London court case suggests Mozambique

A recent court case in London on Ukraine debt raised issues very similar to those of the secret Mozambican debt, and suggest that Mozambique could make the case that at least part of the debt is illegitimate and should not be repaid. The ruling was made in the High Court on 29 March by Sir William Blair, brother of former prime minister Tony Blair. It is extremely complex and the full text of the ruling is on https://www.judiciary.gov.uk/judgments/law-debenture-v-ukraine/. The case involves Ukraine's refusal to pay a $3 bn Eurobond organised by the Russian bank VTB, in which Russia bought all the bonds. The bonds, as with Mozambique, are covered by English law. In an identical situation to Mozambique, Ukraine argued that the Finance Minister agreed the loan without it being approved by parliament as required by the constitution. Mr Justice Blair noted that there are no precedents and this seems to be the first case of its kind. Mr Justice Blair ruled against Ukraine, saying that a state has the capacity to borrow, "the Minister of Finance plainly had usual authority to enter into the transaction on behalf of Ukraine", and that the lenders had no reason to suspect that the loan was improper.On the surface, this would seem to go against a possible Mozambican case. 

But Mr Justice Blair also says that "it is important to emphasise that this result does not imply that a failure to follow domestic rules as to borrowing by a state such as those identified in the case of Ukraine is legally irrelevant as a matter of English law. Such failure may of course be relevant." Furthermore, the decision was based on the conditions of the Ukraine loan which were explicitly opposite to those of Mozambique. The loan was to the government and was approved by the cabinet, there has been many similar loans, the government of Ukraine received the money and it was included in foreign currency accounts of the Treasury as posted on its website, interest payments were made, and it was never stated that the loan was improper.The opposite of these conditions apply to Mozambique. The loans were to private companies and not the state, were not approved by the Council of Ministers, none of the money entered Mozambique, it was never included in any state accounts, and all statements by public authorities (parliament, Tribunal Administrativo) said the loan was illegal and unconstitutional. The secrecy of the loan meant that lender had no public statements to believe in the legality and should have done their own investigation.Thus, even though Ukraine lost its case, Mozambique could use this case and Mr Justice Blair's statement that failure to follow domestic rules is relevant, to make the case that at least the MAM and ProIndicus syndicated loans are illegitimate and should not be paid.As with the Ukraine case, it is up to the lender to bring a legal action in London, and it appears that there is a significant chance that the lenders would lose. This could give a major boost to Mozambique in any renegotiation of the loans. ( jh)