "carve-out" in the event of a third party bid for Newco. The key contracts would need to be approved by me. At a minimum this would cover the carriage agreement and the brand licensing agreement. I would anticipate asking Ofcom and the OFT to advise me on these contracts at the appropriate time. There needs to be more clarity around the definition of "material transactions" (as identified in para 8.11 of the OFT report) and the assets to be transferred (paragraph 9.7 – 9.14). There are also a number of other important issues where there is agreement in principle, or a large measure of agreement, and these too would need to be agreed and incorporated into the undertakings in lieu. If you are unwilling to agree to the necessary changes, I will refer the merger to the Competition Commission. If, on the other hand, you will accept that in principle these changes can be made, and confirm that to me within 24 hours, I will formally ask Ofcom and the OFT to continue their discussions with News Corp with a view to producing as soon as possible a set of finalised undertakings in lieu which I can
¶I consider. If I then propose to accept those finalised undertakings in lieu of a reference, they can then be published and consulted on as the legislation requires."
¶5.35 The consequences for News Corp, and James Murdoch personally, of accepting these further restrictions were not insignificant as Mr Hunt explained to the Inquiry:268
1361¶Chapter 6 | The BSkyB Bid
"Q. In other words, [the Chairman of Newco] wouldn't be Mr James Murdoch? A. That was a very, very significant thing for Mr Murdoch. I mean you know, News Corporation thinks that one of its primary functions is what it says on the tin, is news. He first of all didn't think he should have to spin off Sky News at all because he didn't believe there was a plurality issue with the original proposal, and this was going to cost him hundreds of millions of pounds more; but secondly, he was at the time chairman of BSkyB, and that included being chairman of Sky News, and he thought he would – he wanted to continue to be chairman. I think that was pretty important to him. And Ofcom did not want that, and so they – so that was then presented to me. There were other things that Ofcom – there were other concerns. There was a concern that they wanted to have very strict measures in place to stop News Corporation buying additional shares above 39 per cent. James Murdoch was very concerned, for example, that a commercial rival would come in and purchase the other 61 per cent of the shares and that might mean that he lost control of Sky News forever..."
¶5.36 The short deadline prompted a swift response from James Murdoch who indicated by letter
dated 16 February 2011 that News Corp was willing to agree to the suggested changes and enclosed draft amended UIL.269 This assent caused Mr Hunt formally to write to both OFT and Ofcom on 17 February 2011 asking them to agree a set of undertakings with News Corp and Sky so that he could make a final decision.270
¶5.37 On 1 March 2011 the OFT reported back to the Secretary of State communicating the news
that satisfactory amendments had been proposed and enclosing draft UIL bearing the same date.271 Its conclusions were expressed in these terms:272
"In light of the amendments proposed by News, and subject to prior approval of the key agreements, as described above, the OFT advises the Secretary of State that the Revised UIL are likely to be practically and financially viable in the short and medium term (that is, no more than 10 years). The OFT also advises the Secretary of State that the amendments made to the Revised UIL do not address the essential structural limitation identified in the Report, that the UIL offered are unlikely to be practically and financially viable over the long term. The relevance of this limitation ultimately depends on the time horizon which the Secretary of State, advised by Ofcom, considers relevant to ensure the effectiveness of the UIL in addressing any media plurality concerns. The OFT notes that Ofcom's advice of 11 February 2011 sets out its views on the dynamics of the industry."
¶5.38 The same day Ofcom expressed its view that the revised proposed undertakings did address
1362the concerns which it had expressed in its 31 December 2010 report. Ofcom had also seen I the latest report from the OFT and expressed its agreement with it.273
¶PART I | The Press and Politicians
¶5.39 Accepting the advice, Mr Hunt proceeded to the next step which was to announce, on 3
March 2011, a statutory consultation exercise soliciting views as to whether the proposed UIL were sufficient to remedy, mitigate or prevent the public interest concerns in relation to media plurality raised by the merger. The Notice of Consultation allowed until 21 March 2011 for responses.274
¶5.40 There was an enormous response to the consultation exercise from an extraordinary variety
of respondents. Solicitors Slaughter and May, who had been in regular correspondence with DCMS about the bid before having this formal opportunity to make submissions, lodged detailed submissions on behalf of the Alliance.275 BT, despite itself being a part of the Alliance made an individual submission. Lord Prescott and Tom Watson MP separately wrote to urge the Secretary of State to act upon the emerging evidence of criminal wrongdoing at the News of the World (NoTW), a theme which was to take on a growing significance in relation to the bid. They were amongst around 140 MPs who wrote to DCMS. The trade unions BECTU and the NUJ both responded, as did the TUC. Academics and individuals and companies from within the media industry added their voice, as did significant numbers of ordinary members of the public. Organised email campaigns instigated by pressure groups Avaaz and 38 Degrees resulted in tens of thousands of responses. Solicitors DLA Piper, acting for Avaaz, made detailed written submissions. Other not-for-profit or campaigning organisations also responded. The consultation even elicited a number of responses from the United States of America written by those who were unhappy with News Corp's activities in that country. When the consultation period ended, DCMS had received 38,687 responses, of which about 37,700 were the product of the internet campaigning.276 Most were hostile to the UIL.277 By the time the response to the consultation was announced, the number had grown still further.
¶5.41 Whilst the consultation was taking place, Mr Hunt and his officials were thinking ahead and,
in particular, considering how best to meet key opponents of the bid. The internal e-mail of an official on 14 March 2011 recorded his thinking:278
"Many thanks for briefing SoS this morning on the Newscorp/BSkyB merger. On the consultation and the process of analysing the responses, SoS was clear that we should take the necessary time to examine the substantive points raised about the UIL. His priority was to ensure that the final UIL are robust and viable in the long term. We must take care to avoid possible loop holes. [On] meetings, SoS wanted to be, and be seen to be, even handed with both proponents and opponents of the merger. To that end SoS agreed he would consider requests for meetings once written evidence had been submitted. In particular, SoS wanted the
¶I alliance of bodies working through Slaughter and May to be aware of this position
1363and his willingness to meet, given the representations they have made throughout this process."
¶Chapter 6 | The BSkyB Bid
¶5.42 Mr Hunt continued to make maximum use of the assistance available to him from Ofcom and
the OFT writing to both on 18 March 2011, before the consultation had closed. He sought their advice on those responses which were material to the practical and financial viability of the proposed UIL, enclosing some at that juncture. The remaining material representations and a summary of all consultation responses were to follow. Mr Hunt also sought the regulators' advice in relation to the detailed provisions on carriage, brand licensing and certain operation agreements set out in the proposed UIL which were later provided by News Corp.279
¶5.43 On 24 March 2011, the Secretary of State met with members of the Alliance. He was supported
at the meeting by his Private Secretary, both of his SpAds, Mr Zeff, Daniel Beard of counsel, an in-house lawyer and a member of the DCMS Media Team. Ofcom and the OFT were represented, at the suggestion of the Alliance. For the Alliance there were representatives from Trinity Mirror, Guardian Media Group, Telegraph Media Group, Associated News and Media, and Slaughter and May. The Alliance explained the basis of its opposition to the UIL and support for a referral to the Competition Commission which the Secretary of State then discussed with them.280
¶5.44 DCMS had asked the Alliance's public affairs advisers, Weber Shandwick, not to attend.
Internal DCMS emails evidencing the debate which led to this decision reveal that there were differences of opinion. It is striking that amongst those arguing against their attendance was Adam Smith who wrote: "No public affairs advisors from News Corp were in any of our meetings with them. It was News employees plus lawyers wasn't it? So I still feel they shouldn't be there".281 This view overlooked the fact that News Corp was relying upon its own in house public affairs team, of which Mr Michel was a part, and that Mr Michel had attended both meetings with the Secretary of State about the bid earlier that year.282
¶5.45 There followed a period during which three Labour politicians, Ivan Lewis MP (Shadow
Secretary of State for Culture, Media and Sport), Lord Prescott and Mr Watson all pursued correspondence with Mr Hunt about the bid. Mr Lewis wrote on 30 March 2011 raising a number of questions about the bid and asking whether the Government would, in the light of the experience, remove politicians from such decisions in the future: "In light of the very real issues of impartiality that have arisen in relation to this case will you consider including provisions in the Bill which would remove politicians from having any quasi-judicial role in relation to specific plurality and cross media ownership decisions?".283 The Secretary of State replied on 19 April 2011 but, on the last point, he did so in non-committal terms.284 The future role of politicians in media plurality and cross media ownership decisions is an important issue and is discussed further later in this Chapter.285
¶I
1364¶PART I | The Press and Politicians
¶5.46 On 11 April 2011, Lord Prescott followed up the letter which he had written on 15 March
2011 during the consultation period with a second letter.286 He developed and updated the point which he had made earlier about the unfolding story of phone hacking at the News of the World. During the intervening period, on 8 April 2011, News International had admitted that its previous investigations had not been thorough enough and indicated that it would be settling some civil cases. In particular, Lord Prescott asked the Secretary of State to delay his decision whilst the Metropolitan Police investigated and warned against approving the bid. Mr Hunt replied the next day. His stance, at that stage, on phone hacking was that: "The phone-hacking allegations are of course very serious, but they are matters for the criminal courts. They have no bearing on the separate matter of media plurality, and my decision on the merger could be challenged if I allowed these allegations to colour my view."287 He also referred to s67(5) of the Enterprise Act 2002 which he considered prevented him from widening the scope of the intervention.
¶5.47 Both of the points which Mr Hunt raised in response to Lord Prescott were the subject of
further thinking and advice at DCMS. So far as the phone hacking allegations were concerned, on 18 April 2011, an official advised Mr Hunt that they might have some relevance to the decision on UIL, if the wrongdoing was known about and endorsed or ordered at a senior level within News Corp. The advice was put in these terms:288
"The phone-hacking issues as currently admitted by News Corp cannot properly be considered by you when making your decision on the matters of plurality which were the subject of the public interest intervention. However, it is the nature of undertakings that they depend to a certain extent on trust. Our advice is therefore that those activities may be relevant to your decision, but only to the extent that they suggested that you could not reasonably expect News Corp to abide by their undertakings, for example if the wrong-doing was known-of and endorsed or ordered at a senior level within News Corp. This might also be relevant to the level of risk you want to assume in relation to the operational agreements (see above)." (emphasis added)
¶5.48 At that stage, Mr Hunt did not believe that the evidence went so far as to give rise to a question of trust within News Corp, as opposed to NI:289
"But the advice we got on 18 April did say that the one way that phone hacking could impinge was if they thought there was an issue of trust, so that accepting undertakings basically meant that you had to be confident that you could trust the people that you were doing a deal with over those undertakings. So at that stage it was a matter about News International. It wasn't a matter that there was any evidence at all that it affected News Corporation executives that we
¶I were dealing with. We thought they had a problem with a company that was part of
1365News Corporation group, but there was no evidence, and we didn't think we'd have any legally robust basis to suggest at that stage there was an issue of trust."
¶Chapter 6 | The BSkyB Bid
¶5.49 On or about 18 April 2011, the scope of the intervention was raised by the Secretary of State
within his Department. Insofar as is material, an email of that date from Paul Oldfield, the Secretary of State's Principal Private Secretary, read:290
"Actions for our Comms meeting this morning ... SoS asked whether we could/should look to invoke the PI test re "fit and proper person" re Newscorp / Sky merger..."
A related email between Jon Zeff and Rita Patel, referring to that quoted above, put it this way:291
"See below, SoS raised two points ... B) wants to make sure we've thoroughly kicked the tires on scope for invoking the standards limb of the pi test. Someone has suggested to him that we could instigate a new reference because information has come to light (on phone hacking) which wasn't available to vince c when he took the original decision. I was doubtful but agreed to check."
¶5.50 In the result Mr Hunt did not seek to widen the scope of the intervention. Whether he had
the power to do so would have been an interesting legal question.292 He stuck to the line which he had adopted in correspondence, namely that s67(5) prevented him from doing so. Of course, whether or not he had the power to amend or replace the original EIN, Ofcom at all times had the power to remove BSkyB's broadcasting licence if it believed that that company was not a fit and proper person to hold it. In September 2012, that was a question which Ofcom did ultimately address concluding, after James Murdoch had stepped down as Chairman, that it was a fit and proper person. Of significance to the Inquiry's consideration of the bid is the fact that, by asking the questions and raising the issues recorded in the internal emails quoted above, Mr Hunt demonstrates an open mind and a desire to act properly.
¶5.51 There was a further exchange of letters when, on 24 May 2011, Lord Prescott copied an article
from the Guardian reporting criticism of News Corp by former US Vice President Al Gore.293 Mr Hunt replied on 27 June 2011 pointing out the limited remit of his decision, and assuring Lord Prescott that he would only accept UIL which were legally robust and enforceable and which addressed the media plurality concerns.294
¶5.52 Meanwhile, on 19 April 2011, Mr Watson also wrote to Mr Hunt, following up a letter which
1366he had sent on 24 January 2011, before the consultation. His first letter had raised phone I hacking at the NoTW (to the extent then known) and urged Mr Hunt to widen the scope of his intervention to include News Corp's commitment to broadcasting standards. He had concluded:295
¶PART I | The Press and Politicians
"So egregious are these breaches that I am surprised that you have not already commissioned Ofcom to test News Corp's commitments to broadcasting standards. I request that you do so now as a matter of urgency."
¶5.53 Mr Hunt had replied to the earlier letter on 8 February 2011 pointing out (as he later did to
Lord Prescott) that s67(5) of the Enterprise Act 2002 prevented him from making a further intervention in the case.296 Mr Watson's second letter updated his first because News Group News Ltd had, in the meantime, admitted liability in some of the civil claims arising from voicemail hacking. He repeated his call for a widening of the scope of the intervention, suggesting an amendment to the original EIN and argued that any UIL given by News Corp would be unreliable:297
"Clearly News's [sic] illegal activities render them unsuitable to own Sky and I believe you ought to specify this as a public interest consideration. If it is the position under the enterprise Act that there may be only one intervention notice given to the OFT then the notice should be amended to add reference to the broadcasting standards commitments mentioned above particularly in the context of News's [sic] admission of guilt; and the matter should be referred once more to Ofcom to carry out further investigations in this regard. You should dismiss the UIL being offered by News since they patently cannot be relied upon and the matter should be referred to the Competition Commission for a detailed investigation."
¶5.54 Mr Watson wrote again on 10 May 2011 to communicate the fact that "other criminal trials
have been launched that strengthen my original concerns" and to chase for a response.298 Mr Hunt responded on 17 May 2011 explaining that an EIN, once issued could not be amended, but that Ofcom has the power at any time to remove a broadcasting licence from a broadcaster it does not believe to be a fit and proper person. He only had power to refer the case to the Competition Commission on plurality grounds but assured Mr Watson that he would only accept UIL if they were legally robust and enforceable.299 The internal emails referred to above corroborate that this was indeed Mr Hunt's intention.
