Peter Bottomley: I ask the promoters to considernot necessarily todaytwo minor points. Subsections (4) and (6) start with the word but. I was brought up to believe that any sentence that starts with the word but is not needed. I do not think it is a condition. If one reads the amount recoverable is limited, does it mean the same as with the but added? If the but has no purpose, there is no point in taking it out and no point in putting it in the first place.
A more serious point relates to a possible ambiguity in line 30, which states that
the amount recoverable under a compromise agreement is limited to the amount that would be recoverable.
Does that mean limited to as a ceiling, or is it limited to a precise amount? It is unclear.
Mr. Timms: Let me comment on a couple of questions that have been raised about the Governments perspective, the first of which concerned compatibility with the Human Rights Act 1998 and European legislation. I am grateful to the hon. Member for Daventry for commending the Treasury on this occasion. The explanatory notes outline the Governments view that the Bill is compatible with the European convention on human rights. It reduces the recoverability of debts in line with the HIPC initiative. The reduction, in our view, is not a deprivation of property but a control of use. The European Court of Human Rights has found there to be a deprivation only where there is a total practical or legal extinction of the rights of ownership. Under the Bills provisions, the creditors will still retain an asset of some economic value. Although the face value of the debts will be considerably reduced by the Bill, their current market value is likely to be much lower than their face value. We consider that control of use to be justified in the interests of promoting fairness among creditors and promoting the development of poor countries. My hon. Friend the Member for Linlithgow and East Falkirk set out the moral case for doing that.
Mr. Gauke: The Minister has highlighted the Treasurys view that the reduction is a control of use rather than a deprivation of possessions. What would be the significance if it was a deprivation of possessions, and why is it important that it is a control of use?
Mr. Timms: It is an important distinction in order to secure that the Bill is compatible with the Human Rights Act. The hon. Member for Daventry referred to compatibility with article 1 of the protocol to the European convention on human rights. The measure is proportionate for compelling public policy reasons. It promotes fairness among creditors and the development of poor countries. Creditors that enforce their debts for the full face value divert resources that are intended for development, including debt relief and international aid provided by the UK Government.
Is this worth doing and is it, ultimately, a substantial measure? Of course, it is true that, compared with overall financial flows, the amounts we are talking about are small. For the countries involved, however, they are significant. The case of Liberia has been mentioned, and the amount involved is reported to represent 5 per cent. of its Governments annual revenue. That will have a huge impact on that country. The World Bank survey reports other active cases that are larger still. I think that every member of the Committee agrees that the threat of any resources being diverted to vulture funds, away from a country where almost half the population live on under a dollar a day, is very serious. That concern is shared on both sides of the Committee.
Mr. Boswell: Has the Treasury given any thought to the alternative of offering the creditors expropriation at the current market value of the debts, and then paying the appropriate compensation? Would that be an alternative approach? Would it be dearer or cheaper, and would it be equally compatible with the European convention on human rights?
Mr. Timms: The World Banks debt reduction facility helps settle the commercial debts of HIPCs on terms that are compatible with the HIPC initiative. It negotiates buy-backs at the deeply discounted rates consistent with the initiative by using funding from donors, including the UK, to purchase and then cancel debts from commercial creditors that choose to participate. In the case of Liberia, last years operation bought back 97.5 per cent. of eligible debt, with a full value of $1.2 billion, for just 3 per cent. of that value. Of course, we cannot be absolutely sure about what will happen because of secrecy on the part of the commercial players involved. There is bound to be some uncertainty about the number of cases that will come forward, but the Bill prevents creditors from taking action against the HIPCs to get full value.
Last years World Bank survey of HIPC Governments reported 14 active or unresolved law suits by commercial creditors worldwide, with a total value of $1.2 billion. Active law suits are reported against, among others, Ethiopia, Uganda, Sierra Leonementioned by the hon. Member for Banburyand the Democratic Republic of Congo. The survey has reported 54 cases since 2002, about a fifth of which have been brought in the UK, and new cases continue to arise.
Mr. Gauke: I am, again, grateful to the Minister for giving way with his characteristic generosity. First, what would he say to the argument that is sometimes made that using surveys of litigation can be an inaccurate way of measuring claims, because by their very nature claimants tend to have an optimistic assessment of their claim? They claim for as large an amount as possible. Court judgments tend to reduce the claim as a matter of course, and there is the whole issue of enforcement. Some argue, therefore, that trying to assess the benefit for developing countries on the basis of a survey is not a reliable methodology. What is the Ministers response to that? Secondly, what trends are there in the number of claims being made? He mentioned the 54 claims. Is there a reduction in the number, or is it increasing? What is the trend in the enforcement of the claims?
Mr. Timms: I certainly accept, as I have already indicated, that there is a degree of uncertaintythat is inevitable. One cannot give absolutely definitive figures. We have set out our best valuation in the impact assessment, which is that the Bill will prevent £145 million from being transferred from heavily indebted poor countries to litigating creditors through free-riding. While acknowledging the uncertainty, I think that that is as good an estimate as one can make. We can, however, be certain that the Bill will prevent the minority of commercial creditors that litigate and extract repayment in excess of that permitted under the HIPC initiative from using UK laws or courts to do so. That is an aim that I think the whole Committee shares, and that the Bill will fulfil.
Ms Keeble: I think that most people have had their questions about insolvency arrangements, the management of the debt and the arrangements for orderly wind-down answered, and my right hon. Friend the Member for East Ham dealt with the human rights issues, so there is absolutely no point in my covering those matters. I just point out that the calculation of what are sustainable debts for the countries has already been agreed, and is set down in the explanatory notes.
