A/HRC/14/21 memorandum of understanding to the effect that Zambia would have until 31 January 1999 to confirm its offer to purchase the debt at its slightly higher offer of US$ 3.5 million. Just 12 days before this deadline and, without prior notice to Zambia, Romania sold the debt to Donegal International for US$ 3.2 million. At the time, the debt had a face value of approximately US$ 30 million. 24. In September 2002, after unsuccessfully attempting to swap the debt for investments in Zambia, Donegal International commenced litigation in the British Virgin Islands for approximately US$ 43 million. In April 2003, in controversial circumstances involving allegations of corruption and bribing of public officials, Zambia signed a settlement agreement with Donegal International in which it agreed to waive sovereign immunity from litigation and pay around US$ 15 million of the then US$ 44 million face value. It also agreed to penal rates of interest in the event of default and to have any disputes determined under English law. Zambia paid a total of US$ 3.4 million in three instalments and thereafter stopped paying, arguing that the agreement was tainted with corruption and had been signed without the requisite authority. 25. In 2006, months before Zambia was due to receive debt cancellation under the HIPC Initiative, Donegal International instituted legal action against the country for US$ 55 million – an amount that was nearly 17 times the amount the company paid for the debt. In February 2007, the British High Court ruled in favour of Donegal International. Despite having found that the owner of the company, Mr. Sheehan, was “deliberately evasive and even dishonest”, that he had “deliberately” given “false evidence”, that the company had “deliberately” withheld documents “because they contradicted the case that they were seeking to advance” and that “the evidence from the witnesses called by Donegal (was) vague and inconsistent”,29 the court held that Donegal International had a case in law. However, it subsequently ruled that Zambia had a real prospect of establishing that certain provisions of the settlement agreement were penal and therefore unlawful. It ordered Zambia to pay US$ 15.4 million (an amount equivalent to 65 per cent of the country’s savings in debt relief in 2006)30 to Donegal International. Under HIPC Initiative terms, Zambia could have expected 88 per cent cancellation of its debt. 26. This case underscores the need for debtor countries to fully comprehend the implications of formally recognizing claims arising out of sovereign debts sold on the secondary market. C. Vulture funds, debt relief and human rights 27. There are two main international debt relief schemes: the Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). The HIPC Initiative was created in 1996 with the aim of reducing the debt burden of the world’s poorest countries to “sustainable levels”.31 A comprehensive review in 1999 resulted in the 29 30 31 10 Ibid., paras. 51 (iii), 64, 90 and 127. See also paras. 132, 136, 150, 151, 156 (ii), 159, 167, 181, 188, 273, 344, 544. See Jubilee USA Network, “Vulture funds and poor country debt: recent developments and policy responses”, Briefing Note 4, April 2008, citing IDA and IMF, “Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) – status of implementation” (2006), p. 65. In order to qualify for debt relief under the HIPC Initiative, a country must: (a) have an unsustainable debt burden (i.e. a net present value of debt-to-exports ratio, after traditional debt relief, of more than 150 per cent); (b) establish a track record of policies and reforms through IMF- and IDA-supported programmes; and (c) have prepared a poverty reduction strategy paper through “a broad-based participatory process”. GE.10-13156