¶5.55 Mr Watson sought to continue the correspondence with a further letter on 21 June 2011 seeking a full list of News Corp shareholders but events soon overtook this request.300
¶5.56 The fact that the regulators were making "good progress" in their dealings with News Corp,
which had "now responded positively to virtually all the key issues and (eventually) provided all the documentation requested" was reported to the Secretary of State on 13 May 2011.301 Ofcom and the OFT had been joined in their scrutiny of the commercial agreements which would give effect to the proposed UIL by solicitors Pinsent Masons, instructed by the Secretary
¶I of State to scrutinise them from the commercial perspective of Newco. Their work added an additional dimension to the checking process.302
1367¶Chapter 6 | The BSkyB Bid
¶5.57 It took until 22 June 2011 for the OFT and Ofcom to complete and deliver their advice. The
OFT had not been moved fundamentally by the responses to the consultation but it had acted on a number of suggestions for the improvement to the UIL which News Corp had eventually adopted. The OFT put it this way:303
"The Reviewed Responses do not, individually to collectively, provide reasons for the OFT to change the fundamental tenor of its March Advice. However, the Reviewed Responses do provide suggestions as to how the 1 March UIL could be improved so as to improve the practical and financial viability of the proposed UIL. The OFT has discussed these improvements with News, and News has been willing – ultimately – to accept all of the amendments which the OFT regards as material and desirable..."
¶5.58 The resulting amendments to the UIL were listed in an Annex to the advice.304 Where
suggestions or comments had not been taken forward, the OFT explained why. The advice made clear that none of the amendments could address the essential structural limitation identified in its December 2010 report which meant that, in its opinion, the UIL were unlikely to be practically and financially viable over the long term.305 As for the carriage and brand licensing agreements, they had been discussed and amended in places with the result that the OFT was satisfied, stating that:306
"In light of the changes made, the OFT advises that the Revised Carriage Agreement and Revised Brand Licensing Agreement are consistent with the Revised UIL and the OFT's previous advice with regard to their practical and financial viability".
¶5.59 Ofcom similarly reported the strengthening of the UIL in response to issues identified in the
responses to the consultation exercise. As to the long term viability of the UIL, it stood by its previous position that ten years in the media industry was long term. It pointed out that if News Corp sought to reacquire Sky News at the end of the period then the public interest test under the Enterprise Act 2002 might be triggered if the threshold criteria were met. Ofcom put it thus:307
1368"As we have previously advised, we agree that the proposed UIL are not a permanent solution and that their effectiveness may start to diminish in the run up to the end of the 10 year period. We consider that a carriage agreement of a 10-year term in the context of industry dynamics in this sector is long term. This is because we consider there is likely to be significant evolution of the market and consumers' use of news and current affairs over the next decade. As a result, the situation with regard to plurality may be significantly different in 10 years time. As set out above, at the end of the 10 year period, the prohibition on acquisition and I the carriage agreement come to an end. If News Corporation wished to acquire the remainder of the shares in Newco after the end of the 10 year period, a media public interest test may be triggered if the threshold criteria in the Enterprise Act 2002 are met.
¶PART I | The Press and Politicians
In order for the Secretary of State to have sufficient flexibility for dealing with plurality issues we would, however, refer to our previous advice that the Government should consider undertaking a wider review of the statutory framework to ensure plurality in the public interest in the longer term. We believe that the current system is deficient in failing to provide for intervention to be considered where plurality concerns arise in the absence of a relevant corporate transaction involving media enterprises, for example as a result of organic growth."
¶5.60 As had the OFT, Ofcom raised those responses to the consultation which it had not acted upon
and explained why it had not done so. On the question of the carriage and brand licensing agreements, Ofcom was satisfied with revised versions of the agreements dated 15 and 16 June 2011 respectively. Overall, Ofcom was satisfied, concluding that:308
"For all the reasons set out above and in our previous letters of advice, we consider that the revised proposed undertakings offered by News Corporation would address the plurality concerns identified in our report of 31 December 2010."
¶5.61 The Secretary of State accepted the advice of the regulators and prepared to make a further
written ministerial statement. Before doing so he took advice from his officials on what could and could not be published. It is clear from internal DCMS emails that Mr Hunt wanted to publish as much as he could, although in the result it was not practicable to publish the carriage and brand licence agreements for reasons of commercial confidence. Mr Hunt's Principal Private Secretary recorded in an email dated 27 June 2011 that:309
"SoS said he would like to press ahead with statement on BskyB on Thursday. SoS said he would like to publish all docs (inc brand licensing and carriage agreements – even if redacted) and would like to press News Corp for those docs this week. We discussed having a quick handling meeting this afternoon to discuss draft statement etc..."
Provisional acceptance of the amended draft UIL and further consultation
¶5.62 The Written Ministerial Statement was made on 30 June 2011. It communicated Mr Hunt's
decision which was that he was minded to accept the revised UIL, and he was satisfied with the carriage and brand licensing agreements as amended. He announced a further and rapid consultation, allowing seven days for further views on the revised UIL.310 The statement was very carefully crafted to emphasise not only that he had engaged both Ofcom and the OFT to a greater extent than he was obliged to, but also to make clear that he could have accepted
¶I the original UIL and was exercising his discretion to require more of News Corp. It began:311
1369"I am today publishing the results of the consultation on the undertakings in lieu I launched on 3 March alongside the subsequent advice I have received from Ofcom and the OFT. The consultation did not produce any information which has caused Ofcom and the OFT to change their earlier advice to me. I could have decided to accept the original undertakings. However a number of constructive changes have been suggested, and as a result, I am today publishing a revised, more robust set of undertakings and will be consulting on them until midday Friday 8 July.
¶Chapter 6 | The BSkyB Bid
As previously, I was not required to involve independent regulators in assessing the revised undertakings. However I have again done so, and sought their independent advice. I am today also publishing that advice, which after careful consideration I have decided to accept."
¶5.63 In addition to the advice, Mr Hunt published the proposed Articles of Association for
"Newco", the revised UIL and a summary of the responses to the consultation.312 The Ministerial Statement explained the process and the developments which had taken place in consequence of the consultation responses, including all of the changes which he was now minded to accept. It then went on to deal with a number of issues which had often been raised in the responses to the first consultation including the emerging phone hacking allegations against the News of the World. At this stage, Mr Hunt unequivocally adopted the stance that the allegations were immaterial. There was no mention of their potential relevance to the reliability of the undertakings. The material part of the statement explained why Mr Hunt was then of the view that the allegations should not influence his decision:313
"Some respondents also argued that News Corp could not be relied upon to abide by the requirements set out in the undertakings, citing previous guarantees and assurances given by News in the past, and the current hacking allegations against the News of the World. I have taken the view that News have offered serious undertakings and discussed them in good faith. In all the circumstances and given that the implementation of those undertakings will be overseen by the Monitoring Trustee and thereafter monitored and if necessary enforced by the OFT, I believe that there are sufficient safeguards to ensure compliance with the undertakings. Furthermore, the various agreements entered into pursuant to the undertakings will each be enforceable contracts. Therefore whilst the phone hacking allegations are very serious they were not material to my consideration."
¶5.64 Mr Hunt regarded the substantive protections afforded by the revised UIL to be very considerable, describing them in these terms:314
"So it was a further strengthening of these UILs in a way that made Sky News massively more independent of James Murdoch than it was then or indeed is now."
¶5.65 The statement concluded, as it had started, in terms designed to engender trust and confidence in the process:315
1370"I am committed to maintaining the free and independent press for which this country is famous. I have sought and published independent advice throughout this I process. I have listened carefully to points made in the consultation and amended the undertakings where appropriate. I have also gone for maximum transparency whilst taking reasonable account of commercial confidentiality considerations. I continue
¶PART I | The Press and Politicians
to believe that, if I allow this deal to proceed, Sky News will be able to continue its high-quality output and in fact will have greater protections for its operational and editorial independence than those that exist today."
¶The phone hacking scandal and the withdrawal of the bid
¶5.66 By this stage, it looked as if the deal was close to being approved. That state of affairs was to
change very rapidly. The consultation, which lasted until midday on Friday 8 July 2011, took place during a tumultuous week for News International. The phone hacking scandal came to a head and, on Thursday 7 July 2011, James Murdoch announced that the NoTW was to close. There was, once more, an enormous response to the consultation, as Mr Hunt confirmed in his evidence:316
"Q. And you received in that short period of time 156,000 responses. Virtually all were, again, anti, weren't they? A. Yes."
¶5.67 On the day that the consultation closed, a post on the DCMS website made clear that the
Secretary of State would now also be considering the impact of the closure of the NoTW on media plurality. On this point it read:317
"The Secretary of State will consider carefully all the responses submitted and take advice from Ofcom and the Office of Fair Trading before reaching his decision. Given the volume of responses, we anticipate that this will take some time. He will consider all relevant factors including whether the announcement regarding the News of the World's closure has any impact on the question of media plurality." (emphasis added)
¶5.68 On the following Monday, Mr Hunt sought the advice of both Ofcom and the OFT on the
developments. He asked the OFT whether any of the past week's revelations caused it to reconsider any of its previous advice:318
"However, given the well-publicised matters involving the News of the World in the past week, and which have led to the closure of the paper, I should be grateful if you could let me know whether you consider those revelations and allegations cause you to reconsider any part of your previous advice to me, or otherwise gives rise to concerns, on the credibility, sustainability and practicalities of the undertakings offered by News Corporation."
¶5.69 In particular, Ofcom was asked whether the events that followed its letter of 22 June 2011 I changed in any way the advice it had offered as regards three areas:319
1371"The closure of the News of the World in the last week is a significant change to the media landscape. I would be grateful if you could indicate whether this development (and/or the events surrounding it) gives you any additional concerns in respect of plurality over and above those raised in your initial report to me on this matter received on 31 December 2010.
¶Chapter 6 | The BSkyB Bid
I am aware of your letter on Friday to John Whittingdale MP in relation to any proposed fit and proper persons test and would be grateful if you could keep me informed of progress. In particular I would be grateful if you could clarify whether in your view, your current consideration or any potential future decision in relation to the fit and proper persons test might have an impact on the merger and my decision on media plurality or on the proposed undertakings in lieu. Given the well-publicised matters involving the News of the World in the past week that led to its closure, I would be grateful if you could let me know whether you consider that any new information that has come to light causes you to reconsider any part of your previous advice to me including your confidence in the credibility, sustainability or practicalities of the undertakings offered by News Corporation."
¶5.70 Mr Hunt impressed upon the Inquiry the gravity of the watershed moment which had led him to write to Ofcom and OFT, describing it in these terms:320
"Then we had the horrific Milly Dowler revelations on 4 July, which I don't think anyone could not have been touched by, and then a couple of days later News Corporation announced that they were closing the News of the World. That, for me, was a very, very significant moment because then I began to wonder whether there could be a management issue that spread beyond News International to News Corp, and even if it wasn't an issue of trust, even if I accepted that the people that we were negotiating the UILs with, … were doing so in good faith, I asked myself, if they found it necessary to close down a whole newspaper – this is a big, big deal for a company like News Corporation – is there a corporate governance issue here? Is this a company that actually doesn't have control of what's going on in its own company, even if the management don't know about what's happening? So it was really that and, of course, the fact that there was a plurality issue with a big newspaper being closed down and the fact that Ofcom had been asked to investigate whether BSkyB was a fit and proper licence holder for a broadcasting licence, those came together. So a week after the Milly Dowler revelations I wrote to both Ofcom and the OFT to ask them whether they still stood by the advice they'd given me at the end of June that plurality considerations had been addressed by the UILs as they did then."
¶5.71 Faced with a crisis, James Murdoch decided to withdraw the UIL with the inevitable result
that Mr Hunt decided to refer the proposed transaction to the Competition Commission. Mr Murdoch explained his decision in a letter to Mr Hunt later on 11 July 2011:321
1372"...we have listened and considered public sensitivity, political concern and the I requests for an independent Competition Commission review. In these circumstances I have taken a decision to withdraw the undertakings. This will allow the matter to be considered by the Competition Commission on an objective and fair basis taking into account factors and evidence which are relevant to the only applicable legal test of sufficiency of media plurality.
¶PART I | The Press and Politicians
News Corporation continues to believe that properly taking into account those factors its proposed acquisition will not lead to there being insufficient plurality in news provision in the UK."
¶5.72 Mr Hunt announced his decision to refer the proposed merger to the Competition
Commission in Parliament on the afternoon of 11 July 2011. The terms in which he expressed himself reflected the dramatic change in atmosphere which the previous week's events had wrought:322
"...As a result of News Corporation's announcement this afternoon I am going to refer this to the Competition Commission with immediate effect and will be writing to them this afternoon. Today's announcement will be an outcome that I am sure the whole house will welcome. It will mean that the Competition Commission will be able to give further full and exhaustive consideration of this merger taking into account all relevant recent developments. Mr Speaker, protecting our tradition of a strong, free and independent media is the most sacred responsibility I have as Culture Secretary. Irresponsible, illegal and callous behaviour damages that freedom by weakening public support for the self-regulation upon which it has thrived. By dealing decisively with the abuses of power we have seen, hopefully on a cross-party basis, this government intends to strengthen and not diminish press freedom, making this country once again proud and not ashamed of the journalism that so shapes our democracy."
¶5.73 Avaaz sought to seize the moment to press the case for the Secretary of State to issue a
new EIN widened in scope to include not only plurality but also commitment to broadcasting standards. The group did so on 12 July 2011 by sending DCMS a Note, produced by counsel expert in merger and competition law, which challenged the view that s67(5) of the Enterprise Act 2002 prevented the Secretary of State from widening the scope of the intervention. Counsel concluded:323
"Although I cannot claim that the position is certain, I can say that in my view, given the factual context set out above, any attempt by News Corporation to challenge a decision by the Secretary of State to issue a further Notice allowing him and the CC to consider fitness would be more likely than not to fail, notwithstanding section 67(5) of the EA02. ...
¶I
I should make it clear that I am not saying that the Secretary of State is bound now to issue a replacement Notice allowing fitness to be examined as a public interest consideration. His discretion is a wide one. However, in the present circumstances, the view that he definitely cannot lawfully do so seems to me to be far too cautious."
¶5.74 In the result, that legal argument did not need to be resolved because although the transaction
1373was formally referred to the Competition Commission on 13 July, News Corp subsequently withdrew its bid and, on 25 July 2011, the reference was cancelled by the Competition Commission.324
¶Chapter 6 | The BSkyB Bid
¶5.75 The speed at which a proposed transaction such as News Corp's bid for BSkyB is considered
may itself be commercially sensitive (in this case there can be no doubt that, for News Corp, it was the sooner the better). From the point of view of the public interest there will also generally be a need to deal with this sort of decision promptly because it would not be in the public interest for regulatory delay to thwart a deal deserving of approval. However, that need for promptness in the public interest will always be qualified by the public interest in ensuring that the proposed transaction is considered sufficiently to ensure that the right decision is made. In this case the speed at which the bid was actually considered was consistent with the public interest. Mr Hunt described himself as wanting to do things "briskly but properly".325 He certainly sought to avoid unnecessary delay but when time was needed fully to consider, take advice about, and to consult upon the UIL, it was afforded.
¶Lobbying behind the scenes 5.76 In addition to the considerable volume of responses which were the product of the
Secretary of State's specific invitations to interested parties to make submissions, there was a remarkable amount of additional unsolicited communication. Some of this came from the Alliance, whose solicitors and public relations advisers actively sought to influence the Secretary of State through correspondence. These contacts though paled in comparison to the voluminous behind the scenes contact between Mr Michel and people at the DCMS. In particular, Mr Michel had a great deal of email, text and telephone contact with Adam Smith. It is now well known that the publication of Rupert Murdoch's exhibit KRM18, which evidenced some of this contact, led very quickly to Mr Smith's resignation. It is therefore now necessary to consider the nature and extent of unsolicited and behind the scenes lobbying whilst the bid was Mr Hunt's responsibility.
