Peter
Bottomley: I ask the promoters to consider—not
necessarily today—two 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 Government’s 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 Government’s 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 Bill’s 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 Treasury’s
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
Government’s 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? 10.45
am
Mr.
Timms: The World Bank’s 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 year’s 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
year’s 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 Leone—mentioned by the hon.
Member for Banbury—and 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 Minister’s 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 uncertainty—that 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 countries—and here I
mention the steps taken by the British taxpayer—to 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.
Clause
5Judgments
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
talking about—the Treasury estimate of the benefit accruing
directly to developing countries as a consequence of the
Bill—relates to judgments that have already been made and is
therefore dependent on clause 5, and how much does not? In part, that
goes back to what I was talking about earlier—the EMTA claim
that the beneficiary of the Bill will be Liberia, essentially, because
of the judgment made at the end of last year, and that the effect will
not be felt more widely. A breakdown of which claims will relate to
judgments already made and which will not would be
helpful. 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 Government’s 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 state—the UK—is 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
those points. I would be grateful to the hon. Member for Northampton,
North, and the Minister if they could provide any other comments
regarding ensuring that we do not run into a problem with article 6 as
a consequence of the
Bill. 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 litigation—we 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
magnitude—substantial, 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 often—it 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.
11
am 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 debtor’s
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 favourably—that 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
stake. If we accept the reasons for enacting this legislation in
general, it is important that the judgments be included. Although I
recognise the seriousness of this issue, we should include judgments
and this clause should stand part of the
Bill. | 
