UK: The Pergau Dam case
01 January 1995
On 10 November 1994 the High Court ruled that a ?234 million grant to the Malaysian government to finance a dam over the Pergau river was unlawful, in a case brought by the World Development Movement (WDM).
Public interest in the dam was aroused by the revelations of links ("entanglement") between aid and arms deals. An embarrassed and horrified faction in the civil service discovered in 1991 that a deal had been struck in 1988 by the former prime minister with the Malaysian government, whereby Britain would provide overseas aid to cover a proportion of Malaysia's expenditure on British arms. Once discovered, the link was, it was said, severed. At the same time, the government started looking for a project to fund, and found one which just happened to cost almost exactly the cost of the arms actually bought by Malaysia.
But this was not the basis of the legal challenge. The project chosen by the Foreign Secretary for ATP funding (Aid and Trade Provision) was a soft loan of ?306 million to help finance the construction of a hydro-electric power station on the Pergau river in Kelantan state. The main contractors were to be Balfour Beatty and Cementation, with GEC as the major subcontractor. The loan was payable over 14 years from 1991. Approval was obtained and construction began. Then, two years later in October 1993, the National Audit Office published a report claiming that ODA accounting officer Sir Tim Lankester had advised against supporting the dam project. He had said it was economically unsound and that aid for the project would be inconsistent with the "prudent and economical" administration of aid funds. Overseas development minister Baroness Chalker had agreed with this view, but they had been overruled by Foreign Secretary Douglas Hurd because, in his words to the Foreign Affairs Committee investigation in March 1994, "We had given our word, and it matters if you break your word... If we had broken our promise, the consortium would have lost the business. I cannot accept that we should have... disregarded the interests of British companies and British workers."
There were two issues before the court in the WDM challenge. The first was procedural. To challenge an administrative decision, it was necessary to show a sufficient interest in the decision; normally only those affected directly by a particular decision can challenge it in court. The minister claimed that the WDM had no legal standing to challenge him. That argument was rejected. As a pressure group concerned with development, the court ruled, WDM could bring the case. Otherwise, ministers could break the law with impunity, evading scrutiny in the courts, because no single person could claim a sufficient interest in matters such as overseas aid. The case is thus important in establishing the right of pressure groups to challenge central government.
The substantive issue was whether the minister, in deciding to finance the dam notwithstanding the negative economic advice, had acted lawfully within the framework of the Overseas Development and Cooperation Act 1980. That Act allowed grants to be paid "for the purpose of promoting the development or maintaining the economy" of the recipient country. The minister's contention was that, so long as the purpose of the project was economic, it did not have to be economically sound. The court roundly rejected his argument, saying that if parliament had intended money to be thrown away on uneconomic projects it would have said so. Only once the test of economic soundness had been passed could the minister look at extraneous political or diplomatic considerations in deciding whether to go ahead with a grant, or in choosing one sound project over another. On the evidence, the project had nothing to commend it in terms of economic development, and the grant had been paid unlawfully.
No government appeal
The court's decision does not remove the government's contractual obligation to Malaysi