MORE than £1.3m of public money was lost in deals over a North-East shipyard by the Teesside Development Corporation, it emerged last night.

The TDC, severely criticised in a recent Government report, has been accused of a "serious dereliction of public duty" over its sale of the Haverton Hill Shipyard Estate in Stockton.

The corporation sold the estate to newly-formed Haverton Hill Engineering Ltd (HHEL) for £740,000 in March 1998. But when HHEL was unable to raise all the cash to buy the land, TDC chief executive Duncan Hall granted the firm a £500,000 mortgage.

Mr Hall broke Government rules by granting the mortgage, and HHEL later went into administration without paying back a penny.

Mr Hall and top civil servant Sir Richard Mottram, whose department oversaw the development agency, will be cross-examined over their roles at a special hearing of the Commons Public Accounts Committee later today.

But in a further twist, it has emerged that at the time the Haverton Hill sale was agreed, the directors of HHEL were already being sued for £800,000 by the TDC.

The debt related to non-payment for the acquisition of land, also at Haverton Hill, sold to them while they were directors of a different company.

Now English Partnerships, which took over responsibility for the TDC's business affairs after it wound up four years ago, is negotiating to buy the shipyard estate back - which could mean taxpayers shelling out for the land twice.

The money is part of a shocking £23m deficit outlined in a report by the National Audit Office (NAO), Parliament's independent financial watchdog. The report warns that figure could yet rise to £34m.

An investigation was launched after complaints by Teesside MPs Ashok Kumar, Frank Cook and Dari Taylor about the way the TDC had been run.

The shipyard estate deal was brokered in the last few days of the TDC's existence. According to the NAO report, Mr Hall also signed an agreement ensuring that, were HHEL to go into liquidation, the TDC would only get its money back after all other private sector creditors had been repaid.

HHEL went into administration in February 2000.

The report stated: "These actions took place after the final board meeting on March 20, 1998, and without board approval or the knowledge of the Department (for the Environment) or the Commission (for the New Towns).

"The corporation did not assess viability of the new firm (HHEL), in particular its ability to repay the mortgage."

Last night, Dr Kumar, MP for Middlesbrough South and East Cleveland, said: "There have been serious irregularities in how the chief executive operated and this emerges in this particular saga.

"In fact, the TDC board should have been much more vigilant and not allowed these sort of practices to take place.

"It appears that there has been a serious dereliction of public duty by the main board."

Duncan Hall declined to comment until after today's Public Accounts Committee hearing.

A spokesman for Cleveland Police said there was no on-going investigation into the TDC.

The Northern Echo traced three former directors of Haverton Hill Engineering Ltd, none of whom wished to comment.