¶The Alliance 5.77 Like News Corp, the Alliance had begun to lobby DCMS before the transfer of the bid. Emails
in the period 8 to 10 December 2010 show that there was a meal attended by representatives of DCMS and Weber Shandwick, after which the latter offered and the former accepted a briefing on "the plurality issue".326 The DCMS official made clear (as was the case at that stage) that DCMS had no formal role but Weber Shandwick was still keen to get its client's message across: "...I know you have no formal role but good for you to hear our case and why we think there is a change".327
¶5.78 On 26 December 2010, the bid then having been transferred to Mr Hunt, Weber Shandwick
1374copied Slaughter and May's submission to Ofcom to DCMS.328 The next day the firm sent the results of a poll conducted by the Alliance to a DCMS official.329 DCMS wisely cancelled the I planned briefing but Weber Shandwick thereafter remained in email contact with DCMS. Of the briefing an in-house legal adviser wrote: "...I don't think the presentation was, in any
¶PART I | The Press and Politicians
event, to Jeremy, but given recent events, I think that we ought to distance from any remote suggestion of influence by any interested party".330
¶5.79 When reports emerged that News Corp was discussing remedies with the Secretary of State,
Weber Shandwick was quick to ask for a meeting which was declined.331 The firm also sought early sight of Ofcom's report which it was not granted on the ground that the Secretary of State would publish the report, in redacted form, in due course.332 Weber Shandwick later forwarded copies of letters from Slaughter and May dated 12 and 20 January 2011 (discussed further below) but did not add substantively to them.333
¶5.80 Slaughter and May also wrote directly to the Secretary of State on a number of occasions,
typically following reports in the media about the progress of the bid. On 12 January 2011, the firm wrote after reports in the (FT) that discussions about UIL had commenced. UIL had in fact only been mentioned at the meeting between Mr Hunt and James Murdoch on 6 January 2011 as something which News Corp wanted to discuss if their primary submission that Mr Hunt should not refer the bid failed. The first draft UIL had not yet been submitted to the Secretary of State. Slaughter and May pointed to the low threshold for a reference to the Competition Commission, arguing that remedies should not be considered before a referral, and seeking further information. TSol replied on behalf of the Secretary of State with a letter which, amongst other things, gently made clear that, if and when the time came for the Alliance to make submissions, then they would be sought.334
¶5.81 At that stage, Mr Hunt was, in any event, minded to refer the bid and had not yet formed
even a provisional view about the UIL. He was not then obliged to hear submissions from the Alliance. Indeed, on the question of referral they would have been otiose and on UIL premature. When later, after taking advice from Ofcom and the OFT, the Secretary of State became minded instead to accept the UIL, he launched a consultation (to which the Alliance was able to and did respond).
¶5.82 Slaughter and May was not content to wait. On 20 January 2011 the firm made further
unsolicited submissions, this time following publication by the (FT) of news that News Corp had offered to divest Sky News. It argued that it would be difficult to achieve an effective remedy without wholesale divestment of BSkyB and pressed again for a reference to the Competition Commission.335
¶5.83 When the Secretary of State announced that he was asking the OFT and Ofcom to advise
him on News Corp's proposed UIL, and would go out to public consultation if he provisionally decided to accept the same, Slaughter and May wrote to him seeking to be involved at an earlier stage. On 27 January 2011 they wrote, inter alia:336
¶I "You only propose to go out to public consultation however, after you have provisionally decided (in the light of the advice from OFT and Ofcom) to accept such undertakings.
1375¶Chapter 6 | The BSkyB Bid
In order to ensure that the overall process is both fair and thorough, it will therefore be critical for Ofcom / OFT and the Secretary of State to consult with key industry players (including the Concerned Parties) ahead of the provisional decision."
¶5.84 The Alliance did not get the early involvement that it was seeking and so Slaughter and May
wrote again, on 9 February 2011, making a veiled threat to judicially review the Secretary of State. It persisted with the argument for early involvement:337
"We understand that the process you envisage would require Ofcom (working with OFT) to assess undertakings in lieu of reference to the Competition Commission ("the CC") without the involvement of interested third parties. Third parties would instead only be consulted after Ofcom / OFT have reported to you and after you have concluded that you are minded to accept such undertakings. It is our view that this process would be unfair and would fail to meet the normal procedural standards of merger control and public law more generally. ... If your decision is to meet public law requirements of fairness, it is essential that interested third parties are properly consulted before Ofcom / OFT report to you and before you propose to accept undertakings. ... In the absence of the above safeguards, the review will be procedurally unsound."
¶5.85 TSol replied on behalf of the Secretary of State on 11 February 2011 refuting the allegations
of unfairness and repeating the point, more bluntly this time, that the Alliance would have an opportunity to make submissions at an appropriate time if the need arose. The letter concluded:338
"Proper and, as you put it, meaningful consultation does not require multiple iterations of comment throughout a decision making process such as this one. The important point is that you and your clients are given an opportunity properly to comment on any proposal to accept undertakings in lieu of a reference. You will have that opportunity. Finally, I cannot but emphasise that if, and I stress if, the Secretary of State does reach a view that he proposes to accept undertakings in lieu of a reference, he will carefully consider any observations you and your clients may have about those proposed undertakings."
¶5.86 Slaughter and May nevertheless continued with its effort to get the Alliance more deeply I
1376involved at an earlier stage, writing again on 1 March 2011, this time following another article in the (FT) which had been published on 24 February 2011 on the subject of the proposed UIL. It sought an outline of the key features of any remedy proposals made by News Corp; the opportunity for the Alliance to discuss the proposals with OFT and Ofcom prior to them advising the Secretary of State; and the opportunity to discuss the remedy proposals with the Secretary of State prior to any provisional decision or substantive announcement which he may make on the issue.339 The firm's repeated representations about process were then overtaken by events when the Secretary of State reached the provisional view that he was
¶PART I | The Press and Politicians
minded to accept UIL from News Corp and consequently initiated a statutory consultation. As has already been recited above, Slaughter and May submitted lengthy and detailed submissions as part of that process and subsequently attended the Secretary of State's meeting with Alliance members on 24 March 2011.
¶5.87 In March 2011 Weber Shandwick was involved in arrangements for the Secretary of State's
meeting with the Alliance.340 The firm itself was at the last minute asked not to attend that meeting with the result that News Corp had an internal public affairs officer in attendance when James Murdoch met the Secretary of State, but the Alliance was prevented from having an equivalent, albeit external, adviser present.
¶5.88 Finally, there was a brief email exchange between Weber Shandwick and DCMS in which
the former sought information and asked whether their further input was needed. The firm received a brief and entirely proper response.341
¶5.89 A number of observations flow from a consideration of the Alliance's unsolicited
communications. First, there was a qualitative difference between its lobbying efforts and those of News Corp in that it was, essentially, conducted through emails to officials and formal correspondence. The approach to lobbying by News Corp extended well beyond that and, at least in part, took the form of Mr Michel's indefatigable use of text messaging, email and the telephone.
¶5.90 Second, the financial stakes associated with the proposed transaction, and the passions which
it aroused, caused the Alliance, through its solicitors, to push as hard as it could to be heard throughout the process. It is almost inevitable that exactly the same will happen when the next major qualifying media transaction falls to be considered under the Enterprise Act 2002.
¶5.91 Third, the veiled threat of judicial review from the Alliance, when combined with the equally
threatening correspondence from News Corp's lawyers, amply demonstrates the need for a process which is both robustly and manifestly fair to all parties if it is neither to be impugned in court nor impossibly slow.
¶5.92 These three observations all point to the desirability of detailed procedural guidance being
available for a Secretary of State responsible for administering quasi-judicial decisions under the Enterprise Act 2002 and for a fair yet workable procedure to be established and followed throughout. That need is made all the more clear after a consideration of the lobbying undertaken by Mr Michel.
¶Frédéric Michel's contact with Jeremy Hunt I 5.93 On Christmas Eve, some three days after responsibility for the bid had been transferred to
Mr Hunt, Mr Michel sought to lay the ground to make use of the channel of communication which he had previously established with the Secretary of State. With characteristically friendly (even intimate) and informal tone, he texted:342
1377"Hi. James has asked me to be the point of contact with you and Adam throughout the process on his behalf. Glad Jon Zeff is in charge of dossier. Have a great Christmas with baby! Speak soon. Fred"
¶Chapter 6 | The BSkyB Bid
¶5.94 Mr Hunt immediately appreciated that, as the decision maker, he was now in a very different
position and properly informed Mr Michel that all contact from then onwards needed to be through official channels until the decision had been made:343
"Thanks Fred. All contact with me now needs to be through official channels until decision made. Hope Daddy has a lovely Xmas. Jeremy"
¶5.95 Mr Michel held back, but only for a short while. He cautiously resumed communication by
text on 20 January 2011 following the second of the two formal meetings about the bid to which he had accompanied James Murdoch. He was careful not to mention the bid, but sent:344
"Great to see you today. We should get [names redacted] together in the future to socialise! Nearly born the same place! Warm regards. Fred"
¶5.96 Mr Hunt's brief reply implicitly made clear that any socialising with Mr Michel would have to await resolution of the bid but in terms which made slight reference to the bid:345
"Good to see u too. Hope u understand why we have to have the long process. Let's meet up when things are resolved J"
¶5.97 Mr Michel picked up on that slight reference in a response which he augmented with flattery:346
"We do and will do out very best to be constructive and helpful throughout. You were very impressive yesterday. And yes let's meet up when it's all done. Warmest regards fred"
¶5.98 Mr Michel did not text Mr Hunt again until 3 March 2011, the day on which Mr Hunt
announced to Parliament that he was minded to accept News Corp's UIL, when he again resorted to flattery:347
¶"You were great at the Commons today. Hope all well. Warm regards, Fred"
¶5.99 That text led to two more within a few minutes of the first. Mr Hunt replied briefly: "Merci
large drink tonight!" Mr Michel concluded the exchange on a similarly friendly note: "Me too! Taking wife out for dinner!"348
¶5.100 There were two more exchanges during the currency of the bid. First, on 13 March 2011, Mr
Michel praised Mr Hunt's performance in an interview: "Very good on Marr. As always! Fred". Mr Hunt's reply amounted to a polite reminder of the bid and consequent need for some distance: "Merci hopefully when consultation over we can have a coffee like the old days!"349 I
¶5.101 Second, on 3 July, Mr Michel sent a text to propose a social engagement: "Come on Nadal!! We
1378should get together to celebrate the one year baby birthdays! Hope all well. Warm regards, Fred". Mr Hunt replied in friendly terms but once again he put off Mr Michel whilst the bid
¶PART I | The Press and Politicians
was in progress: "Agree he MUST win! Let's do that when all over".350 During his oral evidence Mr Hunt candidly reflected on Mr Michel's 3 July 2011 text, stating:351
"I think it's incredible ingenuity. I mean he was just looking for any opportunity he could try and establish contact of some sort or another. You know, it was pushy. You know, I responded briefly, courteously, and in a friendly way as well.
What I didn't deduce from this, and I think you alluded to in earlier comments, was the effect of this kind of contact multiplied many, many times over to Adam Smith. And that was the crucial thing right at the beginning of the process that we didn't foresee, the fact that there was going to be such a volume of correspondence, ..." (emphasis added)
¶5.102 It is conspicuous that all of the exchanges during this period were initiated by Mr Michel. All
were brief. The bid was barely touched upon and there was no substantive communication either about the substance of the bid or the process. It was all about making the connection at the personal level. Mr Hunt was careful to put off any social arrangements until after the bid. His responses were consistent with the general approach which he took to those in the media industry with whom he came into contact during the bid. In evidence, he explained:352
"...what I'm really saying in paragraph 37 is that because of my other duties as Secretary of State, I was going to be bumping into people who had views on the bid. I think during that period I spoke at the Oxford Media Convention where the whole media world would be gathered and I gave a speech and answered questions and there would have been coffee afterwards, and so there would have been – but they were brief interactions, and I interpreted that to mean there might be a casual comment about the bid, but they weren't part of my consultation process."
¶and later he said:353
"All the interactions which related to the decision that I was going to take would be through official channels, but as I explained there, if I bumped into someone in a lift or gave a courteous reply to a text message, I didn't think that was off limits."
¶5.103 It would have been prudent for Mr Hunt politely to have insisted that Mr Michel should not
seek to communicate (whether by text or otherwise) until after the bid had been resolved, thus enforcing the wish which he expressed at the outset on 24 December 2010. Doing so would have prevented any suggestion of the appearance of bias arising from the contact which in fact occurred. The direct contact between Mr Hunt and Mr Michel which did occur
¶I was not entirely satisfactory but, having said that, I should make it clear that I do not consider
1379that, on its own, it would have been sufficient to impugn the process had it been the subject of judicial review.
¶Chapter 6 | The BSkyB Bid
¶James Murdoch and Jeremy Hunt 5.104 Mr Hunt also exchanged text messages with James Murdoch during the period in which he
was responsible for the plurality decision. On the evening of 3 March 2011, the day on which Mr Hunt announced that he was minded to accept the UIL and launched the first statutory consultation about them, James Murdoch sent a text in appreciation: "Big few days. Well played. JRM". Mr Hunt replied: "Thanks think we got right solution!" He followed that the next day with a text which had nothing to do with the bid but was connected to the sporting element of his portfolio: "Just been with the Team GB cycling team in Manchester who are most impressed with the personal interest you show in their performance!"354
¶5.105 There was then an exchange of messages on 31 March, initiated by Mr Hunt who wished
to congratulate Mr Murdoch upon his promotion. The Secretary of State's message joked about Mr Murdoch's relationship with Ofcom: "Many congratulations on the promotion although I am sure u will really miss Ofcom in NY! Jeremy". The reply recognised that there were constraints on contact whilst the fate of the bid remained unresolved: "Thanks Jeremy – sadly I fear they won't see the back of me that easily! Hopefully we can move our other business forward soon so we can catch up properly. Best".355
¶5.106 Mr Hunt was clear that his reference to Ofcom was tongue in cheek and that it had no impact
on the process. However, if faced with the same situation again, he said that he would just avoid all text messages:356
"Q. Were you at all uncomfortable communicating with Mr James Murdoch in this way? A. Well, I think, you know, as we look at the whole way quasi-judicial processes are run and as we look at the lessons that we learned from what happened between Adam Smith and Mr Michel, I think there are probably things we would learn, and my interpretation of my quasi-judicial role was that a courteous reply to a text message was fine. I think probably now I wouldn't take the same view, and I would just avoid all text messages, but that was my assessment, that it had absolutely no impact on the process. It was not material to the decision I took, and it was just me being courteous." (emphasis added)
¶Jeremy Hunt and Andy Coulson 5.107 On the advice of Sue Beeby, his SpAd who dealt predominantly with media relations, Mr
1380Hunt drew the line at meeting Andy Coulson whilst a decision about the bid was pending. He had been intending to have a drink with Mr Coulson and Ms Beeby advised by email. Referring to News Corp, she wrote: "He's so closely linked to them that if you were seen it I wouldn't look great." Mr Hunt thought that advice was "absolutely right" and that it was "wiser to wait".357 This approach was in keeping with his decisions not to meet Mr Michel or Mr Murdoch socially whilst he was responsible for the decision about the bid.
