pounds 350,000 deal exposes the murky world of chequebook journalism

JAMES HEWITT, a former lover of Diana, Princess of Wales, was said by friends yesterday to be still hopeful of finding a newspaper to serialise his memoirs after the collapse of a pounds 600,000 deal with the Mail on Sunday.

However, given the opprobrium the Mail on Sunday has encountered, it is doubtful any other executive in the country would want to put themselves in the position of Peter Wright, its beleaguered editor.

Mr Wright is faced with the choice of a legal battle, which would expose the murky world of cheque-book journalism, or kissing goodbye to at least pounds 350,000 of the paper's money.

The saga began when Mr Hewitt, a former Life Guards officer who taught the Princess horse riding, sold his house in Devon in October last year. His planned equestrian business had failed so he moved to a flat in South Kensington, London, to write a book about his life and his relationship with the Princess.

The move to London was followed in February this year by the conclusion of a court case in which Mr Hewitt successfully recovered 64 letters sent to him by the Princess. They had been stolen by a former fiancee of Mr Hewitt and she first passed them to The Mirror before handing them to the Princess's family.

The court ruled that the Princess's heirs owned the copyright to the letters, but Mr Hewitt owned the paper and ink. "I suppose you could say he's had bad luck with girlfriends," a friend of Mr Hewitt said yesterday. "He wrote the book because he has been painted as a bastard and he felt he had nothing to lose by trying to get his own story over."

In April this year, Mr Hewitt's publisher, John Blake, a former editor of The People, offered the book's serialisation rights to another tabloid, the News of the World. The book contains details about the Princess's life that "would shake the House of Windsor", according to tabloid reports.

The News of the World signed a contract with Mr Hewitt believed to worth more than pounds 400,000, and the paper thought it had a deal until the Mail on Sunday entered the fray. An associate editor at the Mail on Sunday, Eric Bailey, was instructed to secure the book deal, and in mid-April he spent an entire weekend outside Mr Hewitt's flat trying to persuade him to sign up. The deal was eventually clinched when the paper offered Mr Hewitt a total fee of pounds 600,000 - to be paid in three instalments.

The News of the World took Hewitt and the Mail on Sunday to court in an attempt to salvage its "deal", but the action was called off after the Sunday red-top's editor, Phil Hall, had a meeting with a judge in chambers. Mr Hall accused Mr Hewitt of being a "hostile" author.

Mr Bailey may have negotiated the deal for the Mail on Sunday, but it was approved by Mr Wright and Paul Dacre, the editor-in-chief of Associated Newspapers, owner of the mid-market tabloid. On May 14 the Mail on Sunday signed a contract with Mr Hewitt that netted him pounds 100,000 for a three- chapter synopsis of the book, followed by pounds 250,000 upon delivery of the full manuscript on July 14.

The paper had seven days to reject or accept the book at this point, and the editor made the fateful decision to go ahead with the deal. Mr Hewitt was due to receive another pounds 250,000 when the serialisation was published next month. However, a campaign by other tabloid newspapers and the intervention of the Princess's brother, Earl Spencer, seem to have killed off the deal. The Earl wrote to the paper last week, urging it to consider the feelings of the Princess's sons, William and Harry.

The paper has now dropped the serialisation, claiming that the manuscript was not good enough and that leaks to US newspapers had damaged its exclusivity. Insiders at the paper, however, see it differently: "It was the Earl who swung it," said one insider. "Associated is so toadying to the Royals and [Earl] Spencer that it will probably think it's worth taking a hit on the money now for favours to be granted."

James Hewitt's solicitor, Michael Coleman, says he will sue the Mail on Sunday for the rest of the money, while the paper also threatens to take legal action to get back the money it has paid.

But for Mr Wright and Associated, who have already been accused by the rest of the tabloid press of exploiting the Princess's memory, the last thing they want is a court case where even more details of its tactics will be revealed.

Insiders say Mr Wright's future is secure, but then the saga of Diana's lover is not over yet.