I’ve Thought About It Some More: And I Still Think Argentina’s World Court Lawsuit Against the U.S. is Bogus

by Julian Ku

Reasonable people can disagree about the legal merits of U.S. court judgments against Argentina requiring it to pay holdout creditor hedge funds. But I can’t say the same about Argentina’s recently announced claim against the United States at the International Court of Justice. Based on Argentina’s own description of its legal arguments, I stand by my earlier assessment: Argentina’s international law claim against the United States is frivolous and would have almost no chance of succeeding, even if Argentina somehow convinced the U.S. to accept ICJ jurisdiction.

Although Argentina’s complaint to the ICJ has not been publicly released, it is likely that Argentina will accuse the U.S. of allowing its court system to violate Argentina’s immunity rights as a nation-state and to interfere in Argentina’s ability to pay its non-holdout creditors through U.S. banks.

What makes this claim ridiculous is that Argentina chose to grant the U.S. judicial system a wide-ranging jurisdiction over bonds it sold to private investors. When issuing those bonds, Argentina promised that it had “irrevocably agreed not to claim and has irrevocably waived” immunity “to the fullest extent permitted by the laws of the U.S. and New York. Argentina also agreed to allow “any of its revenues, assets or properties” to be subject to judicial execution and enforcement to whatever degree permitted by U.S. law.

The power of a country to give up its sovereign immunity rights is well-established under international law. As Article 19 of the 2004 Convention on Jurisdictional Immunities states, sovereign assets will be immune from judicial measures unless that sovereign “has expressly consented to the taking of such measures as indicated by…a written contract.” In other words, nations can waive judicial seizure of sovereign assets, and there is no doubt Argentina did so here.  U.S. courts have the final say on what level of immunity can be waived under U.S. law. Argentina’s claim would have to be that the U.S. courts exceeded the limits on waiver that might exist under international law, for instance, on seizure of diplomatic or military or central bank assets. But the U.S. courts have specifically rejected any attempts to reach those assets and have continued to protect those assets from the holdout creditors.

Moreover, having granted jurisdiction to U.S. courts, there is little evidence that those courts treated Argentina in a discriminatory or unfair manner. Argentina was represented by one of the world’s premier law firms, Cleary Gottlieb, and the U.S. government repeatedly filed statements to the court supporting Argentina’s positions. US courts ruled in favor of Argentina in key cases shielding Argentina’s central bank assets from creditors. Nothing in this record supports Argentina’s attempt to smear the U.S. judicial system by filing an ICJ lawsuit.

I suspect that Argentina’s international lawyers know that their ICJ claim has no merit. As Argentina’s lawyers know, the International Court of Justice does not have the power to hear cases unless governments in a dispute give their consent. The U.S. government (like many other countries) has not given its consent to be sued in general, and has specifically rejected jurisdiction in this case. The ICJ has no power to hear Argentina’s case, and Argentina knows this.

It is likely that Argentina is hoping to highlight the U.S. government’s refusal to consent to ICJ jurisdiction to score more propaganda points in the court of world public opinion. Indeed, Argentina’s President has said she will present her claim directly to President Obama and perhaps the General Assembly during next month’s U.N. General Assembly meetings. Even though the ICJ will likely never hear this case, the reference to a pending case that the U.S. will not allow to be litigated in the ICJ will be a useful talking point.

At the end of the day, Argentina has no case under international law against the United States, and it probably knows it has no case. Which is why this legally meritless case should be understood as just another public relations ploy in Argentina’s continuing battle with its holdout bondholders.


4 Responses

  1. It is to some extent a public relations ploy but the audiences are the key. One obvious audience is the domestic audience to show that the state is exhausting its remedies against what is perceived as a holdout vulture hedge fund. The hedge fund is also doing this through its own as campaign. If anyone remembers the Czarist bonds this is much more modest as compared to that.

    Argentina understands that the vulture hedge fund is playing a game of chicken with everyone in the sole private interest of getting paid out 100 cents on the dollar. Nothing more or less than that narrow vision. The vulture fund is hoping by playing this game that they can get paid out by the other lenders or the United States or Argentina – they simply do not care because all they are about is the money.

    Argentina Is in a way trying to get the US in the position of espousing the claims of the vulture fund. In that setting, as part of the broader series of US-Argentinian relations, the Argentinian is seeking a state to state resolution that can be crammed down on the vulture fund. Then, the vulture fund could seek funds from the US but would likely lose due to the traditional role of sovereigns settling foreign claims of the Dames and Moore type of case.

    The US, of course, does not want to be caught in that espousing role and is making sure that it does not even give the appearance of having taken on the vulture funds claim or give it some preferential status in relation to all the other creditors while I am sure state to state discussions of this matter are ongoing.

    The fact that all the other creditors are accepting the deal tells me that in the banking business the vulture hedge fund is playing an outlier role. I suspect the investors in that fund are indifferent to anything but getting as close to 100 cents on the dollar. Just like the Czarist bond holders.

    So it is a classic workout situation on sovereign debt with one group playing an outlier and the state concerned not being willing to roll over for them.

    The obvious solution would be for the other creditors to come in and sweeten the pot to give the hedge fund the difference between the haircut amount and 100 cents on the dollar. But, they are no doubt worried that such an action would incentivize these kinds of culture funds.

    Another way would be an IMF structural adjustment or World Bank loan to Argentina that would be used for the difference and the deal.

    Assuming the vulture fund bought in at way under the face value of the debt, they should have known the market valuation shows this was a high risk junk asset. I am seeing some kind if overall cram down on them coming as there are too many powerful players here who are impatient with this boring brinksmanship.

    This is not international finance. This is schoolyard gamesmanship by all concerned.

  2. If this claim is so bogus, why wouldn’t the US simply expose this fact by accepting jurisdiction?

  3. But if the US does that it is giving a third party decision making power over the claim when there is no particular advantage to doing it. Why do that and lose or complicate the bilateral relations process where you are more in control of the dynamic?

  4. Isn’t Argentina going into debt or bankruptcy. Sounds like a desperate ploy to me.

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