¶PART I | The Press and Politicians
¶Frédéric Michel and Adam Smith
¶5.108 In his dealings with Adam Smith, Mr Michel found a more communicative target for his
lobbying endeavours. The type and volume of their communications during the currency of the bid is, of itself, striking and well illustrates just how deftly Mr Michel managed to inveigle his way to a source so close to the Secretary of State. There were numerous emails, many telephone calls and, most of all, a prolific number of text messages. No fewer than 690 text messages passing between Mr Michel and Mr Smith were found on the image of Mr Michel's iPhone covering the period 27 August 2010 to 11 July 2011, the majority sent by Mr Michel.358 All but three of these messages post dated the transfer of the bid to Mr Hunt, the manifestation of a step change in the attention which Mr Michel paid to Mr Smith once regulation of the bid rested in Mr Hunt's hands.359 The evidence from Mr Michel's iPhone was but one piece in the jigsaw of evidence which, when put together and analysed led to the following overall statistics being put to Mr Michel in evidence and with which he did not take issue:360
"Can I move on now to your communications with Mr Adam Smith. Would you agree that there was a pattern of very frequent text messages, telephone calls and emails with Mr Smith, which certainly increased from December 2010? A. Yes. Q. Overall, over the period June 2010 to July 2011, we have counted the following:191 p3, para 9, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/Witness-Statement-of-Richard- Desmond.pdf p6, John Yates, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/03/Exhibit-JMY3A-14.pdf pp92-97, lines 21-8, Neville Thurlbeck, ibid p62, lines 19-22; p49, lines 3-5, Paul Dacre, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/ Transcript-of-Afternoon-Hearing-6-February-20121.pdf p4, lines 9-21, Jeff Edwards, https://www.levesoninquiry.org.uk/wp-content/uploads/2012/03/Transcript-of- Afternoon-Hearing-14-March-2012.pdf p67, lines 5-11, ibid p24, lines 4-6, Gordon Brown, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/06/Transcript-of- Morning-Hearing-11-June-2012.pdf p2, ibid ibid pp34-35, lines 24-5, Lord Wakeham, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/05/Transcript-of- Morning-Hearing-15-May-2012.pdf pp15-18 ibid See for example Ferdinand v MGN Ltd (Rev2) [2011] EWHC 2452 (QB) at paras 89-90 telephone calls,158 p6, para 18; p13, paras 29-40, ibid; p2, para 6, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/ Witness-Statement-of-Peter-Wright.pdf Part D, Chapter 7 p12, lines 13-23, Lord Black, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Transcript-of- Morning-Hearing-1-February-2012.pdf p54, lines 18-25, Philip Williams, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Transcript-of- Morning-Hearing-29-February-2012.pdf pp121-122, lines 13-6, Derek Webb, ibid See the Computer Misuse Act 1990 p9, lines 2-18, Commissioner Hogan-Howe, ibid p73, lines 16-20, ibid pp81-82, lines 23-10, David Cameron, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/06/Transcript- of-Morning-Hearing-14-June-2012.pdf, and http://www.levesoninquiry.org.uk/wp-content/uploads/2012/06/Letter- from-Linklaters-regarding-Rebekah-Brooks-communications-with-Prime-Ministers.pdf see the full text of Paul Dacre's speech: http://www.pressgazette.co.uk/node/42394 p40, Rupert Murdoch, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/04/Exhibit-KRM-18.pdf p1, Stephen Abell, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/SA-B183.pdf; p10, para 12, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/Witness-Statement-of-Stephen-Abell.pdf p17, para 53, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Submission-by-Lord-Hunt-of-Wirral. pdf p4, para 10, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Third-witness-statement-of-Alan- Rusbridger.pdf p17, lines 16-21, ibid Application 44787/98, Judgment 25 September 2001 emails,799 pp115-116, lines 9-5, ibid; p2, Andy Hayman, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/03/ Exhibit-AH2.pdf texts, of which over 90 per cent were exchanged with Mr Smith. Does that feel about right? A. I didn't know the quantum, but I trust your counting. Q. Over the period 28 November 2010 to 11 July 2011, we have counted 257 text messages sent by Mr Smith to you, and given that you were more prolific in your texts to him than he was to you, there would be more than that which you sent. Would you agree? A. I would."
¶5.109 The content of these communications was further evidenced by Mr Michel's numerous
emails to his colleagues within News Corp, often including James Murdoch, reporting on his activities and exhibited by Rupert Murdoch as KRM18. Publication by the Inquiry of KRM18 began to bring the full extent of the contact between Mr Michel and Mr Smith into the public domain. On the basis of that evidence, Mr Hunt's Permanent Secretary, Jonathan Stephens, described how he quickly assessed the communications to have been unacceptable:361
¶I "...The first suggestion that the contacts went beyond what was proper was 24th April
13812012 with the release of emails from Frederic Michel (and this was the first occasion I recall mention of Michel by name). The following morning I told the Secretary of State
¶Chapter 6 | The BSkyB Bid
I thought the number, extent, depth and tone of contacts suggested by those e-mails went beyond what was acceptable".
¶5.110 After time for reflection and after both Mr Michel and Mr Smith had given their oral evidence to the Inquiry, Mr Stephens remained of the same view, saying:362
"The first thing I thing I would say is that I have to be clear that I think, as I've said, the extent, the number, the nature of these contacts was, in my judgment, clearly inappropriate and not just in one or two disputed cases. I think that's a judgment I just have to place on record."
¶5.111 I agree with that assessment. In doing so I have taken into account that there was a often a
degree of hyperbole and inaccuracy in Mr Michel's email reports of his exchanges with Mr Smith with which Mr Smith rightly and unsurprisingly took issue. I recognise that the majority of the contact was initiated by Mr Michel, not Mr Smith, and that some of the individual communications were innocuous, concerning either anodyne matters of process or being mere repetition of what News Corp had already been told formally. I also recognise that Mr Smith had held himself out as being a point of contact for News Corp. But none of that escapes the fact that Mr Michel and Mr Smith engaged in a very considerable volume of private communication about the bid, much of which was clearly inappropriate for reasons which are examined further below.
¶5.112 Before turning to the detail of the exchanges in the period after the bid was transferred to
Mr Hunt, it is instructive first to examine the status of SpAds, the rules which applied to Mr Smith, his working relationship with Mr Hunt, and how he was managed, supervised, instructed and guided.
¶5.113 SpAds are temporary civil servants appointed under Article 3 of the Civil Service Order in
Council 1995. They are unique amongst civil servants because they are exempt from the general requirement that civil servants should be appointed on merit and behave with impartiality and objectivity so that may retain the confidence of future Governments of a different political complexion. Indeed, they are political appointees, appointed by Ministers with the approval of the Prime Minister. The amalgamation of civil servant and political partisan into the same post makes for a hybrid position.363 A SpAd's appointment ends at the end of the administration which appointed him (or her) or when the appointing Minister leaves the Government or moves to another appointment.364 The Code of Conduct for Special Advisers ("the Code") explains the nature of the role of a Special Adviser, in the following terms:365
1382"Special advisers are employed to help Ministers on matters where the work of Government and the work of the Government Party overlap and where it would I be inappropriate for the permanent civil servants to become involved. They are an additional resource for the Minister providing assistance from a standpoint that is more politically committed and politically aware than would be available to a Minister from the permanent Civil Service."
¶PART I | The Press and Politicians
¶5.114 Paragraph 3 of the Code lists and describes types of work which a Special Adviser can be
expected to undertake. There is no mention of assisting a Minister acting in a quasi judicial capacity.366
¶5.115 The Code makes clear that management and conduct of SpAds, including discipline, rests with
the appointing Minister, subject to the overriding power of the Prime Minister to terminate the employment of a SpAd by withdrawing his consent to their appointment. The material part of paragraph 4 of the Code reads:367
"...The responsibility for the management and conduct of special advisers, including discipline, rests with the Minister who made the appointment. It is, of course, also open to the Prime Minister to terminate employment by withdrawing his consent to an individual appointment".
¶5.116 The appointing Minister's responsibility for the management and conduct of a SpAd is
repeated at paragraph 3.3 of the Ministerial Code which also describes the accountability of Ministers for their actions and decisions in respect of their SpAds:368
"The responsibility for the management and conduct of special advisers, including discipline, rests with the Minister who made the appointment. Individual Ministers will be accountable to the Prime Minister, Parliament and the public for their actions and decisions in respect of their special advisers".
¶5.117 The Code imposes a duty of confidence upon SpAds in these terms:369
"...Special advisers should not, without authority, disclose official information which has been communicated in confidence in Government or received in confidence from others..."
¶5.118 Mr Stephens had, amongst his many duties, an advisory role as: "...the principal adviser to
the Secretary of State across the range of his functions, including on all decisions, matters of policy or questions of conduct."370 He was accountable to the Secretary of State: "...for the effective discharge by the Department of all its functions in support of the Government and its objectives."371 As he put himself put it: "I am accountable for all the advice and ultimately what goes on within the department, as I set out in my statement".372 He thus had, in that respect, overall responsibility for the handling of the bid and he oversaw the process. His advisory role to his Minister in relation to all decisions and questions of conduct was wide enough in principle to encompass advice to Mr Hunt as to the use to which Mr Smith was put in relation to the bid and how he discharged that role. It was advisory only, of course; the decisions about the deployment and management of the SpAd were for Mr Hunt.
¶I
¶5.119 Pursuant to his advisory role, it had been Mr Stephens who drew to the attention of Mr Hunt and Mr Smith not only the Code of Conduct for Special Advisers but also the Ministerial Code
1383¶Chapter 6 | The BSkyB Bid
and the Civil Service Code when Mr Hunt took office and Mr Smith was appointed. Mr Stephens saw it as his role to provide advice in relation to these codes in case of uncertainty, stating:373
"These Codes are drawn to the attention of Ministers on appointment by the Cabinet Secretary. I write to Special Advisers on their appointment to draw their attention to the Code of Conduct of Special Advisers – I wrote to Adam Smith on 14 May 2010 (this letter is attached). I also brief both Ministers and Special Advisers on the importance of abiding by these Codes and my availability to provide advice in any uncertainty. It is also my practice to explain to Special Advisers that, in all external dealings, they will be seen as representing their Department and Minister."
¶5.120 Mr Smith was one of two SpAds who worked for Mr Hunt. He concentrated on policy
development whilst the other SpAd, Sue Beeby (after October 2011, Lisa Hunter) dealt primarily with media relations.374 Mr Smith knew Mr Hunt very well and vice versa. He had worked for him since 2006 as his Parliamentary Researcher and then Chief of Staff, before becoming a SpAd when Mr Hunt was appointed as Secretary of State after the May 2010 General Election. In Mr Smith's words:375
"...we developed a very close working relationship. He came to know my approach to matters and my style, which is generally relaxed, courteous and seemingly accommodating".
¶5.121 Mr Hunt's evidence was unequivocally to the same effect. He was sure that Mr Smith would have known what he thought on different issues:376
"...I doubt there's a minister who worked more closely with a special adviser than I worked with Adam Smith, I really did work very closely with him for best part of six years, I think it was a given that he would know what I thought on different issues. I don't think that's quite the same as speaking for me, which is a different thing, but I think people would have expected him to know my views".
¶5.122 Geographically, at DCMS, the SpAds' office was on the same floor as the Ministers.377 Mr
Smith described a high level of professional contact with Mr Hunt but a lesser degree of contact with him about News Corp's bid for the remaining shares in BSkyB:378
1384"Mr Hunt and I saw each other almost every working day and we spoke frequently on the telephone. Over the years, I considered that I developed a close professional relationship with Mr Hunt. He was familiar with my approach and style. The regular meetings, to which I refer above, and our more informal, regular, contact provided him with opportunities to obtain updates from me in relation to the projects with which he had asked me to become involved and I would provide updates, as I mention I above, either at our meetings, by telephone or more informally at the office. We did not socialise together that often – we only went for drinks on a handful of occasions,
¶PART I | The Press and Politicians
in the time that we worked together, although I did attend his wedding along with a couple of other staff at the time".
¶and in relation specifically to the bid:379
"Not as frequent as it – as you might have thought, I suppose. I mean there was [sic] the meetings which I've listed there, but I would – I wouldn't go and speak to him about it on anything like a sort of daily basis or even – it would only be if he was preparing for a major statement or if there were the odd occasions where an issue that I judged to be of significant interest to him, that I would go and speak to him about it, but he – the whole point of having the department, the officials and myself, I suppose, was so that we could kind of carry on which the work and not need to go running to him every day."
¶5.123 Mr Smith understood his role in practice to require three things of him: "...to be [Mr Hunt's]
"eyes and ears" inside and outside of the Department; to act as an early warning system on issues of importance; and to be a "buffer" between him, other Ministers, officials and outside organisations so that he could focus on his work".380 The third of these capacities is important in understanding the role which Mr Smith believed himself to be playing in his interactions with Mr Michel. In relation to the bid he described his role as: "To be one of the points of contact for News Corporation. To act as a buffer and as a channel of communications."381
¶5.124 Although undoubtedly answerable to Mr Hunt, Mr Smith did not have a line manager of the type in place for ordinary civil servants. He explained:382
"I didn't really have a line manager, if you like, I reported in to Mr Hunt and would sort of meet with and talk with the senior officials, including the Permanent Secretary, but there was no sort of manager in that sort of strictest sense of the word, no."
¶5.125 Mr Smith's performance was required to be the subject of formal appraisal on an annual
basis by a number of individuals, one of whom had to be his Secretary of State, Mr Hunt, and another, the Permanent Secretary, Mr Stephens. Both would have required some familiarity with Mr Smith's job description, objectives and day to day performance in order to discharge that responsibility.
¶5.126 Mr Smith's most recent appraisal, in December 2011, vividly corroborates the very positive
evidence which both Mr Hunt and Mr Stephens gave orally about his general performance. He was extremely highly regarded. Mr Hunt wrote:383
¶"Adam is an effective operator; bright, articulate, insightful, extremely well briefed I and an effective communicator. He sees his main task as "getting things done". To
1385date he has been very effective at achieving it. He is able to me my eyes and ears at meetings I cannot attend and knows exactly what I would want to happen. He is brilliant at handling difficult situations in a civilised way without compromising on core objectives.
¶Chapter 6 | The BSkyB Bid
An ideal bridge between the department and Ministers, consistently adds value, and has been particularly adept at handling issues between Ministers."
¶5.127 Although, as the above appraisal makes perfectly clear, Mr Smith was a talented and able
SpAd, he had had no previous experience of quasi-judicial decision making prior to his involvement in the bid. Moreover, he had been a SpAd for only a matter of months and consequently had limited experience of working in Government as opposed to working in politics more generally. In those circumstances, it was particularly important that his role in the handling of the bid should be clearly defined and that he had clear, appropriate guidance and instruction.
¶5.128 There was, at that time, no specific written guidance either for SpAds or more generally for
departments relating specifically to quasi-judicial decisions and none was specifically issued in relation to News Corp's bid to acquire BSkyB. On 25 April 2012, the day after publication of KRM18, the Cabinet Office produced and provided to departments new guidance on the handling of quasi-judicial process: "Principles governing the handling of quasi-judicial decision by Ministers."384 It is intended to complement the range of good practice guidance already available to departments on the Cabinet Office website.385 Specifically in relation to SpAds, the new guidance states:386
"Special advisers. Decisions of this sort should not be made by reference to political or presentational considerations. This applies regardless of the source of the advice, and that of special advisers is treated in the same way as advice from an official giving internal advice to Ministers. If a special adviser is approached by an interested party, he/she should refer the matter to the appropriate official. A special adviser so approached must not give the impression that any particular advice will be determinative when decisions are taken. Departments should bear in mind that details of any potentially relevant contacts are liable to be disclosed in the event of a challenge to the decision. All Departments should have formal written guidance for those involved in decision-making processes. Such guidance may be of general application. But departments should also consider issuing specific guidance for certain individual decisions, particularly where such decisions arise infrequently, raise issues of unusual sensitivity or are of such complexity or novelty that general guidance is likely to be insufficient to assist in the proper discharge of the decision-making function in accordance with these general principles. All such guidance should be agreed by the relevant Permanent Secretary and Legal Adviser." (emphasis added)
¶5.129 It is commendable that guidance has now been produced and that it was done so quickly
after the problems identified by the Inquiry's examination of the bid exposed a gap in existing I guidance. However, it is regrettable that no written guidance was available when DCMS had to deal with News Corp's 2010 bid for BSkyB.
