Responding to Lawsuits

AuthorPoornimah Devi Sookun
Pages73-83
CHAPTER 6
Responding to Lawsuits
Recognise that the world is hungry for action, not words.
Nelson Mandela, former South African president,
speaking in support of the Make Poverty History campaign
By refusing to participate in the debt restructuring process, vulture fund creditors
prefer to opt for court proceedings so as to obtain many times the original amount
they paid for the debt. Vulture fund creditors are aggressive litigators, as their only
reason for purchasing debts is to make a swift profit. If a sovereign debtor does not
want to suffer the effects of a vulture fund lawsuit as described in Chapter 3,
Lawsuits, then immediate action is a must.
The HIPC Initiatives require voluntary participation by creditors to write off bad debts.
Voluntary participation is a condition outside the control of international financial
institutions and they cannot force creditors to participate. In the face of the high
costs of defending themselves against litigation and lacking national expertise or
resources, many countries have not put up any legal defence. However, courts have
had to give judgment by default against sovereign debtors under the terms of loan
agreements. (Judgment by defaul t is a judgment given in the absence of the
sovereign debtor or defendant from cour t when the case is heard.) Thus sovereign
debtors have not benefited from putting up a defence in court.
On the other hand, from a practical perspective, a rush to court is not always the
best solution, even for the creditors. A sovereign debtor which cannot repay is not
likely to have many assets which can be seized by creditors. Some creditors know
that repayment can be difficult in such circumstances. They nevertheless pursue cases
for attachment of the sovereign’s assets because of the huge return they may make,
even though they may never recover any of the money.
This chapter identif ies the legal and other options available to debtors when they
are faced with the prospect of litigation. Some measures aim to stop fur ther litiga-
tion processes and others constitute international support in technical assistance to
minimise the impact of lawsuits. Identifying these options should empower countries
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