Dammed, but is it illegal?: The law, as well as ethics, is damaged by the Pergau affair, says Patrick McAuslan

THE controversy surrounding British government aid for Malaysia's Pergau dam project has focused on the ethics of 'aid for trade' deals and aid for arms in particular. But there are serious legal questions that must also be answered: whether as a matter of law Malaysia qualifies for aid, whether there are or should be any limitations on the type of aid the Government may grant, the conditions it may attach, and the role of Parliament in policing the whole exercise.

The law on aid is contained in the Overseas Development and Co-operation Act of 1980, which empowers the Foreign Secretary 'for the purpose of promoting the development or maintaining the economy of a country or territory outside the United Kingdom or the welfare of its people, to furnish any person or body with assistance whether financial, technical or of any other nature'. This assistance may be provided on such terms and conditions as the Foreign Secretary may determine, including, in the case of financial assistance, being provided free of charge.

These are very wide powers, so wide that, on the face of it, the Government could quite lawfully provide aid to Germany or Japan. In practice, the Government indicated in a White Paper published in 1987 that the basic purpose of the aid programme 'is to promote sustainable economic and social progress and alleviate poverty in developing countries'. The White Paper denied any conflict between developmental, commercial and political objectives and stated that the promotion of development was 'entirely compatible with also serving our political, industrial and commercial interests . . . We support activities which are technically sound, financially viable and will bring economic benefits.'

All the discretionary powers of ministers have some implied limitations, and although a White Paper does not have the status of law, it offers a useful guide.

Thus far, nothing would suggest that, in general, aid could not be provided to Malaysia. Aid to the Pergau dam has been provided in part under the Aid and Trade Provision (ATP), a scheme started in 1977 under the then Overseas Aid Act of 1966. Its aim was and is to give a higher priority to the commercial importance of a limited number of developmentally sound projects. As the 1987 White Paper puts it: 'ATP funds are provided on concessional terms to the recipient government to help finance sound investments within its country. . . In each case there must be a reasonable assurance of economic, financial and technical soundness . . . ATP funds are not given to British companies; nor are they intended to subsidise an uncompetitive price or offset inferior or inappropriate technology.'

These statements impose some limits on the wide powers conferred on the Foreign Secretary regarding financial aid. They also provide a set of criteria for judging the legality of the ATP aid given to part-finance the Pergau dam.

It appears there was very real doubt within the Overseas Development Administration whether the dam did qualify for ATP aid within these criteria. This is important, because part of the Foreign Secretary's case for going ahead with the aid is that it would have been politically embarrassing not to have done so. Political embarrassment, however, provides no justification for breaking the law.

The illegality of entangling aid with arms sales is more clear cut. The 1980 Act does not imply any power to provide aid that is linked, directly or indirectly, to arms sales. Aid funds are disbursed on the basis of a Memorandum of Understanding between the government of the United Kingdom and a foreign government, and this document provides the legal basis for disbursing public funds. If, as appeared to be confirmed yesterday, a Memorandum of Understanding between the governments of the United Kingdom and Malaysia relating to the Pergau dam entangled aid with arms sales, then there is a very clear case of illegal conduct.

The likely reply of the Government to these arguments will be that the Act allows the Foreign Secretary wide discretion; statements in White Papers are no more than guides as to how he might exercise that discretion, but they do not bind. In any event, the Foreign Secretary has a general power under Royal Prerogative to conduct foreign affairs, so that, provided the Treasury agreed to this particular use of ATP aid, nothing illegal was involved.

These arguments are unconvincing. First, it is a general rule of law that where an Act of Parliament covers the same ground as the Royal Prerogative, the Act displaces the prerogative. The Act of 1980 is so widely drawn that it covers the whole area of development aid; there is no room for prerogative powers. Second, public funds can be disbursed only on the basis of statutory authority, and all statutory authority is subject to some limitations, in this case, those set out in a White Paper.

On the evidence available, I would conclude that providing aid for the construction of the Pergau dam was illegal. Unfortunately, as the law stands, this finding has little immediate practical effect. There is no mechanism to surcharge the Foreign Secretary or other ministers and officials who might have been party to the illegality, nor would it appear that a criminal offence has been committed.

At one time, the illegal expenditure of pounds 234m might have occasioned a ministerial resignation, but this is one of those 'back to basics' principles that will probably be ignored. More likely is that retrospective legislation will be pushed through Parliament to make what is illegal, legal.

The matter should not be allowed to rest there. This sorry performance shows that there is an urgent need to review and revise the 1980 Act. What is needed is new legislation that sets out clearly not only the powers of government to grant aid, but the principles on which that aid should be granted, including any general requirements for good governance, respect for human rights and concern for the environment that will be expected from recipients of aid. This is, after all, no more than the Government claims to be requiring at present.

Such legislation should also require the Foreign Secretary to certify to Parliament, every year, that the principles are being adhered to, both by recipient countries and the British government, and empower Parliament to examine the veracity of such certificates. This would ensure not only a more informed and wider public debate on development aid, but also greater parliamentary control. This, it is to be hoped, will prevent any future Pergau dams, and assist governments to remain within the law.

The author is Professor of Law at Birkbeck College, London University.

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