¶5.130 Mr Smith does not appear to have been given any express individual instructions as to how
1386he should, or should not, conduct himself with interested parties on matters relating to the quasi-judicial decision. On this point, Mr Hunt, who was himself new to quasi-judicial process,
¶PART I | The Press and Politicians
said that they both relied on meetings with lawyers and officials for an understanding of what was required of them and that he did not give Mr Smith any express instructions:387
"Q. Any communication between Mr Michel and Mr Smith would be no different, would it, to communication between Mr Michel and you, because Mr Smith was your agent. Do you agree with that? A. Not in this process. I think sometimes special advisers have a role which is about speaking for their boss, but in this situation Mr Smith's role was a different one. He was a point of contact in a very complex process, and there to advise News Corp about the questions they had about the process and I think also to reassure them that the process was fair. Q. What express instructions, if any, was Mr Smith given as to what his special role was? A. Well, he was present at all the meetings where we had advice from lawyers and officials in the department, so he heard that advice, and it was understood that he would be a point of contact for News Corp in the process. Q. But what express instructions was he given as to the role he would undertake? A. I don't think he was given any express instructions other than how I've described it. Q. So in terms of the discharge of the function which had been allocated to him, your evidence is he would work that out from what he heard at meetings; is that correct? A. Yes. Q. Did you give him any instructions as to what not to do? A. No. As I say, he heard in the way that I heard all the things that we needed to be careful about."
¶5.131 Mr Stephens (who knew that Mr Smith was in contact with News Corp but did not know of
the volume or detail of that contact) accepted with the benefit of hindsight that Mr Smith should have been warned about the risks arising from dealing with a professional lobbyist:388
"Q. The third point out of my four: the power of advocacy and sophistication of the lobbyist. Although you didn't know [Frederic Michel] personally, or know his exact title, you knew the sort of role he was occupying and that it was his job, really, to push as hard as he can to extract as much as he possibly could. Nothing necessarily inappropriate in that, but there was a particular risk, therefore, that the special
¶I adviser needed to be alive to and perhaps warned about. Do you accept that issue?
A. Certainly with the benefit of hindsight I wish we had warned him, and indeed I think one would necessarily want to warn anyone in contact with him."
¶5.132 It is certainly unfortunate that neither Mr Stephens nor Mr Hunt specifically addressed with
1387Mr Smith the risk that if he was to be a point of contact for News Corp, he could well come under pressure (at least similar to that of which Mr Hunt had had some experience) which could be difficult to deal with and so required particular attention. Such attention could not
¶Chapter 6 | The BSkyB Bid
only have covered providing a greater awareness of the consequences of going beyond those limits, but also a degree of managerial and pastoral support to ensure that he could deal with the issues likely to arise. Both have said, in effect, that they simply trusted him to get on with it by himself.
¶5.133 Both Mr Hunt and Mr Smith did have the benefit of the departmental advice given in
November 2010 when Mr Hunt had been advised not to contact Dr Cable about the bid. That advice, which contained the specific phrase "quasi-judicial" should have been enough to signal that this was not a normal policy or political decision, but it was not detailed advice about how the Secretary of State and those acting in his name should conduct themselves once responsibility for the bid had transferred to Mr Hunt. The note which both the Secretary of State and Mr Smith were sent explained that the decision was quasi-judicial and that such decisions might be judicially reviewed. In particular it warned: "...such decisions are case specific and must be taken on the individual merits of the case. They are not decisions about broader matters of Government policy as might be decided by Cabinet collectively and must be taken by the BIS Secretary of State acting alone."389 The November advice did not address the question of either actual or apparent bias.
¶5.134 Specific advice about the process was given after the transfer. The first such advice was
given at the handover meeting on 22 December 2010 at which both the Secretary of State and Mr Smith were present. There is a documentary record of the meeting in the form of an internal email but it captures little about what was said generally about quasi-judicial decision making. It records that: "BIS officials outlined the SoS's role in the process and the various legal considerations."390
¶5.135 Both men were also present at an internal meeting on 5 January 2011, which was preceded
by written advice from DCMS officials. The advice is addressed to Mr Hunt but Mr Smith is not included in the copy addressees. In any event, it deals with next steps rather than the requirements of a fair quasi-judicial procedure more generally.391
¶5.136 Mr Stephens in his evidence was confident that the requirements of a fair process had been clearly communicated. He stated:392
"Taken together, the written advice offered on 12 November and on 4 January 2011, and the oral advice offered in the meetings on 22 December and 5 January, including by legal advisers, established in my view clear requirements for how the process needed to be conducted, namely that this was a quasi-judicial process, in which decisions were now for the Secretary of State alone to take, on the basis of objective assessment of the evidence available to him, taking account of all the relevant considerations and ignoring any which were irrelevant. He needed to take an even-handed approach, giving all sides an appropriate opportunity to make representations, ensuring that I the process was without bias or the appearance of bias."
¶5.137 When asked about what had been said at the 22 December 2010 meeting he thought avoiding bias and the appearance of bias had been specifically mentioned:393
1388¶PART I | The Press and Politicians
"Q. BIS officials outlined the Secretary of State role in the process and the various legal considerations. Do you think that the term quasi-judicial was mentioned on that occasion, Mr Stephens? A. I think it's very, very likely. Q. Was that concept explained? A. Yes. As I recall it, in this meeting and the subsequent meeting, officials took the Secretary of State and others quite carefully through the statutory functions, the stage that had been reached, the next steps, and in particular, rehearsed the need to approach the decision with an open mind on a basis that took account of the relevant considerations, ignored the irrelevant, that it was even-handed and avoided bias or the appearance of bias. Q. It's the avoidance of bias or the appearance thereof which you feel was mentioned on that occasion, do you? A. Yes."
¶5.138 In some contrast to Mr Stephens' recollection, Mr Smith's recollection of what had been
covered in these meetings was much less definite and, in particular, his understanding of what a quasi-judicial process required of him was conspicuously vague. As to what had been said at the meeting on 22 December 2010, Mr Smith stated: "They [that's the BIS officials] may also have mentioned that Mr Hunt was to act in a quasi-judicial capacity." (emphasis added)394 Once he had refreshed his memory from the documents he clarified:395
"I think my paragraph 44, the minutes that I've seen, it says the process and the various legal considerations were discussed. So that sort of jogged my memory to suggest that quasi official may well have been discussed. I can't remember whether it definitively was, but we certainly did discuss quasi-judicial on other occasions if not that one."
¶5.139 Mr Smith was questioned closely on his understanding of quasi-judicial. The exchange,
although lengthy, bears quoting in full because it suggested that Mr Smith did not in fact fully and truly understand the procedural requirements of a quasi judicial process, and (consistently with Mr Hunt's evidence) had not received specific instructions as to what he could and could not do, not least with reference to avoiding an appearance of bias. He said:396
"A. My understanding was that it meant that the decision had to be made only after considering certain issues, in this case namely media plurality; the sort of wider political or other policy issues couldn't be taken into account. And then sort of uniquely within
¶I government that this was a personal decision for whoever the Secretary of State was
1389rather than a collective government decision. So a normal policy decision, if you like, even though it may well have been Mr Hunt making it. Collective government would have meant that they were all essentially making that same decision. Q. What about any process requirements built into the concept? Were you aware of those? A. Of the quasi-judicial concepts? Q. Yes.
¶Chapter 6 | The BSkyB Bid
A. Not – well, the process that we were following was in the Enterprise Act, but I didn't necessarily link quasi-judicial to – LORD JUSTICE LEVESON: Let's just think about the word judicial a bit, because there are lots of things I don't know much about but I know a bit about that. I'm sure you would agree with me that if a judge is trying a case, then he can't speak to the parties outside the case and go and chat to them in the evening as the case is going on, one side as opposed to the other. You don't have to be a lawyer to appreciate that wouldn't be right. I mean, would you agree with that? A. I would. I think in this particular instance the quasi-judicial process and the fact that you're dealing with two interested parties, you obviously do need to discuss lots of different things with those interested parties. In fact, you need to, to get certain things to happen. LORD JUSTICE LEVESON: But in a way that's open and transparent to everybody. Don't you think? Or not? A. Um ... LORD JUSTICE LEVESON: It might be that I shouldn't be questioning you about what you viscerally understand about the phrase, but what you were told about the phrase. What you were told it meant you could do or what you were told it meant you couldn't do. A. I wasn't told I couldn't do anything in particular. It was more about – because it was Mr Hunt's decision, the discussion was mainly about what he could or couldn't do. I don't remember being told about myself."
¶5.140 It became clear that Mr Smith had approached the bid procedurally as he would have done a decision in any other policy area:397
"Q. So whatever quasi-judicial might have meant in practice, it didn't really – maybe I'm putting it slightly too high, but it didn't really bear on what you did or didn't do because you just proceeded as you would ordinarily have proceeded in any straightforward policy area, is that fair? A. Yes, because, as I explained, my understanding of quasi-judicial was that Mr Hunt had to decide on media plurality issues and that Mr Hunt himself had to decide on the bid. Beyond that, there was no difference to the way I approached it." (emphasis added)
¶5.141 In the absence of specific instructions, he assumed the role of "point of contact", "buffer"
and "channel of communications" because he had behaved in a like capacity previously:398 I "Well, I had previously carried out that role for other work that the department had done and, as we sort of discussed earlier, for Mr Hunt in opposition. It was never, to my memory, sort of directly said to me, but it was just sort of inferred by me and I think as we go through, we'll see the department sort of assumed that that would be the case. But there was no sort of direct instruction, if you like, no."
¶5.142 Mr Hunt agreed that Mr Smith's role was to be a point of contact. Indeed, in the light of the bid's very unhappy procedural history up to that point he positively wanted Mr Smith to be
1390¶PART I | The Press and Politicians
a helpful point of contact for News Corp. But he had not, he said, seen Mr Smith's role to be a channel of communication through which to exchange his thoughts with those of News Corp:399
"Well, I think it's important to be clear about what we mean by "channel". I didn't see Mr Smith in this process as being someone who would be telling me what News Corp thought or telling News Corp what I thought. I saw him as a point of contact, an official point contact in the process, so that News Corp had someone that they could call if they had concerns about the process, and someone who was there to – you know, I mean the situation in which we inherited responsibility for a bid was one in which News Corp felt they had not been fairly treated, and so I wanted to make sure that there was someone there who could answer questions about how the process was going in a helpful way."(emphasis added)
¶5.143 Mr Hunt plainly understood that the decision was for him alone and had to be taken on the
basis only of relevant considerations, excluding the irrelevant. He no doubt also understood that he must not act in a biased fashion. But it is not clear that he fully understood just how scrupulous he needed to be to avoid the appearance of bias. It was his first quasi-judicial decision and he very fairly accepted that he had learned lessons from the experience:400
"No, I think what I interpreted – my interpretation of quasi-judicial, I think, you know, obviously having completed this process, one learns lessons, and I'm not saying I would necessarily make exactly the same interpretation now, but my interpretation at the time was that what was important was that the decision was impartial, unbiased, and that I decided it on the basis of the evidence in front of me, and so that was where the transparency was important, but if there was something that was, you know, a trivial – not trivial, that's the wrong word, but it wouldn't necessarily apply to every single matter of process."
¶5.144 The understanding described above fits with Mr Hunt's actions. He was at pains to demonstrate
how he went about making his decision, taking advice at every step and publishing relevant material as far as commercial confidences would permit. But when it came to contact with Mr Michel, although he was careful, he did not shut it down altogether. He was also content for his SpAd to act as a point of contact for one party to the bid, quietly helping it at least as far as matters of process were concerned.
¶5.145 Neither Mr Stephens, nor Mr Hunt, had any reservations at the time about Mr Smith being
used as a point of contact for News Corp. Mr Stephens accepted that it was not necessary to use a SpAd but his view, based on his experience, was that he expected it to be useful:401
¶I "My experience in these roles is that often there is a mix between roles and that it
1391can often be sometimes useful for similar messages to be passed on both channels. Certainly in this case, most of the contact was through legal advisers, as I would expect. There were some exchanges with policy officials and I thought there were some exchanges of the equivalent nature with Adam Smith. My experience in a number of government departments is that there is not a rigid distinction between special advisers and officials, necessarily."
¶Chapter 6 | The BSkyB Bid
¶5.146 When asked why he had involved a SpAd at all in the quasi-judicial process, Mr Hunt explained
that he saw a very positive role for Mr Smith in what was an important issue because he was so close to him:402
"Well, he was an absolutely key and trusted aide. He is highly intelligent, highly able, and I believed that he would have a very positive role to contribute in terms of making sure that the process was run robustly and in the right way generally. He's a very talented person and he's amongst the officials who are closest to me, so it would have been quite a natural thing; indeed, I think as Mr Stephens said, entirely proper and appropriate for special advisers to be involved in decisions that their ministers – or issues that are very important to their ministers."
¶5.147 There is nothing inherently wrong or inappropriate in the involvement of a SpAd in a quasi-
judicial process and no harm necessarily results. It does, however, carry clear risks which can be avoided by using officials for this role, especially if they have experience in this type of decision making. SpAds usually work in the sphere of the political and the presentational both of which must be put aside for the purposes of making a quasi-judicial decision. Without specific instruction and adequate supervision there is a risk that they will act as they do, entirely legitimately, when dealing with ordinary policy decisions but in a way which is not commensurate with fair process or compliant with the requirements of public law. The risk is compounded if, as may well be the case, they are working with parties with whom they have had contact in contexts not connected with a quasi-judicial decision. For this reason the new Cabinet Office guidance to SpAds, discussed above, which advises SpAds to refer approaches from interested parties to an appropriate official is helpful and prudent.403
¶5.148 When Mr Michel sought, after 21 December 2010, to pursue and exploit the previous contact
and rapport which he had had with Mr Smith, he was dealing with a SpAd who had not fully appreciated the sensitivities of such contact in a quasi-judicial context, but who had understood that his principal wanted him to be helpful to a company which had legitimate grounds for complaint about the bid's handling by Dr Cable. This was a dangerous combination.
¶5.149 For his part, Mr Michel was a professional lobbyist who, whilst charming and experienced,
said that he himself was unaware of the dangers to the process of the contact which he was actively encouraging Mr Smith to engage in. It was the first time that Mr Michel had dealt with such a transaction and the concept of a quasi-judicial decision was not explained to him by a lawyer at any stage.404 He understood something of the position of the Secretary of State recognising that any direct discussions should be formal and minuted but he did not appreciate the need for distance and transparency when dealing with Mr Hunt's officials and SpAds:405
1392"Yes. I think we had discussions on the fact that it was very important that the I decision rested with the Secretary of State, that it was not appropriate to have direct discussions with the Secretary of State unless they were formal and minuted, but beyond that we were in unchartered territory in terms of – and I'm speaking in
¶PART I | The Press and Politicians
hindsight as well – in terms of the level of representations that could be made below the Secretary of State."
¶and:406
"No. I was never of the view that it was inappropriate to at least try to put the arguments or make representations to these officers [civil servants and special advisers]."
¶5.150 In the result Mr Michel interacted with Mr Smith without modifying his ordinary approach to lobbying so as to reflect the rather special circumstances of this quasi-judicial process.
