Debt Relief, Liberia and State Immunity

An interesting case came before the High Court of England and Wales yesterday  centred upon debt relief and state sovereignty. In Hamsah Investments Limited & Anr v The Republic of Liberia a $20 million Liberian debt which is currently in the hands of two investment funds located in the Caribbean is being called in. The loan was originally given by the US Chemical Bank for the sum of €6.5 m in 1978 and has since passed hands a number of times. These two firms are suing for the repayment of the debt.

The case originally came before a New York Court, where Liberia was ordered to repay the sum (at the time it was only $18.5 million) and a summary judgement was sought to force Liberia to repay. At the time Liberia was in the middle of its bloody civil war and did not seek to defend the case. Liberia has since its transition to peace come to an agreement with the IMF and the World Bank to restructure its existing debts with these organisations and has received debt relief. Since the transition to peace after years of war, both these organisations have sought to engage Liberia and enable it to develop without being overburdened by repaying its foreign debts.

Liberia sought to argue that it was entitled to state immunity and further that it was too poor to repay the debt. The High Court based its decision of the doctrine of restrictive state immunity. The Court stated that this was a private commercial transaction that Liberia had freely entered into and it was therefore was not entitled to invoke state immunity for this transaction. This is based on a number of previous cases before the English courts such as I Congresso de Partido [1983] 1 AC 244 that have recognised restrictive state immunity. The Court further stated that it had not been given proof that Liberia could not repay the debt and that stating that it simply could not was not enough. It went further and stated that it had not proved that it could not get the money from elsewhere, such as the IMF. While I would agree with the Court’s interpretation of the doctrine of state immunity, its reference to Liberia’s ability to refinance its debt with the IMF does not seem to suggest much cognisance of how the IMF or indeed the World Bank for that matter, actually operate. Labour MP Sally Keeble quoted in the Guardian stated that:

This underlines the need for legislation and I hope that we can get something through this session of parliament either in government time or as a private member’s bill. It’s appalling that we again see the poorest people in the world ripped off by shadowy investment fund.

The UK Government has begun a consultation on this problem of private firms going after states already having difficulties repaying their loans. However the problem of states being unable to repay private debts needs a global solution, as the debts will only be sold on, as in the case, to allow another jurisdiction to enforce it. Indeed, according the BBC, Hamsah have previously enforced a similar loan against Nicaragua.