Diana Memorial Fund faces £15m legal bill as sister of Princess is sued by US company

By Robert Verkaik, Legal Affairs Correspondent

The family and friends of Diana, Princess of Wales, blame lawyers for the disastrous decision to bring a multimillion-pound lawsuit against an American company that was profiting from her image by marketing Diana dolls.

The family and friends of Diana, Princess of Wales, blame lawyers for the disastrous decision to bring a multimillion-pound lawsuit against an American company that was profiting from her image by marketing Diana dolls.

In their bitter court battle with the Pennsylvania-based Franklin Mint, the trustees of the Diana, Princess of Wales Memorial Fund, say they relied on the advice of their UK and US lawyers before embarking on the legal action.

Diana's sister, Lady Sarah McCorquodale, claims that when the decision was made she was still wrapped up in her own "grief and loss" over her sister who had died in a car crash in Paris the year before.

And she says it was the advice of the lawyers that led the trustees to sue the American trinkets and collectibles business.

The failed litigation in 1998 cost the fund £4m, of which £2.4m was spent on legal fees, and put many of its charitable projects in jeopardy.

Now the fund's trustees, including Lady Sarah and Diana's divorce lawyer, Anthony Julius, are themselves being sued by the Franklin Mint for "malicious prosecution".

If the trustees lose this second action it could cost the fund a further £15m in damages and legal costs.

In court documents seen by The Independent, the trustees defend themselves against the "malicious" allegation by naming the individual lawyers who urged the fund to protect Diana's image and the licensing rights it had been granted by Diana's estate shortly after her death.

One of those firms was Mishcon de Reya in London, where Mr Julius was a senior partner.

The fund says in the court papers that another Mishcon partner, Jonathan Cameron, advised on 30 April 1998: "The arguments for initiating proceedings against the Franklin Mint are compulsive."

Lady Sarah and Mr Julius, who advised Diana on her £17m divorce from Prince Charles, may both be called to give evidence in the Los Angeles court case which begins on Monday.

Mr Julius has already given written evidence to the court setting out the part he played in the decision to press ahead with the litigation.

The fund said yesterday that although Mr Julius was still a partner with Mishcon at the time that the legal advice was sought, he had not offered separate advice and maintained "Chinese walls" with the firm.

In January 1998, it emerged that before the fund had paid out anything to charities, it had paid £500,000 in legal fees for 11 weeks' work to Mishcon. Mr Julius stressed at the time that he did not charge for his own time as trustee or interim chairman of the fund.

The fund defended the bill, claiming Mishcon had given a 20 per cent discount, and pointing out that much legal work was required in its creation. Nevertheless, Mishcon's services were dropped some time later and the legal work went out to tender. Mr Julius stepped down from the fund on 14 May 2002 but remains a consultant with Mishcon.

The fund confirmed yesterday that the bulk of the £2.4m legal fees spent on the ill-fated Franklin litigation went to its American legal advisers.

A fund spokeswoman said: "We believe we have paid our dues in the original case. We regret that money has been wasted on lawyers and ... can't go to the excellent humanitarian causes supported by the fund that help some of the most vulnerable young people in the UK and elsewhere in the world."

In the court documents the trustees also name their American lawyer, Mark Lee of Manatt, Phelps & Phillips, who advised on 31 March 1998: "We believe the Estate and the Fund have an excellent chance of obtaining a permanent injunction and monetary award in an action against the potential defendants for several reasons. ... [The] potential defendants' actions are of the type which should expose them to liability under applicable law. Their actions in commercially exploiting Princess Diana's name and likeness are classic examples of unfair competition and violation of the right of publicity."

The year before, the papers allege, the trustees were advised by Peter Brown of the US law firm Brown Raysman: "I am certain every week that passes results in the loss of thousands of dollars of potential revenues to the Memorial Fund or its American affiliate. I would ask you again to consider prompt and deliberate action to stem this tide of exploitation."

The fund says the trustees asked for "brutal honesty in the advice they requested and were consistent in that they thought that they had a good lawsuit".

The trustees maintain that they "initiated the lawsuit with a genuine and good faith belief, based on all of the information, advice and analysis available to it, that the claims alleged were meritorious. The Fund did not file suit for any purpose other than carrying out its legal obligations to the Estate, vindicating the rights it believed it possessed, and to recover the damages it believed it had suffered for its charitable purposes."

A statement issued last night by Mishcon de Reya said: "The Trustees of the Fund were urged by the executors of Diana's estate to prevent the manufacture of a Diana doll. Manatt, Phelps & Philips, a firm of US lawyers who had successfully defended the Elvis Presley Estate and Tiger Woods against similar infringements and had also been successful in prior actions against the Franklin Mint, wrote to the Fund offering their services and were subsequently retained by the Fund."