¶5.151 James Murdoch did not regard the channel of communication between Mr Michel and Mr
Smith as a secret means of informal indirect communication with Mr Hunt. He did accept the obvious point that the propriety of their communications was dependant upon what the contact was about:407
"Q. Mr Hunt must have taken the view on advice that formal meetings – and we've seen the minutes of those meetings,6 Engagement with the public: the website 37 Chapter 3: Further issues of law 38 The protection of sources and other legal privileges of the press 68 Chapter 3: Competing public interests 69 http://www.levesoninquiry.org.uk/people/assessors/lord-david-currie/ This obligation of confidence is owed by the Inquiry team to any recipient of the letter and by that recipient to me, as Chairman of the Inquiry: see para. 14(1) of the Inquiry Rules 2006 Great Britain, Royal Commission on the Press: 1961-1962: Report (Cmnd 1811) p1, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Witness-Statement-of-Dr-Rowan-Cruft.pdf p32, lines 16-21, Professor John Tasioulas, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/ Transcript-of-Morning-Hearing-16-July-2012.pdf Claire Enders, Competitive Pressures on the Press, Seminar 6 October 2011, http://www.levesoninquiry.org.uk/wp- content/uploads/2012/07/Claire-Enders-Competitive-pressures-on-the-press.pdf ibid http://downloads.bbc.co.uk/bbctrust/assets/files/pdf/about/how_we_govern/charter.pdf p3, lines 4-10, Robin Foster http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Transcript-of- Afternoon-Hearing-17-July-2012.pdf Political and Economic Planning, Report on the British Press http://www.pcc.org.uk/index.html p9, para 8, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/05/Witness-Statement-of-T-ACC-Russell- Middleton.pdf Information Commissioner's Office, What Price Privacy?, p15, para 5.1 p33, para 89, ibid p2, para 6, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Fourth-Witness-Statement-of-DAC-Sue- Akers.pdf http://www.levesoninquiry.org.uk/hearing/2011-11-14am/ http://www.levesoninquiry.org.uk/hearing/2011-11- p53, lines 23-24, Michael Gove, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/05/Transcript-of- Afternoon-Hearing-29-May-2012.pdf p28, lines 22-25, Rupert Murdoch, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/04/Transcript-of- Morning-Hearing-25-April-2012.pdf p3, para 10, http://www.levesoninquiry.org.uk/wp-content/uploads/2011/11/Witness-Statement-of-Sally-Bob- Dowler.pdf pp14-17, lines 17-3, Charlotte Church http://www.levesoninquiry.org.uk/wp-content/uploads/2011/11/Transcript-of- Afternoon-Hearing-28-November-20111.pdf p5, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Witness-Statement-of-Michelle-Stanistreet.pdf http://www.levesoninquiry.org.uk/wp-content/uploads/2012/03/Report-by-Elizabeth-Filkin.pdf pp4-5, paras 11-13, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/03/Witness-Statement-of-Lord- Condon.pdf p35, lines 10-12, Brian Paddick, ibid pp25-26, lines 12-11, Neil Wallis, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/04/Transcript-of- Afternoon-Hearing-2-April-2012.pdf p75, line 13, Richard Thomas, ibid, emphasis added. Mr Thomas suggested, however, that s55 of the DPA which founded the prosecution powers was most likely to be the most relevant provision of the regime to the terms of reference: p3, http://www.levesoninquiry.org.uk/wp-content/uploads/2011/12/First-Witness-Statement-of-Richard- Thomas-CBE.pdf pp41-42, lines 25-3, Francis Aldhouse, ibid pp11-12, paras 4.18-4.19, Alexander Owens, ibid pp6-16, para 3.3-3.26, ibid p2, para 7, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Second-Witness-Statement-of-John- Witherow.pdf Part H, Chapter 5, para 2.64 p36, lines 4-24, Rupert Murdoch, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/04/Transcript-of- Morning-Hearing-25-April-2012.pdf p53, lines 18-19, Rupert Murdoch, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/04/Transcript-of- Morning-Hearing-25-April-2012.pdf pp4-5, lines 16-2, David Cameron, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/06/Transcript-of- Morning-Hearing-14-June-2012.pdf pp7-8, ibid pp58-59, Lord Justice Leveson, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/05/Transcript-of- Morning-Hearing-10-May-2012.pdf; p5, lines 5-11, Lord Justice Leveson, http://www.levesoninquiry.org.uk/wp- content/uploads/2012/05/Transcript-of-Afternoon-Hearing-15-May-2012.pdf pp87-88, lines 6-2, ibid p52, lines 14-21, ibid pp3-4, lines 19-3, Robin Foster, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Transcript-of- Afternoon-Hearing-17-July-2012.pdf Home Office Large Major Enquiry System p46, lines 20-21, Lionel Barber, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/Transcript-of- J Morning-Hearing-10-January-2012.pdf pp8-9, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Submission-by-Professor-Roy-Greenslade-of- City-University.pdf p14, lines 13-14, Lord Black, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Transcript-of-Morning- Hearing-1-February-2012.pdf p10, lines 10-22, Lord Black, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Transcript-of-Morning- K Hearing-9-July-2012.pdf p3, para 6, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Submission-by-Media-Regulation- Round-Table.pdf p53, lines 9-22, Professor John Horgan, ibid Part K, Chapter 2 Part K, Chapter 3, para 5.14 Part K, Chapter 7, para 4.16 See for example: Application 22954/93, Ahmed v United Kingdom (1998) 29 EHRR1 at para 70, and Application 11800/85, Ezelin v France (1991) 14 EHRR 362 at paras 37 and 51 January and 20 January 2011 – were okay, would not impugn the fairness of the process, but if there is informal contact of the sort we're seeing here, that would be inappropriate and the way to avoid the appearance of that is let the informal contact take place secretly between Mr Michel and the special adviser. Do you see that point? A. Mr Jay, respectfully, I disagree with that point. I think he was saying that informal contact between me and Mr Hunt or others would raise eyebrows, because they would say, "What was discussed?", et cetera, but general contact at the political level, if you will, at the staff level, around process, around document submissions, around – just to give colour around these things from us, that that was something that was acceptable and that was part of the process he was setting up. Q. It may depend on what the contact is about. Would you agree? A. I suppose so, and I assume we're going to keep going through this."
¶5.152 It is regrettable that Mr Murdoch, to whom many of Mr Michel's email reports were addressed,
did not at any stage call a halt to, limit or in any sense express concern about the risks that might be run as a consequence of the nature and extent of the communications between Mr Michel and Mr Smith or the fact that they went beyond what was appropriate in a quasi- judicial environment.408 Mr Murdoch need only have asked himself what the Alliance would have made of sight of the texts and emails which were passing.
¶I 5.153 Turning now to the actual substance of the contact between Mr Michel and Mr Smith, it not
1393necessary to rehearse in full the course of their communications. From a consideration of the relevant evidence as a whole one can discern its defining characteristics. It is conducted very much on a personal and informal basis. Mr Michel almost invariably adopts a friendly approach, preferring a confrontational stance only very rarely and on key issues. He frequently flatters both Mr Smith and his principal, Mr Hunt. There is striking use of the language of common cause to communicate a sense of shared purpose. Allied to this is a tone which is
¶Chapter 6 | The BSkyB Bid
occasionally conspiratorial and surreptitious. Mr Michel uses comments unfavourable of the Conservatives' political opponents presumably designed to communicate that News Corp was politically "on side". The majority of the communication is initiated by Mr Michel who is by far the more pro-active party. The volume of his contact is high, amounting to a 'barrage' at times, as Mr Smith rightly described it.409 There was pressure and encouragement to change the course of the process as Mr Michel advocated the steps which would have favoured News Corp's interests.
¶5.154 For his part, Mr Smith was usually brief in his replies, invariably courteous, and generally
friendly. He was very often communicating mundane information about the process or repeating matters which Mr Hunt or DCMS officials had already stated in more formal circumstances. He stood his ground when pushed in a direction other than that which Mr Hunt intended to take. He very often did not pass on the fact, still less the content, of his communications with Mr Michel, thereby fulfilling the role of buffer. On occasions, where he judged it necessary, he did pass on information to Mr Hunt, acting as a conduit.410 He was aware at the time that Mr Michel was trying to extract information from him: "I'm sure that's what he was trying to do, yes".411
¶5.155 But there were times when Mr Smith succumbed to Mr Michel's tactics and appeared
momentarily at least to have been drawn in by the narrative of common cause. On one occasion he found himself joking with Mr Michel about an opponent of the bid. On another, he joined in criticism of Ofcom. He passed on information about the progress of the bid that would have been more properly communicated in a much more formal manner. He did not make formal notes of the communications. There is an issue (analysed below) about Mr Michel's source of confidential information about the Government's thinking as to the form which inquiries arising out of the phone hacking scandal would take: whatever the truth of the matter, Mr Smith should never have been running any risk of being the source of any but the most inconsequential information.
¶5.156 The above impressions can be illustrated by reference to a few salient examples. On 10
1394January 2011, the telephone records showed three calls between Mr Michel and Mr Smith totalling 27 minutes,55 p2, para 8, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/Witness-Statement-of-John-Witherow.pdf pp35-36, lines 24-2, Jim Gray, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/Transcript-of- Afternoon-Hearing-23-January-2012.pdf p28, para 32.2, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Witness-Statement-of-Ed-Richards. pdf Home Office (1990), Op cit, p74 p5, lines 13-15, Lord Black, ibid pp1-2, para 8, http://www.levesoninquiry.org.uk/wp-content/uploads/2011/12/Fifth-Witness-Statement-of-Richard- Thomas-CBE.pdf p76, lines 12-23, ibid p10, lines 13-17, DAC Sue Akers, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Transcript-of- Morning-Hearing-23-July-20121.pdf p59, lines 4-12, William Lewis, ibid Part F Chapter 5 p66, lines 10-19, Neville Thurlbeck, http://www.levesoninquiry.org.uk/wp-content/uploads/2011/12/Transcript-of- Afternoon-Hearing-12-December-20111.pdf p3, http://www.levesoninquiry.org.uk/wp-content/uploads/2011/12/Witness-Statement-of-Daniel-Sanderson.pdf p5, para 16, ibid p81, lines 9-13, Paul Dacre, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/02/Transcript-of- Afternoon-Hearing-6-February-20121.pdf; pp85-86, lines 22-6, Dawn Neesom, http://www.levesoninquiry.org.uk/wp- content/uploads/2012/01/Transcript-of-Morning-Hearing-12-January-2012.pdf pp64-65, lines 18-11, Gillian Shearer, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/03/Transcript-of- Afternoon-Hearing-26-March-2012.pdf pp47-48, lines 8-3, Sandra Laville, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/03/Transcript-of- Morning-Hearing-14-March-2012.pdf p1, Richard Thomas, http://www.levesoninquiry.org.uk/wp-content/uploads/2011/12/Exhibit-RJT5.pdf p15, lines 13-15, Christopher Graham, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/01/Transcript- of-Morning-Hearing-26-January-2012.pdf http://www.dfpni.gov.uk/consultation_misue_of_personal_data.pdf p21, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/06/Witness-Statement-of-Sir-John-Major.pdf pp55-56, lines 1-15, Tony Blair, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/05/Transcript-of- Morning-Hearing-28-May-2012.pdf, Mr Mullin is diarising a conversation he had with Mr Blair on 17 November 1994. The direct speech is Mr Blair's p107, line 3, David Cameron, ibid p30, lines 7-11, David Mellor MP, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/06/Transcript-of- Afternoon-Hearing-26-June-2012.pdf p37, ibid pp33-34, paras 5.74-5.79, ibid pp1-2, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/05/Lord-Wakeham-Letter-to-Inquiry.pdf p116, lines 13-22, Lord Black, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Transcript-of- Morning-Hearing-9-July-2012.pdf p4, para 5, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Lord-Black-of-Brentwood-Annex-D1.pdf p81, ibid p1, http://www.levesoninquiry.org.uk/wp-content/uploads/2012/07/Exhibit-to-Submission-by-Professor-John- Horgan-Irish-Press-Ombudsman.pdf s3 Communications Act 2003 http://www.legislation.gov.uk/ukpga/2003/21/section/3 Part H, Chapter 5, paras 2.93-2.94 [2002] EWCA Civ 274 at para 5 seconds.412 There is also an email from Mr Michel to James Murdoch and others. It is clear from the email that Mr Smith had told Mr Michel about the reaction of Ed Richards (of Ofcom) to the points on which Mr Hunt had sought clarification from him.413 Ultimately, Mr Smith did not dispute that he had done so and correctly pointed out that it had always been Mr Hunt's intention that News Corp should be informed of the clarifications that Mr Richards had provided. This is, however, an example of substantive information about the bid being communicated by Mr Smith in a very informal manner and without keeping a formal record. The e mail recorded in material part that:414 I "[Jeremy Hunt/Adam Smith] saw Ed Richards today:
¶PART I | The Press and Politicians
he challenged Ed on the "may be" rationale. Ed was adamant that the threshold was very low and referral was the only option -he also challenged him on "sufficiency of plurality -ed repeated the same concerns which are in the report -he didn't raise remedies with Ed."
¶and Mr Smith's evidence about this was:415
"Q. That may be right, but at least you're providing confirmation of what Mr Hunt told Mr Richards, and you're also providing fresh information as to what Mr Richards' position was because you see the sentence: Ed was adamant that the threshold was very low ... That, in fact, is correct, as a matter of law. ... and referral was the only option. That would be a matter of opinion. But unless you told Mr Michel that, he wouldn't know that, would he? A. Well, I would have been confirming what Mr Hunt had said, but in the meeting that Mr Hunt had with Ofcom, the minutes of that meeting show that he wanted to share Mr Richards' answers to those questions with News Corporation. Q. Mm. A. So, in this sense, that's what I was doing."
¶5.157 The same email contains a typical example of the sort of report which Mr Smith frequently
disputed. Mr Michel had gone on to write "He made again a plea to try to find as many legal errors as we can in the Ofcom report and propose some strong and "impactful" remedies." It is not necessary to resolve these disputes on a case by case basis, although I am satisfied that Mr Michel did on many occasions use hyperbole when reporting his conversations with Mr Smith and was prone, on occasion to inaccuracy.
¶5.158 Mr Michel's email report of a telephone conversation with Mr Smith on 23 January 2011
contains numerous examples of Mr Michel's use of the language of common cause and conspiracy, albeit in this case Mr Smith did not believe that he said what Mr Michel attributes to him. Whatever Mr Smith actually said, the terms in which it was reported demonstrate Mr Michel's propensity to record matters in these terms. The report concerned the UIL and News Corp's concerns about publication of Ofcom's report. It contains the phrases:416
¶I "His view is that once he announces publicly he has a strong UIL, it's almost game
1395over for the opposition. He understands fully our concerns/fears regarding the publication of the report and the consultation of Ofcom in the process; but he wants us to take the heat, with him, in the next 2 weeks.
¶Chapter 6 | The BSkyB Bid
He very specifically said that he was keen to get to the same outcome and wanted JRM to understand he needs to build some political cover on the process." (emphasis added)
¶5.159 The startling opening to Mr Michel's email report of a conversation with Mr Smith to James
Murdoch dated 24 January 2011 and timed at 15:21hrs reads: "Managed to get some infos on the plans for tomorrow [although absolutely illegal..>!]"417 The substance of the report concerned an early indication in outline of what was to happen the following day when Mr Hunt announced that he was minded to refer the bid but was going to take advice on News Corp's UIL. In fact communicating this information was not, in itself, illegal but the report does, put at its lowest, convey a sense that information was surreptitiously being provided.
