Clause 5

Debt Relief (Developing Countries) Bill – in a Public Bill Committee at 10:45 am on 9th March 2010.

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Judgments for qualifying debts etc

Question proposed, That the clause stand part of the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

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.

Photo of John Hemming John Hemming Liberal Democrat, Birmingham, Yardley

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.

Photo of Stephen Timms Stephen Timms Parliamentary Under-Secretary (Department for Business, Innovation and Skills) (Digital Britain) (also HM Treasury), Financial Secretary (HM Treasury) (also in the Department for Business, Innovation and Skills)

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.

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.

Photo of Sally Keeble Sally Keeble Labour, Northampton North 11:00 am, 9th March 2010

All the points have been well covered. As I have said, the main point is to have consistency and to deal with different types of debt equally and fairly. To exclude judgment debt would be to give status to a particular type of debt, which would not be consistent with the orderly management of the debts of the country in question. It is very important, therefore, that clause 5 remain part of the Bill.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill.

Clause 6 ordered to stand part of the Bill.