Lottery cash could be used to plug the funding gap left after the Diana, Princess of Wales

Memorial Fund froze all its charitable grants.

The fund, set up after the death of the Princess in 1997, was forced to cancel payments to its beneficiaries amid a bitter and costly legal wrangle with a US-based souvenir firm.

But today the Community Fund, which distributes National Lottery cash to good causes, said it was investigating whether it could fast-track applications from the stricken charities.

Some 120 good causes and 500 jobs worldwide are now under threat and the memorial fund has approached scores of potential donors.

A Community Fund spokeswoman said: "There is lots of good work in progress and obviously people do not want to see those efforts wasted.

"We will not be in a position to say whether we will be able to help some of the charities out for another week but we are looking into the legal case for doing so."

In the period 2001-02, £361 million of lottery cash was donated in grants to good causes. Six per cent of the annual budget must be given to UK-based charities working abroad.

Meanwhile, the US memorabilia firm, the Franklin Mint, showed no sign of backing down from its £15 million "malicious prosecution" action against the fund.

The suit stems from an unsuccessful court attempt by the fund in 2000 to stop the firm producing Diana dolls and other mementoes carrying her image.

The Franklin Mint also rejected claims that Diana's sons, William and Harry, would be involved in the litigation or suffer financially.

Spokesman Steven Locke insisted the fund had fought a "suicidal" legal action and should be held accountable for its "bad behaviour".

He said: "When we have found out how much money we are going to be awarded by the court, we are then going to give it to charitable causes."

Memorial fund chief executive Dr Andrew Purkis said the fund needed about £10 million to pay existing grants, including £1.3 million expected by projects by the end of this month and £4.5 million expected by the end of the year.

Monday July 14, 2003