Brushing aside calls for his resignation or at least an apology, the Foreign Secretary said he had decided not to appeal against the judgment. However aid for the dam will continue under a different heading.
The judges found that Mr Hurd broke the law in the form of the Overseas Development and Co-operation Act because the project was economically unsound and did not benefit either Malaysia or its people.
Three other projects under the Aid and Trade Provision might run into legal difficulties as a result of the judgment, the Foreign Secretary told MPs in a statement - a British sub-contract for the metro in Ankara worth £22m, a £2.3m project to build a television studio in Indonesia and the Botswana Flight Information Region project, costing £2.9m. These will now be funded from reserves.
Opposition MPs were not impressed. Joan Lestor, shadow aid minister, said money lost on the four "unlawful" projects could have been used "to alleviate poverty and feed the hungry in the Third World, where most people imagine much of the aid budget to beused".
Alluding to the initial verbal promise by Baroness Thatcher of aid for Pergau as a sweetener to a £1.3bn arms deal, she told Mr Hurd: "It should not be a guiding force of ministers to prop up the tarnished reputations of former prime ministers.
"If we are to accept the Foreign Secretary's claim that at no time did he seek legal advice over this project, we can only conclude that he was either incompetent or so dismissive of the monitoring process that he felt there was no need to cover his tracks."
Rising to shouts of "resign" Mr Hurd said it was not a question of money having been "filched" from the aid programme. The £34m that would have been spent on the four projects this year and the £31m for next year would be available "for such things as the extra relief for Bosnia''.
Sir David Steel, for the Liberal Democrats, said Mr Hurd and Lady Thatcher had "steamrollered" the ODA into the Pergau project "What is self-evident to the taxpayer is that money was misused. The taxpayer believes that the limited budget for overseas aidshould be used for the proper purpose and you should reinstate those funds."
But Mr Hurd insisted the settlement he had announced was "equitable". As for Lady Thatcher's promise: "The fact that keeping a promise is more expensive than was supposed when it was made is not always a reason for breaking it."
Peter Shore, a former Labour Cabinet minister, thought that "some sign of regret, remorse, let alone an apology" would be more fitting than Mr Hurd's "rather strident" tone.
But supported by Tory backbenchers, who put aid for trade before legal niceties, the Foreign Secretary was unrepentant. Calls for his resignation were "synthetic", he said. "I do not feel penitent at taking a fairly robust view on where the interests of this country lie."
The cost of aid for the Ankara metro or even the Pergau dam was dwarfed by figures put to the Prime Minister at Question Time as just part of the bill for privatising British Rail.
Tony Blair, the Labour leader, asked for confirmation of the findings of a specialists' report to the Commons Transport Committee warning of "drastic reductions" of services or a closure of nearly half of the 9,000-mile passenger network.
Was the report right in stating that the costs of legal consultancy fees and relocation fees just to British Rail were now £100m, and if underwriting and City fees were added in it might be as much as £700m?
"Is it also right, as the report indicates, that if the privatisation targets are to be met then either the network will have to be virtually halved or there will be savage timetable reductions?"
John Major said they were certainly not figures he recognised. "Since the start of the rail privatisation process, there has been no shortage of scare stories. This is just the latest of the scare stories." He said Brian Mawhinney, Secretary of State forTransport, had recently stated unequivocally that franchise services would "broadly based on the existing timetable". That remained the position.
The all-party transport committe has, none the less, launched an inquiry into railway financing following the experts' report.
The House of Lords meanwhile turned its grizzled gaze to the wilder shores of what is left of the British empire - the uninhabited Atlantic island of Rockall and the possibility of a dispute with Ireland, Iceland and the Faroes over oil and gas exploration .
Lord Campbell of Croy, a former Scottish secretary, said experts in international law had pointed out that the UK's position might be strengthened if there was a British wedding on the island, or even better, a birth.
But Earl Ferrers, a trade minister, told him: "Sovereignty over Rockall doesn't rest on whether it can sustain human life. There were geological links with Scotland's 2,000 million year old rocks. "Anyone who tries to have their marriage on Rockall needsto have their head examined."Reuse content