A so-called vulture fund won a partial victory against the impoverished African country of Zambia Thursday, but the funds manager was bluntly criticized by the court for being “deliberately evasive (undvigende) and even dishonest in his evidence.
The British High Court ruled that Donegal International, a company based in the British Virgin Islands, had the right to receive some payments for Zambian sovereign debt that it bought at a heavy discount.
The amount involved would not be disastrous for Zambia, which received debt relief from official creditors worth a net present value of 2,5 billion US dollar in 2005 under an international debt relief scheme. But the case reveals the potential for so-called vulture funds, which buy up defaulted (misligholdt) debt and seek full payment, to undermine international efforts to relieve the debt of poor countries.
Zambia had claimed in court that the debt was invalid (ugyldig) as there was evidence that Donegals local agent had bribed civil servants to pass the debt to Donegal rather than allowing Zambia to pay it off at a heavily discounted rate to Romania.
Issuing judgment in the High Courts commercial division Justice Andrew Smith rejected the contention of bribery. The judgment of how much should be paid to Donegal was postponed.
But Justice Smith said that the full claim was unlikely to be justified, given that the settlement agreement between Zambia and Donegal imposed unduly severe penalties for default and that Sheehan and an associate were “at times being deliberately evasive and even dishonest” in their evidence about the agreement and Donegals business practices.
Donegal bought the Zambian debt, with a face value of around 30 million US dollar, from Romania in 1999, for less than 4 million dollar. Zambia had run up the debt, mainly for agricultural machinery, during the Cold War.
Zambia approved the Donegal purchase at the time and later agreed to pay Donegal 15 million dollar for it. The judge had little choice but to say the contract was binding, although he is thought unlikely to allow Donegals claim that interest and costs have inflated the amount to 55 million dollar.
The sum to be paid is likely to amount to between 10 and 20 million dollar, according to Caroline Pearce, a spokeswoman for the Jubilee Debt Campaign, a pressure group calling for the cancellation of third world debt, who was in court for the case.
Donegals pursuit of the cash was condemned by the British government, which described it as “socially irresponsible”. – By depleting (udtømme/reducere) the resources of developing countries governments, these companies reduce the funds available for schooling and hospital treatment, a finance ministry spokesman added.
He called on all creditors of heavily indebted poor countries – Zambia labors under an external debt of around 4,3 billion dollar – to offer debt relief.
Although the judge ruled against Zambias application to dismiss (afvise) Donegals claim, he at the same time proposed to end a freeze of Zambian assets secured by the fund. Donegal, however, will have a chance to argue the case for a continued freeze of Zambian assets.
Lawyers for Zambia said the judgment was a victory for Zambia.
Janet Legrand of DLA Piper called the ruling “fantastic news for both the government of Zambia and its people”. The fight against Donegals claim had been “entirely vindicated and marked a significant milestone in the efforts of the Zambian government to fight corruption and maintain a stable economic course, said she.
Kilde: www.worldbank.org
