Brown to champion legal aid to help curb 'vulture funds'

The Government is to take action to curb the behaviour of so- called "vulture funds" that buy up Third World loans and then take the poorest countries in the world to court to force them to pay off their debts.

The Treasury is leading efforts to set up a legal-assistance facility that will enable Third World countries to gain access to top lawyers to defend their cases in the courts.

In a written statement last week, Chancellor Gordon Brown said: "I deplore the activities of so-called vulture funds that seek to profit from debts owed by the poorest countries in the world.

"The UK will therefore call on the World Bank... to help countries to eliminate their commercial debts at the earliest possible opportunity and thereby reduce the likelihood of debts being sold on to aggressive creditors."

He added that the UK would work with its G8 partners to develop a charter on res-ponsible lending that includes a commitment to protect developing nations from vulture fund activity.

It is believed the issue will be raised at this week's meeting of G8 finance ministers in Potsdam, Germany.

Last month, a UK judge censured Donegal International, a US-based vulture fund that had being trying to force Zambia to pay more than $55m (£28m) in unpaid loans. Donegal had bought some Zambian debt from Romania in 1999 for $3.2m.

The fund then chased Zambian authorities for the face value of the debt, before agreeing on a sum of $16m in 2003. However, when the African country stopped repayments after a year, Donegal sought to reclaim the full $55m.

Mr Justice Andrew Smith ruled that the 2003 agreement was legal but added that the default payment of $55m was penal and struck it out. He declined to say how much Zambia should pay.

He criticised Donegal owner Michael Sheehan, and other witnesses called by the company and added that much of their evidence was dishonest.