In addition, we talked earlier about the fair treatment of different types of debt, and I point out that some of the commercial creditors have already behaved properly, going through the process and writing off the debt. The issue is about dealing with different classes of debt equally. On the point raised by the hon. Member for Worthing, West, the HIPC amount is a ceiling, and if parties agree to less than that amount, they can recover only the lesser amount.
Other hon. Members, including my hon. Friend the Member for Linlithgow and East Falkirk, made the case about the obvious and compelling circumstances. It rests with some of the countriesand here I mention the steps taken by the British taxpayerto underwrite some of the costs. Looking at the list of countries, we see that one of them is Haiti. We must ask whether there are obvious and compelling circumstances for Haiti that require the kind of management of debt that we are talking about. In most cases, things are being done perfectly properly. However, a country in such circumstances should not be prey to a fund that suddenly decides to hit it for the full amount of repayment of debt.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4 ordered to stand part of the Bill.
Judgments for qualifying debts etc
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: Clause 5 flags up another issue concerning the European convention on human rights, relating in particular to the enforceability of judgments. Before turning to some of the legal arguments, may I put down a question for the Minister or the hon. Member for Northampton, North, about the significance of clause 5? How much of the £145 million that we have been
Clearly, we must deal with the issue of article 6 of the European convention on human rights and the enforcement of judgments. The explanatory notes are helpful in setting out the Governments case as to why article 6 will not apply. Again, I do not claim any particular expertise, but I note that the Government basically argue that article 6 will not be a problem. First, they acknowledge that the European Court of Human Rights has repeatedly found an infringement of article 6 in circumstances where states have refused to enforce judgments or have delayed doing so.
However, the explanatory notes set out the grounds on which the Bill can be distinguished from such decisions. Those grounds include the state itself being a party to the proceedings, or situations in which the state could and should have adopted other measures to achieve its objectives. Clearly the statethe UKis not party to the proceedings. Could the objectives have been achieved in other ways? We have touched on alternatives, but it might be helpful if the Minister or the hon. Member for Northampton, North, underlined the reasons why the legislation is the best way to achieve the aims.
The second argument is that the Bill would be significantly hindered if it did not extend to judgment debts, which is the point that I was making a moment or so ago. The explanatory notes say:
given the number of creditors who have obtained judgments on their debts against HIPCs.
It would be helpful if we had further information on that point. However, as an argument for saying that article 6 does not apply, I do not know that it is as successful as the first point.
The third distinguishing feature is that in this context, there is little difference in principle between creditors who have obtained a judgment debt and other creditors. The explanatory notes continue:
Whether or not creditors have gone through the court process, which may have been no more than a formality, is not a robust basis for distinguishing between creditors.
I can see precisely what the thinking is, and I can fully understand it, but it seems to suggest that the more contentious the judgment, the more important its enforceability. That may well be right, but I do not know how that compares with other cases that the European Court of Human Rights has debated.
The final point, set out in the explanatory notes, is that
judgment debts are possessions within A1P1. It would be inconsistent for the state to be given a wide margin of appreciation in relation to A1P1 for judgment debts, but to be subject to an absolute prohibition when controlling the use of judgment debts by the terms of Article 6.
I hope that it was helpful for me to set out the reasons in the explanatory notes, so that those who subsequently read the debates will be clear that we have considered
Clause 5 is key. If we stripped it out, we would substantially reduce the best estimate of £145 million. It will be helpful to have some clarity on the numbers. However, clearly, we need to ensure that the measures will not result in endless litigationwe need to be on robust ground in that area. However, I have no further remarks on clause 5.
John Hemming: I compare the clause with insolvency legislation, where judgment debt is treated the same as non-judgment debt. Neither of the creditors is preferred, and on that basis, the application is not retrospective.
Mr. Timms: Unfortunately, I am not in a position to give the hon. Member for South-West Hertfordshire the breakdown he was asking for. If anything comes my way, I will let him know. [Interruption.] Actually, I can give a little illumination. Our estimate is that if clause 5 was removed, the benefit would be reduced by a third. It is of that order of magnitudesubstantial, as he thought.
However, having legislation that affects cases where a court has already given judgment rightly raises some important issues. It is not something that should be done lightly or oftenit needs to be considered carefully. Here, there is a compelling case for doing so on three grounds, which the hon. Gentleman touched on. First, there is $1.2 billion-worth of HIPC debts worldwide on which judgments have already been made or action is continuing. Other creditors can theoretically go to court before any legislation comes into effect to get judgments on those debts, which would then be excluded from the legislation. Creditors would be able to enforce those debts in UK courts against the assets of poor countries, disrupting trade and investment, which would clearly be inconsistent with the aims of the legislation.
Secondly, excluding judgments would not be economically logical. The purpose of the legislation as a whole is to limit repayment of otherwise valid debts to the level the debtor can afford to repay.
The question that follows is whether to exclude some kinds of debts, such as judgment debts, which would, in effect, be treating them more favourably. I do not think there is a strong argument for doing that; it is logical to treat them equally. The judgment will have been reached on the validity of the debt, rather than on the debtors capacity for repayment. The hon. Member for Birmingham, Yardley is right to highlight the strong similarities with insolvency law, which provides for a fair and orderly restructuring in situations in which creditors claims in total exceed the capacity for repayment. As he says, in insolvency law, a debt on which there is already a judgment is not, in general, treated more favourablythat is, to be repaid at the expense of other debts. The same effect should apply in this legislation, as the hon. Gentleman suggested.
Thirdly, excluding judgment debt would considerably reduce the effectiveness of the legislation. Around a third of the value transferred to creditors would be at
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