By Tommy Thomas
I have read the Letter of Support dated March 14, 2013 issued by the Malaysian government through the Finance Minister, Najib Abdul Razak, to 1MDB Global Investments Limited (the issuer), 1Malaysia Development Berhad (1MDB) and BNY Mellon Corporate Trustee Services Limited (“Trustee”). Because this document is given the title “Letter of Support”, there has been much confusion and misunderstanding as to whether the Government would be liable under it.
The Letter of Support is governed by English law which is substantially similar to Malaysian law in this area, both being common law systems. English law looks to substance and not form. Names, titles given to documents like guarantee, indemnity, letter of support, letter of comfort, etc, are not very helpful in their interpretation.
What a Court does is to examine the intention of the parties as expressed in the language they have chosen, review the document in its entirety, and then objectively determine the substance of the relationship of the parties. In commercial matters between large corporate players, a court adopts a robust approach to commercial realities.
Finally, the genesis of the transaction and its background are vital. Incidentally, the leading case in English law concerns a Malaysian company : see Kleinwort Benson Ltd v. MMC Bhd [1989] 1 All ER 785 [CA]. I propose to consider the Letter of Support in that light.
The underlying transaction referred to in the Letter of Support is the creation of a debt of US$3 billion (RM10 billion) by the issuer, which is a wholly owned subsidiary of 1MDB. Full repayment will take place in 10 years, that is, by March 2023. The Schedule to the Letter states that interest of US$66 million will be paid in March and September of each year: thus, the annual interest is US$132 million.
The debt can take many forms, such as bonds, notes, loans, securities, etc. The trustee usually acts for the benefit of creditors, which may be a fluctuating class if the debt securities are tradable. However I should mention that I have not seen any other transactional document apart from the Letter of Support.
The key issue in its interpretation is whether the parties intended the Letter of Support to have legal effect (rather than, say, only of moral suasion). In answering this issue, one has to inquire whether the Government is undertaking legal obligations and, conversely, whether the beneficiaries of the Letter of Support viz, the other 3 parties and all the creditors, possess legal rights. In other words, can these beneficiaries sue the Government if the latter breaches the Letter of Support?
In my opinion, the following statements in the Letter of Support plainly and obviously establish that the Government is undertaking legal obligations:
(i) The letter “is given to provide necessary financial assistance to the issuer to provide capital to the JV Co.” — Recital.
(ii) The Government “undertakes to provide necessary financial assistance to the Issuer in respect of the Debt as follows:
(a) …………..
(b) ………….Malaysia shall then step-in to inject the necessary capital into the Issuer or make payments to ensure the Issuer’s obligation in respect of the Debt are fully met.” — Paragraph 3.
(iii) “Malaysia hereby agrees, as independent obligations,
(a) subject to Paragraph 3, to subscribe for further debt or equity in the Issuer or to lend to the issuer such amount(s) so that, at any time when the Issuer has a shortfall of internal funding, the Issuer has immediately available funds sufficient to pay…….
(b) “….if the Issuer fails to pay any sum owed under the Debt on the date specified for such payment to pay such sum to the Trustee.”— Paragraph 4.
(iv) “The aggregate amount payable by Malaysia in total …shall not exceed the Principal Funds and the sum of the Interest Funds”. — Paragraph 5.
(v) “Malaysia hereby agrees that this Letter of Support is irrevocable” — Paragraph 6.
These words are clear and without any ambiguity: Malaysia has undertaken legal obligations to ensure that the Debt is repaid, and, if it is not, Malaysia will pay the shortfall. It is as simple as that.
If any doubt is harboured (which I do not), the parties intend that any dispute between them will be resolved in the Courts of England (Paragraph 9) and for that purpose Malaysia waives its sovereign, diplomatic or other immunity under the Vienna Convention on Diplomatic/Consular Relations.
Further, the Malaysian High Commissioner in United Kingdom is nominated by Malaysia to accept legal papers (Paragraph 8). Paragraphs 8 and 9 only make sense if the parties accept that a future dispute between them is justiciable and express provision is made for their choice of English Courts and English law. If no legal obligations are incurred, why are these paragraphs there?
What is most worrying is the irrevocable and unconditional consent by Malaysia “to the enforcement of any order or judgment made or in connection with any proceedings and the giving of any relief in the English Court and the Courts of any other jurisdiction” under Paragraph 9 (iii). By this concession, Malaysia has given up its rights, recognised in public international law for over a century, as an independent, sovereign country of not having its assets seized by a Court to satisfy a judgment of that Court.
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Tommy Thomas is a prominent lawyer specialising in corporate litigation and insolvency, and commercial and public law. He has appeared in litigation involving bonds and other sophisticated financial instruments, and has dealt with administrative, labour and constitutional cases.
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