Just as the Dubai heat started to get unbearable one morning in June Liam Fox swept into the air conditioned comfort of the five-star Shangri-La hotel.

Inside he was whisked up to the 41st floor – which enjoys panoramic views of the city – but the defence secretary wasn't there to enjoy the view. He was there for a crucial legal meeting.

In the hotel Fox was reunited with Adam Werritty, a close personal friend of his for at least 14 years, and three Dubai-based businessmen, including British private equity boss Harvey Boulter.

The meeting, which had been organised by Werritty, who has handed out business cards embossed with a logo of the House of Commons portcullis that describe him as "an advisor to RT Hon Dr Fox MP", was to demonstrate new technology that might allow troops to call home without fear of the calls being intercepted by the enemy.

But there was a second item on the agenda: a highly contentious legal battle. The MoD's last partnership with Boulter had turned from a potentially life-saving new weapon in the fight against the MRSA superbug into a legal headache.

The MoD's innovation unit had teamed up with Boulter's Porton Capital to commercially produce technology called Acolyte that is claimed to drastically cut the time it takes to identify MRSA infections.

At first it was a major success and the pair sold it to US Post-it note conglomerate 3M in £41m deal. But 3M later claimed the technology failed US tests and refused to pay the full amount.

Boulter was furious. He wanted to fight 3M all the way, but to do that he needed the might of HM's government. The 41-year-old businessman, who spends most of his life on a boat sailing the Gulf, spent weeks trying to get someone in government to listen. He didn't have much luck until someone introduced him to Adam Werritty.

Werritty, 34, flew to Dubai to meet Boulter and discuss his concerns in April. When he got back to London, Werritty emailed Boulter saying: "Very good meeting with you in Dubai. Thanks for passing along the below along with the e-info on the two issues [Acolyte; and the phone call encryption system] we discussed. Please leave this with me to push along as discussed."

A month later Werritty emailed Boulter again to say he had passed on Boulter's concerns to Fox's special advisers, and said: "I'd hope they'd want to make an issue out of this."

Fast forward to June, when Fox was on a morale-boosting visit to the troops in Afghanistan and stopped off in Dubai for a few days on the way home.

When he landed in Dubai he met Werritty. The MoD says Werritty just happened to be there at the same time and insists he was not part of Fox's official entourage.

Fox chose not to stay in the British embassy but at The Address, a new high-end hotel, which the MoD has not granted security clearance.

Early on the morning of Friday 17 June – a religious day in the Emirates – Werritty emailed Boulter: "Morning Harvey. He'd [Fox] prefer to have it here [at the Shangri-La]. Let's meet on the 41st floor lounge."

The meeting between the five men was a pleasant and jolly affair, but the disputed conversation turned toxic the next day.

In the early hours of the following morning Boulter fired off an email to 3M lawyers. "I had a 45-minute meeting with Dr Liam Fox, the British defence minister, on our current favourite topic … As a result of my meeting [with Fox] today you ought to know that David Cameron's cabinet might very shortly be discussing the rather embarrassing situation of George's [George Buckley, 3M's chief executive] knighthood." [See footnote.]

Boulter suggested that a settlement "at a headline of $30m+ will allow MoD to internally save face".

When 3M failed to reply, Boulter followed up the first email with a second sent in the early hours of Sunday morning. "I need to tell something to Dr Fox's office on Sunday night," he said. "I don't really want to give a 'radio silence' message as he is secretary of defence and will not expect that. I am trying to manage all of the dynamics carefully."

This led to 3M immediately suing Boulter for "blackmail" and calling on Fox to explain exactly what he said in the meeting and whether or not he gave Boulter the go-ahead to send the late-night email.

At first Fox fought back strongly denying that the Acolyte technology was ever discussed. "Dr Fox met with Mr Boulter to discuss an entirely different matter," the MoD said. "At no point did he enter into any discussion about this legal case, nor was there any mention of anyone's knighthood."

