By Chan Quan Min
A legal expert has refuted a claim made by deputy finance minister Ahmad Maslan that a government letter of support used to back US$3 billion (RM10 billion) in 1Malaysia Development Bhd or 1MDB loans is “not an explicit guarantee.”
Tommy Thomas
Tommy Thomas, a prominent lawyer in corporate litigation and public law, today said in a statement to KiniBiz that the letter of support in question obliges the Malaysian government to step in should 1MDB default on its loans.
1MDB is a self-styled strategic investment fund under the Minister of Finance tasked with enabling “new ideas and sources of growth.” As of March 2014, the fund has borrowings in excess of RM40 billion.
“I disagree with the views expressed by the deputy finance minister,” Thomas said.
“There is no doubt that both English and Malaysian law treats Malaysia’s obligation under the letter of support dated March 14, 2013 as a ‘contract to perform the promise or discharge the liability’ of 1MDB in the event of default of 1MDB.”
Ahmad Maslan, the deputy finance minister, yesterday told reporters outside parliament that the letter of support was “not an explicit guarantee” and therefore not legally binding under the Loans Guarantee (Bodies Corporate) Act of 1965.
Earlier in parliamentary proceedings last Thursday, he categorically stated that the letter of support “doesn’t exist.”
Ahmad Maslan
Thomas has produced a legal opinion in response to Ahmad Maslan’s claims in relation to the Loans Guarantee (Bodies Corporate) Act of 1965 as follows:
“I have just reviewed this Act. It authorizes the government of Malaysia to guarantee loans raised by certain bodies corporate: one assumes 1MDB qualifies.
“Section 2(1) of the Act empowers the government to ‘guarantee the discharge by the body corporate of its obligations under any agreement which may be entered into in connection with the raising of the loan or under any bond, promissory note or other instrument issued pursuant to the agreement.’
“Section 2(3) requires the Minister of Finance to lay before the Dewan Rakyat a statement and copy of the guarantee ‘as soon as possible after a guarantee under this section is given.’ The word ‘guarantee’ is not defined in the Act. Neither does the term ‘explicit guarantee’ appear there.
“The common law meaning of a guarantee is adopted in Section 79 of the Contracts Act, 1950 which defines it as follows: ‘A contract of guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default.’”
Thomas further claimed that the letter of support “is a guarantee within the leaning of the Contracts Act, 1950” and that “in consequence, all the relevant loan documents and the letter of support ought to have been laid in the Dewan Rakyat shortly after their execution in March 2013.”
Contingent liabilities
The implications of the legal standing of the letter of support of US$3 billion in 1MDB loans is that they should be included in the federal government’s contingent liabilities and reported as such, according to the corporate litigator.
“Because the letter of support is in truth and substance a guarantee, provision ought to have been made in the nation’s accounts for the US$3 billion obligation, at least as a contingency debt,” he said.
“The issue is not whether 1MDB can settle the annual interest payment of US$132 million and the principal by March 2023 or whether any rollover or restructuring of the facilities may take place in the future.
“Instead, the critical point is that prudent accounting requires a provision being made for the sum of US$3 billion.”
KiniBiz yesterday published in full comments by Thomas on the letter of support in question: 1MDB support letter legally binding
You must be logged in to post a comment.