Don’t Cry for the World’s Greatest Sovereign Deadbeat

by Julian Ku

Argentina is, to put it bluntly, one of the world’s greatest sovereign deadbeats, defaulting on its sovereign bonds more than once as well as bearing the distinction of being the world’s number one respondent in ICSID arbitration claims (or at least close to number one).  Last week, the ongoing struggle between foreign creditors and Argentina found a new flashpoint as investors brought an action in Ghana to attach ARA Libertad, an Argentina government naval training ship that was on a goodwill tour of West Africa.

Argentina had defaulted on its sovereign bonds in 2002 and various investors who did not accept Argentina’s settlement of those debts (which involved a 70% “haircut”)  have been seeking to collect on those debts ever since, especially in litigation occurring in the U.S. and the U.K.  So far, however, investors have failed to collect much money, even though a U.S. court has granted summary judgment holding Argentina liable for more than $280 million (with lots of interest accruing).

The Ghana litigation is the latest round in this ongoing struggle to collect on this judgment. The commercial court in Accra has refused Argentina’s effort to lift an injunction preventing ARA Libertad from leaving Ghana, holding that Argentina’s bonds waived applicable sovereign immunity defenses. Indeed, most courts seem to have agreed that  Argentina has indeed waived its immunity defenses. Here is an excerpt of their waiver, as described in a recent U.S. Court of Appeals for the Second Circuit decision: (E.M. Ltd. V. Republic of Argentina (2d Cir. Aug. 20, 2012)

To the extent the Republic [of Argentina] or any of its revenues, assets or properties shall be entitled … to any immunity from suit, … from attachment prior to judgment, … from execution of a judgment or from any other legal or judicial process or remedy, … the Republic has irrevocably agreed not to claim and has irrevocably waived such immunity to the fullest extent permitted by the laws of such jurisdiction…

Of course, this waiver does not necessarily mean that all of Argentina’s assets can be seized or attached.  In U.S. litigation, courts have held that this waiver allows U.S. courts to attach Argentina state assets that are used for a commercial activity.  (NML Capital v. Argentina, 680 F.3d 254 (2d Cir. 2012)).  If such an approach is followed in Ghana, I am not sure whether the foreign investors would be able to prevail since they would have to prove that the ARA Libertad is being used for a commercial as opposed to a naval activity.

On the other hand, Ghana law could very well be more favorable to the creditors than U.S. law.  It certainly sounds like that is the case given this report of the arguments in the Ghana court. Perhaps sensing it has a losing legal argument, Argentina has begun a full-court diplomatic press on Ghana, even enlisting Chile to help out.

If Ghanian law allows a waiver of attachment to extend to all sovereign property, then it seems only fair that this case should be allowed to proceed regardless of what Argentine or Chilean diplomats say. I realize that the foreign creditors here are “vulture” investors who purchased the bonds from the original bondholders at a steep discount, but I don’t think that excuses Argentina from its undoubted legal liability.  Even if the ARA Libertad is not properly the subject of attachment, I can’t understand why folks continue to excuse Argentina’s deadbeat behavior.  Argentina plainly has the money to pay the judgment (the just expropriated their largest oil company, after all), and it is obligated to do so as a result of its own commitments. So why cry for Argentina?

http://opiniojuris.org/2012/10/15/dont-cry-for-the-worlds-greatest-sovereign-deadbeat/

One Response

  1. Hi, my name is Alejandro Turyn and I’m from Argentina. There are several reasons why the ARA Libertad should not be retained in Ghana. First of all it is the flagship of Argentina’s war ships and as such it enjoys special or particular immunity which is different from general state immunity. This is not govern by Ghanian Law but by international law (either Customary International Law, UNCLOS, etc.). Such determination has been rendered by so many different court and Tribunals around the world not only for the Flagship but for other assets similar o less protected than the Libertad. The first case that comes to my mind is the Colella case in California and the Lydia Scheck case in Germany. Moreover, the ARA Libertad is on diplomatic mission carrying personnel from different countries. As such, it also carries diplomatic immunity, govern by Treaty Law and Customary Law. Even more, it is also protected by the UNCLOS under this circumstances as it cannot be reatined in port by debts in this case.
    All this cannot be overrided by a general waiver to state immunity inserted in documents which were designed only to waive state immunity for each bond, whe one read it fairly, as most Judges and Tribunal around the world have.   Simply put, the audacity and less than serious analysis presented in the post under comment seems rather guided by other reasons and motives. When the author qualifies Argentina’s behavior as “deadbeat” and when it assummes that the Country has the money the pay, is making unfounded assumptions destined to exacerbated disputes in a State where social, political and sanitary needs arte still to be fulfilled, and Argentina is doing so respecting fully with the rule of law, international law that is. for the sake of clarity. Whether or not Vulture Funds like it , or the author is linked to such interests in a way, does not change the fact the law must be equal for all, even for Argentina, which deserves the same respect that any other State of the world community.

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