¶5.160 The next morning saw a text message from Mr Smith which, on any interpretation, was
unsatisfactory. Mr Michel had started the day's exchange of text messages at 07:56hrs, shortly after Mr Hunt's press statement about the bid had been released. He complained, albeit in friendly terms, that Mr Hunt had not said much about the strength (as News Corp saw it) of the proposed remedy (the UIL): "Good statement. not much on strength of remedy though:) Any news on meeting slots? Tomorrow 10.30 or Thursday afternoon?"418 Mr Smith replied at 08:03hrs: "There's plenty – potential to mitigate problems! We can't say they are too brilliant otherwise people will call for them to be published. Will check on meetings."419 On its face it is conspiratorial and appears to betray Mr Hunt's thinking as being that the UIL were very strong but he did not want to be seen to be saying as much. That is an interpretation which would be consistent with the terms of Mr Michel's email of 23 January 2011, discussed above. Mr Smith gave a different explanation for his use of this language, claiming that he was being disingenuous to mollify Mr Michel:420
1396"I think by this stage, Mr Michel had got quite cross that Mr Hunt's statement didn't, as he had been asking for and pushing for previously – you will call the UILs strong or brilliant or, you know, some sort of description like that, and the first part of my text was a bit of a – the potential to mitigate problems bit was paraphrasing what Mr Hunt's statement had said that had gone out slightly earlier that morning, was an attempt by me to say there is support for the UIL. I mean, if you read what Mr Hunt said, I mean it didn't support the UIL, so my attempt there was quite sort of shaky ground, if you like. Then, the other part was too flippant and jokey, I admit that. Q. The position is that Ofcom was recommending a referral to the CC. The UILs had been published or – at least published internally on 20 January and this was the remedy which would prevent the referral to the CC if they were strong enough, but the departmental view, apparently, was that the UILs were solid, were good – indeed I it was your term, "brilliant", but you couldn't say they were brilliant, otherwise that would undermine the process and, what's more, as you rightly pointed out, people would ask for them to be published. Don't you accept that that's the only reasonable interpretation? A. That was an attempt by me to pacify and mollify by being slightly disingenuous. If you read what Mr Hunt had said, he didn't say they were brilliant."
¶PART I | The Press and Politicians
¶5.161 Mr Smith's explanation shows some vulnerability to Mr Michel's modus operandi, preferring
to enter into the conspiratorial dialogue rather than provide an alternative and more appropriate reply. Mr Michel's response was to keep pushing. After the Parliamentary statement at 09:30hrs that morning he texted: "Still. All the language is statutory. I understand the constraints but there is nothing in the statement which gives us comfort or send [sic] signals that remedy is strong one."421 Mr Smith replied: "Other than what Jeremy and I have told you! We have no legal wriggle room in a statement to parliament."422 That reply prompts the question: what had the Secretary of State and Mr Smith told Mr Michel? Mr Smith said that he was referring only to what Mr Hunt had told them on 20 January and what he had reiterated of that.423 He described his text as another example of him trying to get Mr Michel off his back.
¶5.162 By this stage Mr Smith was already far too close to Mr Michel and their communications
were unacceptable in the context of his principal making a quasi-judicial decision. Despite his evident discomfort, Mr Smith explained why he did not call a halt to the exchanges. He felt that it was his job to remain as the point of contact:424
"Q. One strategy you might have used by this point is simply to turn off your mobile phone, frankly. Weren't you reaching the point that this was getting much too close now, to this man? A. I don't think that I would have been doing the job that I had assumed in terms of being a point of contact with News Corporation if I'd stopped being the point of contact with them. I mean, in hindsight I would have maybe liked to have at some stages to have had a break from it, yes."
¶5.163 It is regrettable that Mr Smith did not take what should have appeared as an obvious step,
namely to seek the advice of the Permanent Secretary or Mr Hunt either at this stage or, indeed, at any stage of the process about Mr Michel's communications and how he should deal with them. In not doing so, he made an error of judgment. Even allowing for his lack of experience, the lack of specific instruction, and the perceived need to provide procedural reassurance to News Corp, he ought still to have realised that the volume, tone and content of Mr Michel's emails was an issue to be raised with others. Continuing the dialogue and seeking to appease Mr Michel was a mistake.
¶5.164 There were further text exchanges on 25 January 2011 culminating, at 22:26hrs in an example
of Mr Michel's use of the language of common cause: "I think we re [sic] in a good place tonight no?"425 To which Mr Smith replied: "I agree. Coverage looks ok. Let's look again in the morning though!"426
¶I 5.165 On 4 February 2011, Mr Smith sent a text message which he admitted looked surreptitious.
1397Mr Michel had asked for sight of the documents submitted by Enders and by Slaughter & May. Mr Smith replied: "I haven't actually got them at the moment. Officials just told me about them. Don't mention them to anyone like oft etc. If we need them I'll show you." When
¶Chapter 6 | The BSkyB Bid
questioned about his choice of words, he accepted that it looked surreptitious, whilst denying that anything surreptitious actually happened:427
"Q. One possible inference is that you were going to do something a little bit surreptitious. Would you accept that? A. I do accept that it looks like that way, yes, but I don't believe anything like that happened."(emphasis added)
¶5.166 Five days later, on 9 February 2011, Mr Smith joked with Mr Michel in partisan terms. Mr
Michel informed Mr Smith that he was to see Lord Black, an opponent of the bid: "Am seeing Guy Black Monday evening. Interesting. James in London until Friday if needed. He is then off to New York next week. Fred."428 Mr Smith replied: "Take your stab proof vest with you! Am hoping for an update later on process so will let you know if anything new" (emphasis added)429 Mr Smith did not seek to defend the comment: "...I wouldn't have used that language again, if I had the opportunity".430 Not only does this joke contribute to an appearance of bias given by the course of communications as a whole, it also exemplifies the inherent dangers of using a medium of communication as informal as text messaging in the course of the formal process of which, although not the decision maker, he was a part.
¶5.167 Relevant to the question of the appearance of bias, Mr Smith accepted that the accumulation
of text messages gave rise at least to the perception that he was on side with Mr Michel. It was put this way:431
"Q. It's just the accumulation of text messages, which arguably give rise to am impression. One can't identify one particular message and say, "Aha, this means X rather than Y", it's just the series of them. Do you accept that they are giving rise at least to the perception that you were on side with Mr Michel? A. I can see how that perception would be created, yes".
¶5.168 Despite the cumulative effect of very many emails which prompted Mr Smith's realistic
admission, the course of the dialogue was by no means one way. In particular, there are a number of issues on which Mr Michel pushed really quite hard for an outcome which he did not get. For example, these included efforts to persuade Mr Smith to persuade Mr Hunt to dismiss Ofcom's views. On 9 February 2011, Mr Michel related a conversation with Mr Smith in these terms:432
"I told him he had to stand for something ultimately and this was his chance to dismiss Ofcom's views and show he had some backbone, he said he couldn't ignore Ofcom, he had brought them into this OFT process to get some cover and in public debate, he would get absolutely killed if he did such a thing." I
¶5.169 Mr Smith said of this:433
1398¶PART I | The Press and Politicians
"Well, I don't actually remember him saying those sorts of specific words, but I do know that they were constantly pushing for the Department to essentially ignore Ofcom."
¶5.170 News Corp's constant pushing, through Mr Michel and through more formal channels, got it
nowhere. Mr Hunt resolutely maintained his reliance upon the regulator's advice. Similarly, when News Corp described Ofcom's advice that the hived off Sky News should have an independent chairman, Mr Michel told Mr Smith that it was a "deal stopper".434 That act of brinksmanship did not prevent Mr Hunt from writing to News Corp on 15 February 2011 and giving the company just 24 hours to agree in principle to that and other recommendations that had been made by Ofcom.435
¶5.171 It is worthy of mention that Mr Michel's exchanges with Mr Smith about Ofcom's advice at
this stage of the process involved premature disclosure by Mr Michel to Mr Smith of a letter written by Ofcom to News Corp, a fact that was reflected in typically conspiratorial terms by Mr Michel to James Murdoch:436
"–he can't instruct his officials to get back to Ofcom as he is not supposed to be aware that we have received the letter and its content ...so we have to be very careful on this."
¶5.172 On 11 February 2011, Mr Michel, who was waiting for Ofcom's report, sent a text to Mr Smith
at 21:26hrs. It was one of a number that day. He wrote: "Thanks Adam. Hope you get home soon. It might arrive very late tonight. Last time Ofcom sent it at 23h!" Mr Smith replied sarcastically, in terms which would have struck a chord with News Corp's jaded view of the regulator: "Helpful! Just one of their many strengths".
¶5.173 On 17 February 2010, only two days after Mr Hunt's firm letter to News Corp, Mr Smith found
himself lapsing into the language of common cause so frequently used by Mr Michel. The latter emailed a summary of the previous day's Media Show broadcast by BBC Radio 4. Mr Smith emailed a reply which read: "Interesting. More evidence that we need to be strong and confident when we go to public consultation" (emphasis added).437 Mr Smith's explanation to Counsel to the Inquiry that by "we" he meant the DCMS did not escape the fact that this was language that might equally have come from News Corp. The exchange went as follows:438
"A. The point of the email below is that there were – I think it was on the radio, wasn't it? Yes. An individual from Enders' analysis had been saying that there were possible remedies that could deal with the Ofcom concerns and, of course, by this point News Corporation had written to Mr Hunt to concede on the points that Ofcom and the OFT had asked to be in the UILs, so the point there was that, if people that had
¶I previously been opposed to the undertakings in lieu were now saying that there may
1399be undertakings in lieu, that could work and that News Corporation had conceded on the issues that Ofcom and the OFT had wanted in there, then there was every reason for the department and Mr Hunt to be confident about those undertakings in lieu.
¶Chapter 6 | The BSkyB Bid
Q. You're almost communicating there a public relations message, and coming close to putting yourself in the same boat as News Corp by using the pronoun "we". Do you accept that? A. "We" would have been "we" the collective department I wouldn't have put "I" because I obviously wouldn't have been saying anything publicly."
¶5.174 Comparison of Mr Smith's text messages to Mr Michel on 24 February 2011 with Mr Michel's
internal email reporting back to James Murdoch, contain a clear exaggeration by Mr Michel. The communications concerned Ofcom's then ongoing work considering the proposed UIL.439 At 08:25hrs Mr Smith texted: "They said this was a promising basis from which to work in their advice to JH. Not quite complete acceptance so I guess that's why they are looking for confirmation on some things".440
¶5.175 At 10:43hrs he stated: "We can't interfere with the process really. We can give more time but not deal with substance whilst they are working with you."441
¶5.176 At 10:50hrs, Mr Michel emailed James Murdoch in terms which communicated what Mr
¶Smith had texted but then added a further sentence:442
"JH just texted that he can't interfere with the process but can give us more time to sort things out. He can't engage substance whilst Ofcom is working with us. He can only use his officials to put pressure at this stage." (emphasis added)
¶5.177 Typical of Mr Michel's familiarity and use of flattery was a text exchange on 3 March, at
the culmination of an intense period of activity leading up to the Secretary of State's oral statement to Parliament announcing the first public consultation about which Mr Michel texted: "Jeremy is superb". Mr Smith replied: "I'm now at the airport so missed it but glad it went well. The late night and early prep was worth it!" Mr Michel followed up, adding a comment with a political dimension: "Seriously. Really good defence and slapped Ivan Lewis who was humiliated. Enjoy Italy".443
¶5.178 The flattery was later augmented by an offer to socialise. On 5 April 2011, Mr Michel texted:
¶"Would you both like to join me and [my wife] for Take That on 4th July at Wembley? Fred".444
¶5.179 The text which Mr Smith most regretted sending was dated 2 June 2011. On its face it
appears to show that he and Mr Michel had become so close that they were almost working together. Mr Smith said that in fact it was another attempt to mollify Mr Michel and was not substantively true. The text read:445
1400"Over the last few days I have been causing a lot of chaos and moaning from people here on your behalf. I should have an update later today"(emphasis added) I
¶PART I | The Press and Politicians
¶5.180 Mr Smith's explanation was in these terms:446
"A. This is the one that I do regret the most. By this stage I was probably coming toward the end of my tether, as it were, and I sent him a text to get him off my back, but I certainly don't think anybody in the department would have said that that's what I'd been doing, and I certainly wasn't doing anything on their behalf, but in hindsight I shouldn't have sent it, but it was an attempt to mollify him. Q. Either to mollify or to indicate assent to the proposition, I suppose, there's a degree of collusion here between you, that you've become so close that you were almost working together. Do you feel that that's a reasonable inference or not? A. I can see how people would think that, but I sent it to mollify him and get him off my back, not to do as you've just suggested."
¶5.181 On 27 June 2011, Mr Michel sent Mrs Brooks an email purporting to communicate Mr Hunt's
views about how the Government should respond to the unfolding phone hacking issue. It read:447
"Hunt will be making references to phone-hacking in his statement on Rubicon this week. He will be repeating the same narrative as the one he gave in Parliament few weeks ago [sic]. This is based on his belief that the police is pursuing things thoroughly and phone- hacking has nothing to do with the media plurality issue. [It's] extremely helpful. On the issue of the Privacy Committee, he supports a widening of its remit to the future of the press and evidence from all newspaper groups on the regulatory regime. He wants to prevent a public enquiry [sic]. For this, the Committee will need to come up with a strong report in the Autumn and put enough pressure on the PCC to strengthen itself and take recommendations forward. JH is now starting to look into phone-hacking / practices more thoroughly and has asked me to advise him privately in the coming weeks and guide his and [No10's] positioning..."
¶5.182 When asked about this email Mr Smith accepted that he might have asked Mr Michel to be
kept informed about News Corp's reaction to the phone hacking scandal but denied that he asked to be guided. He said:448
¶I
1401"A. Yes, certainly. If this was a conversation with me, it's quite possible that I asked him to let me know what steps News International was taking in response to the phone hacking situation, mainly because the department is obviously responsible for the media sector, so that would be interesting, but I would never have asked to be guided, and I think this use of the word "privately" again is one that I don't really sort of recognise because if I'd asked him to send me statements they were making about phone hacking, then he would have sent them to me. I don't think that's privately."
¶Chapter 6 | The BSkyB Bid
¶5.183 For her part, Mrs Brooks' reaction was simply to ask for confirmation as to when Mr Hunt would be making his statement.449
¶5.184 On 30 June 2011, the day on which Mr Hunt announced that he was minded to accept
the revised UIL, subject to a second short consultation, Mr Michel combined flattery, and the narrative of common cause in little more than a line. His text read: "Just showed to Rupert. Great statement by the way. We need to knock Avaaz down. They are all about US Democrats".450
¶5.185 By 7 July 2011, publicity about the phone hacking scandal was reaching a crescendo. Mr Smith
called Mr Michel at 17:35hrs and had a conversation lasting 11 minutes and 8 seconds.451 At 18:01hrs, Mr Michel emailed James Murdoch and others at News Corp with a report relating to the bid.452 The subject line read: "JH – CONFIDENTIAL – please read". The first bullet point contains information about the Government's then current thinking about inquiries into phone hacking. This was material that was not in the public domain. Under the subheading "Latest on Rubicon" (News Corp's code name for the bid) it read:453
"-Was not discussed at the No10 meeting that Hunt had with the PM – was discussing the two enquiries ["police" one led by a judge; and "media practices" one not with a judge and led by DCMS]"
¶5.186 Mr Smith accepted that it was possible that he was the source of this information but did not
accept that it was probable that he did so. The exchange with Counsel to the Inquiry on the point was as follows:454
1402"Q. There is reference to two possible public inquiries, which, at that stage, we believe does represent government thinking on 7 July. The suggestion is that the only source for this information could have been you, and it ties in with what we know to be a fact, namely the telephone call half an hour earlier. Would you agree that or not? A. I'm not sure that I would necessarily be the only source of that information. I can't remember, at that stage, whether I knew that that was the case. I may well have done. Q. You may well have done? A. Yes, I may well have done but I can't remember whether I did, but I think most of the discussions were – most of those conversations were being dealt with by Number 10 but I don't know – Q. This wasn't in the public domain as yet, Mr Smith. I think the simple point I'm making, and it may be more a matter for inference, if you knew the facts set out in the first bullet point, if you accept that there was a conversation within half an hour I of this email, one possible inference, it may be a reasonable inference, is that you're the source of the information we see in the email. Would you agree with that? A. I would agree that that is a possible inference, yes.
