DLA Piper has won a moral victory for the Zambian Government today as the High Court delivered a scathing attack on the claimants in a judgment that will have widespread repercussions for debt in the Third World.
Investment funds company Donegal International brought proceedings in the Commercial Court to enforce a claim again the Republic of Zambia for $55m (£28.2m) in respect of a Zambian debt which Donegal bought from Romania eight years ago for just $3.2 million (£1.6m).
But key payment terms that Donegal were relying on were struck out drastically reducing Zambia’s liability, which will be determined at a later date.
Mr Justice Andrew Smith in his judgement also found that Donegal’s injunction over Zambia’s assets should also be discharged because of the misleading nature of the evidence with which it was secured.
Smith J said that Michael Sheehan of Donegal had lied to or misled the courts of three different jurisdictions in relation to the debt, while his consultants were “dishonest and thoroughly unreliable”.
The Government of Zambia is the first to have fought back against the practices of so-called “vulture funds”, which buy up the debt of nations cheaply before suing that country for the full value of the debt plus interest.
The judgment comes as fears continue to increase over whether “vulture funds” hold up or undermine debt restructuring efforts.
On this point Smith J said: “The proceedings arouse strong feelings. Zambia is a poor country and sees itself as being vulnerable to ‘vulture funds’.”
As if a reminder to himself he notes: “I am concerned, of course, with the legal questions that are raised by the applications before me and not with questions of morality or humanity.”
Partner Janet Legrand from DLA Piper, acting for Zambia, instructed William Blair QC 3 Verulam Buildings with Michael Sullivan of One Essex Court as junior lead.
While Donegal was represented by partner Peter Watson from Allen & Overy who instructed Anthony Trace QC with Benjamin John as junior lead, both of Maitland chambers