LORD Palumbo, the former Arts Council chairman, failed yesterday in

his bid to block a legal action brought against him by his two eldest

children in a dispute over a multi-million pound family trust fund.

A five-day private hearing in the High Court ended when Mr Justice

Rattee dismissed an application for the whole of the claim to be

''struck out'' but agreed that a portion of it should be.

Mr James Palumbo, 30, and Mrs Annabella Adams, 32, the eldest of Lord

Palumbo's three children from his first marriage, are accusing their

father of mishandling millions of pounds from the trust.

Their spokesman, Mr Robert Hunter, said: ''The action is continuing.

The strike-out application was not successful, except in relation to two

sub paragraphs and one sentence only in a 74-paragraph statement of

claim.''

It is understood that the two appellants hope to settle their legal

dispute with their father without it having to come back to court.

They are suing their father and his second wife, Hayat, and two fellow

trustees, Mr John Underwood, a solicitor, and Mr Thomas Tharby, an

accountant, in an attempt to recover benefits which they claim were

wrongly paid out of the #70m family trust.

They want Lord and Lady Palumbo removed as trustees and replaced with

three ''fit and proper'' people so that a majority of the trustees can

be of unquestioned partiality. They also want a two-year #10m

interest-free loan from the fund -- established in 1955 by Lord

Palumbo's father, Rudolph, -- repaid with interest.

Complaint was made about the purchase of a Scottish island; the

acquisition of two houses in France worth #1.5m and #3m; charitable

donations of #4.9m; donations to Tory Party funds of #263,000; #13m to

acquire works of art; #2.5m on wine; and nearly #2m on vintage cars and

various properties.

THE 200th anniversary of the raising of the Gordon Highlanders

provides a constant theme throughout this year's Edinburgh Military

Tattoo, which had its first full public performance on the Castle

Esplanade last night.

Major Michael Parker, the producer, who is recovering from a heart

attack, can rest assured that things are going well in his absence. His

work in the lead-up to the public performances has been well done.

The show recreates for the audience the raising of the Gordons, with

the Duchess Jean offering kisses and shillings to those who enlist.

There follows a spectacular representation of the Duchess of Richmond's

ball on the eve of Waterloo and then the cavalry charge of The Greys

with the Gordons hanging on to their stirrups. The highlight of this

sequence is the capture of the French standard by Ensign Ewart -- a feat

commemorated by the Ensign Ewart public house just a short stagger down

the Royal Mile.

This could be an appropriate setting for a Gordon's wake after the

Tattoo, for the regiment's future is as part of the new Highland

Regiment created through a merger with the Queen's Own Highlanders.

This year's Tattoo may be categorised as a noisy one -- particularly

by the residents of nearby Ramsay Gardens which is one of the best

addresses in Edinburgh except at Tattoo time. After all, the Gordons won

19 VCs so there is a fair bit of musket fire.

More noise comes from the Royal Artillery motor cycle display team who

obviously love their bikes as much as the cavalry love their horses. The

big noise of the night is a pleasant one, however, and comes from the

massed bands and the pipes and drums. Wing Commander H.B. Hingley,

principal director of music of the Royal Airforce, is director of music

for the Tattoo this year and has drawn out the musical skills of the

bandsmen to great effect.

The event runs till Saturday August 27.

Major Parker, 53, has been discharged from hospital and has returned

to his home in London to recuperate.