¶PART I | The Press and Politicians
Q. Probable inference? A. Possible. Q. Unless there was someone else providing this information ahead of the game, you're the only person we can possibly look at for these purposes, I think. Would you accept that? A. I don't know who else – I mean lots of other people would presumably have known only far more than I would have done by this stage because – but I don't know who – Q. Pretty confidential, I would have thought at this point, what government thinking was. It would have been known about, obviously within Number 10, the Cabinet Office, people high up in DCMS and something that you knew about because Mr Hunt might have shared it with you. Is that fair? A. I don't know that I did know about it, but he may well have shared it, yes, but I don't remember at this stage. Q. Had he shared this information with you, do you accept that it's information which, I'm not saying that you did impart it to Mr Michel, but you shouldn't have imparted it to Mr Michel? A. Yes, I would say so, yes. Q. Which may explain why you're hesitant to agree with me that you did impart it to Mr Michel – A. Well – Q. – that would be natural, wouldn't it? A. – I don't remember imparting it, mainly because I don't quite know that I knew it, which would make it quite strange for me to be able to impart it."
¶5.187 The very close temporal link between the telephone conversation and Mr Michel's email, the
fact that Mr Michel was obviously reporting in his email about the telephone conversation with Mr Smith, the reference to Mr Hunt and the complete absence of evidence that Mr Michel was communicating with anyone else about these matters, all lead me to infer that it is not merely possible but probable that it was Mr Smith who had provided confidential information about Government thinking as to the appropriate form of inquiries arising from the phone hacking scandal. The rapid leak of confidential Government thinking to the parent company of the entity at the heart of the scandal is undeniably a matter of concern.
¶5.188 Both Mr Hunt and Mr Stephens knew that Mr Smith was in contact with News Corp. Mr I Stephens was aware that Mr Smith was attending formal meetings and "on occasion following
up points of process and procedure with News Corporation".455 He did not know Mr Michel's name or job title but he did assume that Mr Smith was in contact with someone with access to News Corp's Chief Executive. He thought that the purpose of Mr Smith's contact was:456
1403"To follow up on matters of process and procedure, to reinforce, on occasions, messages that the Secretary of State had delivered personally or in correspondence to News Corporation."
¶Chapter 6 | The BSkyB Bid
¶5.189 Mr Stephens did not become aware of the full nature or extent of the contact, or, indeed, that it had in any way been inappropriate until 24 April 2012.457
¶5.190 Mr Hunt described Mr Smith's role as:458
"a point of contact, an official point of contact in the process, so that News Corp has someone that they could call if they had concerns about the process, and someone who was there to – you know, I mean the situation in which we inherited responsibility for a bid was one in which News Corp felt they had not been fairly treated, and so I wanted to make sure that there was someone there who could answer questions about how the process was going in a helpful way".
¶5.191 As well as being aware of Mr Smith's role, there were occasions during the process on which
Mr Smith reported back to Mr Hunt about particular aspects of the contact which thought were worthy of his attention. When asked whether he had specifically used Mr Michel's name in discussions with Mr Hunt, Mr Smith said:459
"I can't remember whether I specifically did but I would have thought, on the odd occasion that I did mention to Mr Hunt, on one of the issues that I thought was worthy of his attention, I would, I think, almost certainly have said, "Fred's told me X,Y or Z."
¶5.192 Nevertheless, Mr Hunt expressed his shock at discovering the true extent of the contact in his evidence:460
"Q. I suppose it might be said that the greater the volume of contact, arguably the more extraordinary the contact, the more likely it is that he'd communicated the fact that there had been such an amount of contact with you. Are you sure that he didn't, Mr Hunt? A. He didn't, and I was totally shocked when I discovered the level of that contact. I think it does explain why sometimes he slipped into inappropriate language."
¶5.193 I must admit to finding it surprising that Mr Smith, who had worked for Mr Hunt so closely
and for so long should have kept him unsighted on the way in which he was performing what he saw to be his duty; that, as I understood it, was the role of a SpAd – to be the 'eyes and ears' of his principal. Both men, however, make it clear that Mr Hunt was unaware of the nature, and extent of his contact with Mr Michel. Mr Smith explains the position on the basis that his role as a buffer was specifically to protect his principal from the barrage to which he had been subjected. In the circumstances, I accept what I have been told.
¶5.194 There were officials and lawyers within DCMS who knew that Mr Smith was in contact with
1404Mr Michel. The evidence about that contact did not suggest that they were aware of the full I nature and extent of the contact that was actually taking place. However, it did confirm that
¶PART I | The Press and Politicians
no one suggested to Mr Smith that he ought not to be communicating with Mr Michel. Mr Smith said:461
"I suppose what I would say is that they generally knew I was in touch. On some certain issues they certainly knew, but I don't think they knew the volume or extent."
¶and:462
"...I think as the process went on with discussions I had with members of the department or emails I sent them, they would have very clearly been aware and knew that I was having those discussions with Mr Michel, and nobody ever said, you know, where did you hear this or you shouldn't be doing that or – it was – I assumed that was the role I was going to be taking, and then as it developed, I don't think anybody was surprised that that was the role."
¶5.195 There were naturally a number of lawyers and officials who were in communication with News
Corp about the bid. Jon Zeff, who was the lead official for the DCMS on the bid, exchanged text messages with Mr Michel. This text contact is deserving of mention because of the contrast between it and that which passed between Mr Michel and Mr Smith. There were far fewer in number, only 23 in the period 20 January 2011 to 13 July 2011. They are typically very short, to the point, and limited to matters concerning the actual execution of the process.463
¶Conclusions
¶5.196 In some respects, there was much to commend in Mr Hunt's handling of the bid. It is
undeniable that he had views about News Corp and its place in UK media operations: these were views that he was entitled to hold given his portfolio responsibilities. He appreciated, however, the need to restore confidence after Dr Cable's damaging utterances and showed a determination to put aside these views and to follow a fair and rigorous procedural route to a final decision. At the formal level there was a high level of transparency. Mr Hunt's extensive reliance on external advice, above and beyond the minimum required, was a very wise and effective means of helping him to keep to the statutory test and to engender the confidence of those opposed to the transaction that an objective decision would be taken. There is a danger if the decision maker accepts and follows advice too slavishly. If that is done then discretion is fettered. Mr Hunt avoided that risk, as was evidenced by the way in which he probed Ofcom's advice.
¶5.197 All the effort and good work which was done on the bid was put in jeopardy by a serious hidden problem. Had Mr Hunt accepted News Corp's UIL, and had there been a challenge to I that decision by way of an application for judicial review, seeking to impugn the procedural
1405fairness of the decision (a course which had in fact been the subject of thinly veiled threat by Slaughter and May at an early stage) then there would have been an obligation on the Secretary of State to disclose all relevant documents evidencing contact between News Corp and him and his officials, including that of his SpAds, relating to the bid. The effect of those documents, particularly the communications between Mr Michel and Mr Smith, would undoubtedly have been to give rise to a powerful argument that there was at least
¶Chapter 6 | The BSkyB Bid
the appearance of bias in the process and therefore the risk of a successful claim for judicial review.
¶5.198 In reaching this view, I should make clear that I am doing so on the merits of the matter. I fully
recognise that the practical risk of a judicial review in relation to this 'serious hidden problem' was, almost by definition, low. Those who might have brought such a challenge would have been unaware of the basis they had for doing so. Even had the risk eventuated the chance of a punctilious search within the Department for all potentially relevant material yielding these particular documents were not high either. The majority of the relevant material disclosed to the Inquiry was provided from the records of News Corp. But none of this is to the point; the substantive legal and ethical issues remain, the hidden problem was there, and it might not have remained for ever concealed. The disclosure of these documents as KRM18 during the Inquiry process shows that events can take an unpredictable course.
¶5.199 There is one further observation I make about this. To the extent that the practical risk of
an application for judicial review might have been assessed as low precisely because the appearance of bias would not have been apparent in departmental records, there are additional reasons to express concern about the hidden problem of voluminous 'private' (unrecorded) communications by text and email. In quasi-judicial procedures, there is no place for any argument that relevant conduct, as all of these communications certainly were, is somehow rendered any less relevant because it is informal, unrecorded, and contains some mixture of the personal, the political or the presentational.
¶5.200 I well understand the distinctions that have to be made from the point of view of Government
accountabilities between the conduct of SpAds (and, indeed, Ministers) on Government business and on party-political or personal business. But these are distinctions which have to correspond to the substance of a communication or other course of conduct, not its manner and form. Government business does not cease to have that character simply because it is transacted out of hours on a personal phone and includes private pleasantries. And where quasi-judicial decision making is concerned, all relevant actions and communications by a decision maker or those acting with his or her actual or apparent authority are, in reality, Government business.
¶5.201 Among all the excesses of Mr Michel's correspondence, perhaps the message with some
of the most concerning wider implications was his advice to his principal not to meet with the decision maker on the grounds of counter-productivity, but advising in terms that he "could have a chat with him on his mobile which is completely fine and I will liaise with his team privately as well".464 This example in microcosm of a practice where the informal, 'off- record' and 'personal' is seen as an obvious and effective means of conducting lobbying on matters of media policy is symptomatic of a problem evidenced more widely to the Inquiry; I the fact that such practices have a side-effect (I say no more than that) of placing the conduct of public policy issues outside the mechanisms of transparency, accountability and public record cannot but give rise to perceptions and questions which are corrosive to public trust and confidence. I underline this point because it is in this respect that I consider the conduct of the BSkyB bid to have important characteristics, as part of a much wider issue about the relationship between the politicians and the press, which I consider in some detail in the conclusions I draw at the end of this Part of the Report.
¶5.202 It is right to recognise that the bid came to Mr Hunt and DCMS in a crisis not of their making.
¶That it did so made Mr Hunt's task all the more difficult. Even so, examination of the course
1406¶PART I | The Press and Politicians
of the bid shows that the seeds of the problem which was to emerge were sown at an early stage. The process that was put into place did not prove to be robust enough. Best practice of the kind subsequently encapsulated in the Cabinet Office guidance was not followed. There was no written guidance for Mr Smith and others as to the conduct expected of them in a quasi-judicial environment. Mr Stephens, no doubt, genuinely believed that the requirements and the principle had been made crystal clear in the various meetings that he described, and to him as a very experienced and senior civil servant, they may indeed have been.
¶5.203 Evidently, however, at the level of practical detail, these requirements and the underlying
reasons for them were not made clear enough for Mr Smith, or even, albeit to a much lesser extent, for Mr Hunt. For reasons already discussed above, the use of a SpAd as a point of contact for News Corp gave rise to risks which could easily have been avoided by entrusting the task to an official: the decision to allocate the role to a SpAd was, in my judgment, unwise. That is not because of any question about his integrity or calibre, but because he had a pre- existing and amicable relationship with Mr Michel, which Mr Michel was able to exploit to engineer contact that was inappropriate in volume and in some cases in tone. Mr Michel was also able to trade on the fact that Mr Smith would want that relationship to continue after the bid was concluded. When faced with the intimacy, charm, volume and persistence of Mr Michel's approaches, Mr Smith was put in an extremely difficult position.
¶5.204 That was a risk which was, or should have been, obvious from the outset. The consequential
risks were then compounded by the cumulative effects of the lack of explicit clarity in Mr Smith's role, the lack of sufficient express instruction that it was clear he fully understood, and a lack of supervision. They are all matters for which Mr Hunt was responsible, although they might have been prevented had Mr Hunt fully appreciated the extent to which meticulous attention had to be paid to every aspect of the conduct of quasi-judicial procedure. Given that this was the problem that had faced Dr Cable, Mr Hunt was very aware of his own position.
¶5.205 Irrespective of the extent to which News Corp might have been entitled to feel aggrieved by the
comments of Dr Cable, the bid was now in different hands and its consideration started afresh. Both from the perspectives of Mr Hunt as decision-taker and Mr Stephens' responsibilities for advising him and for the overall conduct of the bid process, it was essential that the precise limits of what was acceptable (and, just as important, what was not acceptable) were fully understood by all who might have contact with News Corp or its executives: that most certainly included anyone in the position of Mr Michel. Unfortunately, both Mr Hunt and Mr Stephens appear to have overestimated Mr Smith's detailed comprehension of the requirements and limits of his role, and his capacity to put them into practice unsupported; their overconfidence in him appears, ironically, to have its roots in the excellence which Mr Smith had demonstrated in his more usual duties. For Mr Hunt, this was an issue of the
¶I tasking and management of his SpAd; for Mr Stephens, it was an issue that could create risks for conduct of the bid.
¶5.206 There is much to say by way of mitigation for Mr Smith. He was inexperienced, had been
1407involved in Government for a matter of months and had never before been involved in (even if he had ever heard about) a quasi-judicial process. He did not receive what was to be, for him, sufficiently clear or detailed guidance because, although he heard what Mr Hunt and Mr Stephens heard and, I have no doubt, wanted to further the proper discharge of his principal's duties, he did not appreciate the limitations; neither was he appropriately supervised. On the one hand, he behaved as if his role was to act as 'eyes and ears' which meant keeping Mr Hunt informed of what was happening; on the other hand, he was a 'buffer', there to provide a measure of protection. Trying to reconcile these roles, he effectively behaved as he would on any other matter while operating in the political environment with which he was familiar.
¶Chapter 6 | The BSkyB Bid
¶5.207 Mr Smith was diligent, literally to a fault on this occasion, and undoubtedly had discharged his
duties in an exemplary manner before having to deal with the bid. Despite all that can be said on his behalf, he ought nevertheless to have realised that Mr Michel was pushing his way too far into the process, by over-familiar means, and that action was required to address that. It is regrettable that he did not seek advice from either Mr Hunt or Mr Stephens, or alternatively take action himself to put the communications onto a proper footing. Instead, he succumbed to Mr Michel's intimate, surreptitious and conspiratorial language and got 'way too close' to him, ultimately, as I have concluded, probably passing on confidential information about Government thinking which should never have been imparted to News Corp.
¶5.208 The perception of bias emerges from the exchanges between Mr Smith and Mr Michel. What
was not evident from the close consideration of events which the Inquiry undertook was any credible evidence of actual bias on the part of Mr Hunt. Whatever he had said, both publicly and in private, about News Corp or the Murdochs, as soon as he was given the responsibility for dealing with the bid the evidence demonstrates a real desire on his part to get it right. His actions as a decision maker were frequently adverse to News Corp's interests. He showed a willingness to follow Ofcom's advice and to take action, to the extent recommended by the regulators, in response to the consultation. Even had the deal been approved, it is abundantly clear, that it would only have been permitted to proceed subject to very significant and closely scrutinised UIL.