Writs fly as Revolution disintegrates into chaos: City characters fall out over plan to sell new magazines in petrol stations, John Willcock reports

THIS IS the story of how a bright idea to revolutionise magazine publishing in Britain collapsed in a blizzard of writs and recriminations, catching in its wake such diverse names as Ernest Saunders, disgraced former chief executive of Guinness, entrepreneur David Elias and Penthouse magazine publisher Richard Desmond.

Other names that pop up in the story, although they had nothing to do with the publishing venture, include Heron chief executive Gerald Ronson, former UBS analyst Terry Smith and Mail on Sunday City editor Clive Wolman.

Mr Saunders' involvement, after his recent dramatic success at the European Commission of Human Rights, shows his perennial ability to steal the headlines. But this legal wrangle may not be the kind of publicity he would like.

Just three years after being released from a prison sentence for his part in the Guinness affair, apparently suffering from pre-senile dementia, Mr Saunders is making a comeback as a marketing consultant. But the publishing venture he became involved in has gone spectacularly sour, and he is named in one of the writs that have flown between the two warring sides.

The story starts with two ambitious businessmen, Mr Elias, owner of Harpur, the petrol station credit card operation, and Richard Desmond, chairman of the Northern & Shell publishing group, whose titles include Penthouse and Asian Babes.

Mr Elias owns a large number of businesses through his Richbell group, including Harpur, a unique credit card business he bought from Heron in 1982. Harpur provides cards for sales representatives, lorry drivers and others who can use them at more than 12,000 petrol stations, specifically to buy oil and fuel.

Mr Elias has big publishing ambitions. For instance, he is in discussions with Mr Wolman over proposals for a new daily business newspaper to rival the Financial Times. His Richbell empire has as an investment Terry Smith Publishing, a company set up by the controversial former UBS analyst and author of Accounting for Growth. Another venture is Smithfield Bars, which runs a number of London drinking establishments.

Mr Elias and Mr Desmond were introduced to each other by Brian Basham, a leading City spin doctor. They hit on the idea of combining the petrol station credit cards with Northern & Shell's expertise in magazines. The result was Retail Revolution, a company owned 50/50 by the two businessmen that would take 32 new titles from Northern & Shell and sell them through Harpur's garage outlets.

The two entrepreneurs have now fallen out over money, and are suing each other.

Mr Saunders was hired by Mr Elias as a marketing consultant for Richbell and is one of nine defendants named on the writ issued by Mr Desmond's holding company, St Alban's Investments. Mr Desmond's shares in Retail are held by St Alban's, which is registered in the British Virgin Islands.

Mr Desmond claims that Mr Saunders received payment directly from Retail. The Elias camp dismisses this suggestion, saying Mr Saunders was solely a consultant to Richbell, and that Mr Desmond was bringing Mr Saunders' name up to attract publicity.

On 26 May this year Mr Desmond wrote to Mr Elias expressing his concern about the involvement of Ernest Saunders: 'I am sure you see him as a 'mate', but I have to state for the record that I do not believe he has anything to offer to the joint venture, and if you bring him in I want it clearly understood that his fees are down to Richbell and not to the joint venture.'

The venture, set for a summer launch, soon developed a potential flaw. The petrol stations could not receive payment for Retail's magazines through the Harpur credit card arrangements, but instead had to set up direct debits. Retail fell way behind the target of 6,000 filling station outlets, signing up only 700 by midsummer, and 1,200 by the time of the launch.

Another source of dispute was the make-up of the 32 titles. Some 60,000 copies of each would be printed each month, making a monthly total of 2 million. A quarter of the titles were 'top shelf' soft pornography, with names such as Megaboobs and Suburban Housewife, as well as more anodyne fare such as Sales Executive and Car Review.

Mr Elias was later to claim that both the quality of the titles and their content were unsatisfactory.

All was still going well on 19 July when the minutes of a progress meeting said that Keith Eden, managing director of Retail, 'congratulated Northern & Shell on the magazines, noting that it was a 'bloody good range' and one he felt was very saleable in presentations'.

The crunch soon came, however, as Mr Elias complained that the magazines were being supplied above the cost originally agreed and were lacking in quality.

Mr Desmond claims that Retail itself was never supposed to incur expenses of its own, which in the event totalled pounds 379,923 at 5 August. He says he should have received pounds 1.192m on 31 July but that his company only received pounds 386,038 on 8 August.

On 11 August Mr Desmond wrote to Mr Elias about his worries, including: 'For one partner to break a promise to another on the first occasion that sums of money are at stake between the partners is an appalling way to behave.'

It ended: 'I know you expressed the wish to take over Retail - I never expected you to take over without my agreement.'

The response of the Elias camp yesterday was that the joint venture fell apart because Mr Desmond failed to meet the original conditions of supplying magazines at cost and of a reasonable quality.

Mr Desmond's writ was issued on 25 August. A week later Mr Elias launched his own writ under the Retail Revolution name against Northern & Shell. Retail issued a statement saying: 'Following extensive discussions with Northern & Shell, which focused on both the quality and price of the products, the Retail Revolution has now decided to seek alternative suppliers.'

A spokesman for Mr Elias yesterday cited Mr Desmond's 'tactical and ill-conceived writ, and unsubstantiated claims about how Retail Revolution was run. Retail has applied to have the writ struck out.'

Both adversaries are now sniping at each other in a way that suggests a climbdown by either would be difficult. The lawyers must be licking their lips. Meanwhile, with millions of magazines lying unsold in warehouses, new issues are being hurriedly prepared.

Mr Elias is determined that the original concept will go ahead, with or without Retail.

Unlike the magazines, this story should run and run.

(Photograph omitted)