PAUL REICHMANN, the founder of Canary Wharf, yesterday pulled out of the race to develop a £2 billion site next to the East London estate, after being threatened with legal action by Sir Martin Jacomb, the acting chairman of the Docklands developer.

Mr Reichmann agreed to withdraw from bidding for the site at Wood Wharf after being issued with an ultimatum to pull out of the bidding by the close of play yesterday or face a lawsuit.

Canary Wharf discovered that Mr Reichmann had bid for the vacant 20-acre site in competition with Canary Wharf last week after receiving the shortlist of developers that would be competing for the project from British Waterways, the site owner.

The news infuriated Canary Wharf, because the company is still paying Mr Reichmann’s £500,000 a year salary even though he stepped down as chairman at the end of last year to pursue a takeover bid for the company.

In a statement, Mr Reichmann said that IPC, the company that represents his family interests, would withdraw from the bidding process for Wood Wharf immediately.

A spokesman for Mr Reichmann said that he had submitted an initial interest in the project but had no plans to proceed further once he knew of Canary Wharf’s interest.

British Waterways delayed releasing names of the shortlisted developers for the site until late yesterday afternoon, by which time Mr Reichmann confirmed his withdrawal from the process.

Canary Wharf will now face competition from eight other bidders instead of nine.

They will include British Land, the FTSE 100 property company, Grosvenor, the Duke of Westminster’s property company, and Hammerson, the developer behind the redevelopment of the Bull Ring shopping centre in Birmingham.

The other property companies bidding for the site are Miller, Stanhope, Development Securities, Argent and Morley Fund Management in partnership with Amec.

Plans for the Wood Wharf development include 3.5 million sq ft of offices, shops and restaurants, 1,500 apartments and a hotel.

British Waterways sent out letters inviting the developers to submit outline proposals for the site at the end of last week, with a view to picking a preferred development partner by the end of this year.

Mr Reichmann’s bid for Wood Wharf was the latest in a series of actions that had infuriated Canary Wharf’s directors.