THE Liberal Democrats were embroiled in further controversy about their biggest donation last night when it emerged that four millionaires are threatening to sue the party unless it gives up the cash.

Lawyers for Martin Edwards, the former Manchester United chairman, two Chinese tycoons and an American attorney have written to the party saying they believe that the money is theirs.

The party, which has already spent the £2.4 million gift and has little money left, is understood to be fiercely disputing any suggestion that it may have acted in bad faith. Lawyers for senior Lib Dems are threatening to sue anyone who suggests otherwise.

Michael Brown, the Majorca-based trader who passed the money to the Lib Dems, is stuck in a Spanish jail awaiting extradition to Britain accused of forging documents in a court case, which he strongly denies.

HSBC is understood to have written to the millionaires saying that banking records show the donations emanated from overseas.

The party accepted £2.4 million in four tranches from Mr Brown, a Glasgow-born trader, in February and March 2005. It has told HSBC that the money was spent on a poster campaign which it would have otherwise been unable to afford. Mr Brown also provided £30,000 of free flights for the campaign of Charles Kennedy, then party leader. Mr Brown’s corporate jet has since been impounded at Biggin Hill.

Lawyers for Mr Edwards, the Chinese cosmetics moguls Kevin So and Yan Lucy Lu, and Robert William Mann, a retired Los Angeles lawyer, have asked the Lib Dems to return the cash.

Their letter was sent to Sir Menzies Campbell, the party leader, Simon Hughes, the president, Lord Razzall, trade spokesman, Lord Rennard, chief executive, and David Griffiths, treasurer. A copy has gone to Mr Kennedy.

Mr Brown was barred from donating to the party as an individual because he is absent from Britain’s electoral roll. Instead, the gift went through the books of his London-based investment arm, 5th Avenue Partners Ltd.

HSBC says:

• The first two tranches totalling £250,000 come from money paid into an investment account by Univest, a US financial group;
  
  
• The largest tranche, £1.5 million, came four days after a similar sum was transferred to the London company from its Swiss parent 5th Avenue Partners GMBH. It is possible this sum can be traced back to Univest via another company connected with Mr Brown;
  
  
• The final £630,000 came by electronic transfer from Mr Mann’s investment account.

  Banking records seen by The Times indicate that Mr Kennedy’s flights were apparently paid from an account comprising investments made by Mr So and Ms Lu.

  Michael Brown’s spokesman insisted: “It is a donation which he made through his company which was trading in the UK.”

  The lawyers Goodman Derrick argue that the Lib Dems may be liable to repay Mr Brown’s donation.

  Election law only permits corporate donations from British companies which are “carrying on business”. The Electoral Commission is trying to decide whether this condition has been met but has been hampered by 5th Avenue Partners Ltd’s failure to file accounts required by Companies House.

  The millionaires claim they were defrauded. Their lawyers say: “If this fraud on the investors was the only business carried out by 5th Avenue then it could well be argued that in fact 5th Avenue was not carrying on business.”

  The lawyers say Mr Brown may have breached his fiduciary duty as a company director by giving away money held on trust for investors, “on a mere whim”. They argue: “It is very hard to see how a newly incorporated company of this kind could possibly benefit from the donation of £2.4 million to the Liberal Democrats.

  “It should have been obvious to the Liberal Democrats that Michael Brown was not acting bona fide in the interests of 5th Avenue in giving away £2.4 million of what ex hypothesis was the company’s money.”

  The Lib Dems are understood to have instructed Wragge & Co to respond on behalf of all the letter’s recipients. The lawyers warn that any suggestion of bad faith by the party is defamatory.

  Party lawyers are understood to consider that the demand for the money may be an attempt to embarrass the Lib Dems. The party insisted it followed procedures to ensure donations comply with legislation.

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