On 10 November 1992, following the collapse of the Matrix Churchill prosecution, the Attorney General, Sir Nicholas Lyell QC MP, made a statement on the case in the House of Commons. In the course of his statement he informed the House of Commons that a full and independent inquiry into the events relating to the case would be commissioned. The agreed terms of reference were announced by the Prime Minister, the Right Honorable John Major MP, in the House of Commons on 16th November 1992. They were as follows:
"Having examined the facts in relation to the export from the United Kingdom of defence equipment and dual use goods to Iraq between December 1984 and August 1990 and the decisions reached on the export licence applications for such goods and the basis for them, to report on whether the relevant Departments, Agencies, and responsible Ministers operated in accordance with Her Majesty's Government; to examine and report on decisions taken by the prosecuting authority and by those signing public interest immunity certificates in R v Henderson and any other similar cases that he considers relevant to the issues of the Inquiry; and to make recommendations".
The Prime Minister went on to say that: "The terms of reference had not been restricted to Matrix Churchill. They include the supergun and other defence and dual-use sales. The terms of reference related not just to arms questions but to decisions taken on the prosecution of companies and public interest immunity. All Ministers who were called were required to give evidence, and all civil servants who were called were instructed to co-operate".
In an amendment moved in the House of Commons on 23 November 1992, Michael Heseltine MP, the President of the Board of Trade, confirmed the Prime Minister's statement. He also stated that the Inquiry could cover exports over the whole period from 1984 to 1990; would include the consideration of the Public Interest Immunity (PII) issue and the decisions taken in relation to prosecutions; and that Lord Justice Scott would be free to ask the Government to convert the inquiry into a Statutory Inquiry, if he felt that he was unable to obtain satisfactory attendance or answers.
The formal request to Lord Justice Scott to conduct the Inquiry was contained in a letter dated 30 November 1992 from the President of the Board of Trade. The financial support for the Inquiry was provided by the Department of Trade and Industry (DTI) and the choice of the members of the Inquiry Team was decided by Lord Justice Scott.
The Inquiry was set up on an ad hoc non-statutory basis, as opposed to being constituted as an inquiry to which the Tribunals of Inquiry (Evidence) Act 1921 applied. It was in existence for a period in excess of three years, during which time it received evidence from a variety of sources. On 15 February 1996, the House of Commons ordered the printing of the Inquiry's report.