But the Guardian tracked down both of the other businessmen present at the meeting, who confirmed that they heard the MRSA case discussed and Fox retracted his previous denial.

"During their meeting Mr Boulter disclosed his involvement in a legal case as a matter of propriety," the MoD said. "But Dr Fox did not enter into a discussion about this in any respect and at no point raised or discussed the issue of a knighthood."

However, one of the witnesses said Boulter informed Fox of the progress of the 3M legal battle, to which the defence secretary is said to have replied: "I'm sure you're handling this [the case] in the best way possible." Fox's spokesman did not respond to requests to confirm or deny the statement, and 3M is still preparing to call Fox as a witness if the blackmail case reaches court.

The highly irregular Dubai meeting has cast a spotlight on Werritty, who has operated in Fox's shadow for at least 14 years.

The Guardian understands that the pair first met while Werritty, who is from St Andrews, Scotland, was at university in the 1990s.

Although it is unclear how they first met, it is likely to have been through Werritty's degree in public policy at Edinburgh. Soon after Werritty graduated with a 2:2, he got a job at PPP, the healthcare company.

Soon after Fox founded the Atlantic Bridge charity, which was designed to promote the "special relationship" between the UK and the US, he asked Werritty to run the charity as executive director. The charity was backed by the American Legislative Exchange Council (Alec) and the hedge fund millionaire Michael Hintze.

The funding of the charity, which was supported by senior Tories and patronised by Lady Thatcher, allowed Werritty and Fox to frequently travel to events in America. In one instance Fox flew back from Washington to the UK in Hintze's private jet, the register of members' interests shows. It has been suggested that Werritty was also present on the jet.

While in London, Werritty ran the day-to-day operations of the charity from room 341 in the MPs' block at Portcullis House, which was provided to Fox at taxpayers' expense while he was in opposition until last year. Staff in the building still remember Werritty, who stands taller than Fox and has a receding hairline.

Werritty worked for the Atlantic Bridge until last summer when the regulator demanded that its "current activities must cease immediately" because "the activities of the charity have not furthered any of its other charitable purposes in any way".

The charity was finally dissolved last Friday after its remaining trustees – Fox had already resigned from the board – decided to close it down rather than address the Charity Commission's concerns.

Official records show Werritty collected £90,000 in salary from the charity between 2007 and 2010.

But it appears that running Fox's charity was not political enough for Werritty, a policy-obsessed nerd according to acquaintances.

Werritty attached himself to Fox as a self-styled adviser and took an active interest in Fox's work as shadow health secretary and shadow defence secretary.

He was on the board of a health consultancy company while Fox was leading the Tories on health. According to Companies House filings, Werritty owned 11.5% of UK Health Group and Fox owned 2.3%.

By the time Fox had moved on to become shadow defence minister, Werritty had become involved in a firm called Securities Futures, which describes its principal activities as being "promoting a better understanding of asymmetric 'security' risks that the UK faces and publishing work that encourages a better informed debate on these important issues".

When Fox entered government, Werritty appeared to want to go with him. But instead of getting a job in the civil service or for the Conservative party he knocked up his own business cards embossed with the House of Commons Portcullis logo and just happened to appear at Fox's side in Dubai and Sri Lanka.

• This article was amended on 10 and 14 October 2011. The original said Werritty stands "a couple of foot taller than Fox". This has been corrected. This article was also amended to append the following clarification: In the story above, reporting the background to a legal dispute between an investment company, Porton Capital and US conglomerate, 3m, we quote an email from Harvey Boulter, Porton's chief executive, to William Brewer, a lawyer acting for 3m: "As a result of my meeting [with Fox] today you ought to know that David Cameron's cabinet might very shortly be discussing the rather embarrassing situation of George's [George Buckley, 3M's chief executive] knighthood." Boulter has contacted us and asked us to state that the meeting at which Buckley's knighthood was discussed was not the one with Fox but was at another meeting he had that day connected to the dispute.