Thank you for your letter of 11 November which crossed with mine of 12 November 1996.

  I do understand your concerns and can assure you that my enquiry will not be influenced by comments of newspapers or others.

  At the moment the Guardian are publishing material at their own risk. However, once they have submitted their evidence to the enquiry (and this should be very soon) publication would be constrained by privilege.

  This enquiry is not intended to replicate a court action and I am not, therefore, using court concepts of criminal `guilt' or `acquittal'. I can, however, assure you that my approach to the task of reaching conclusions on the factual material presented to me (documentary, oral evidence, etc.) will reflect the seriousness of the complaints I am expecting to receive. I shall require very cogent evidence to be satisfied that such serious allegations have been made out.

  May I remind you that I am still awaiting your agreement to the inclusion in the core documents of material within your possession which was originally disclosed either voluntarily or under discovery to the court.

18 November 1996

  We acknowledge receipt of your letter of 13 March 1997 and regret the considerable delay in replying, due to a combination of absence from the office and the General Election. Please accept our apology for the delay.

  As it is now nearly eight years since the telephone conversation to which you refer, we are sure you will appreciate that it is impossible to be absolutely precise in our recollections of it.

  The notes of the telephone conversation would not attempt to do anything other than record formally salient points of the conversation.

  However, we endeavour to reply below to the questions that you have raised and it seems likely that the comments to which you refer arose as follows:

  Mr Hamilton telephoned this office on 24 July 1989 to discuss the two "commission" payments. The appropriate tax treatment was the subject of some discussion. It seems likely that "Worth a try" was an agreed view.

  Further research on the appropriate tax treatment (including a perusal of the leading cases Bloom v Kinder, Dickinson v Abel and Scott v Ricketts) was undertaken. This suggested that gratuitous payments of the kind discussed with Mr Hamilton (ie not made pursuant to a contractual obligation) were not subject to tax in the hands of the recipient. Furthermore, at the material time there was no requirement to disclose on the tax return the receipt of gifts other than those received in the course of employment, or which could be construed to be payment in exchange for services rendered.

  Mr Walmsley initially recorded on the telephone note that he "was not at all hopeful".

  Following the telephone call further research was undertaken subsequently by ourselves and Mr Hamilton.

  "Declare as ex gratia payment" was probably a note of the conclusion arrived at in that conversation.

  Our letter to Mr Hamilton of 27 February 1997 (a copy of which we now understand you have seen) sets out our contemporary recollection of events surrounding the advice given to Mr Hamilton.

  We note that this reply is covered by Parliamentary Privilege and we request that the firm's name should not appear in your Report. We do not seek publicity and, as a matter of course, we neither confirm or deny the identities of particular clients. We act for a number of prominent clients and are concerned that security could become an issue.

29 May 1997

  Thank you for your letter of 29 May.

  I should be grateful for your further comments on one or two points.

  1.  Can you confirm that the note was confined to one page and that there was no subsequent correspondence or file note relating to the same question.

  2.  If, as you say, "Declare as an ex gratia payment" was the conclusion arrived at, can you explain why this was not done until (as I understand it) October last year.

  On the question of confidentiality, I think it unlikely that your firm's name will appear in print. But all the evidence will be available for the Select Committee on Standards and Privileges and I cannot guarantee that they will not pursue the matter further in public.

5 June 1997