Argentina’s Sovereign Debt Default Cases: Some Recent Developments in a Continuing Saga

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More than ten years have passed since Argentina defaulted on its external debt obligations in December 2001. However, the repercussions of the Argentine financial crisis continue to contribute to the development of international law. This brief note provides a short overview of the most recent decisions of different domestic courts arising out of this Argentinian saga: NML Ltd et al. v the Republic Argentina before the US Court of Appeals decided on 26th October 2012 (see reporting here, here, here and here), and the decision of the Ghanaian Commercial Court of 2nd October 2012 (see Opinio Juris, BBC, Al Jazeera,  and elsewhere: here, and here), while reference will be made to the NML v Argentina case, before the UK Supreme Court which was decided on 6th July 2011 (see reporting here and here).

These three cases pronounced on inter-related, but distinct, legal issues (enforcement of foreign awards, state immunity, and non-discriminatory treatment of bondholders) arising out of the Argentine decision to default on its external debt. In combination, they have far-reaching legal implications. It is noteworthy that different courts from around the globe repeatedly ruled in favour of bondholders and against Argentina. Although Argentina in and out of court has invoked political arguments, such as the implications of the court’s approach to the Eurozone crisis resolution efforts (in NML v Argentina before the US Court of Appeals) and the nature of the claimants as ‘vulture funds’ (see here reacting to the Ghanaian Commercial Court ruling; see also Lord Phillips and Lord Collins in NML v Argentina  [2011] UKSC 31, paragraphs 1 and 104-107 respectively), domestic courts consistently prioritise a more legal or stricto sensu approach and promote the Rule of Law in international economic and financial relations.

Background and US Proceedings

After the default in 2001, Argentina made exchange offers to holders of bonds, which were governed by the Fiscal Agency Agreement (FAA). Argentina met all payments due on its restructured debt. A number of bondholders refused Argentina’s offers to exchange their bonds (known as ‘holdouts’). NML (a New York-based fund specialising in investing in sovereign bonds) and other FAA bondholders declined Argentina’s offers to participate in the debt swap.  NML and other ‘holdouts’ launched proceedings against Argentina in the New York District Court on the basis that the FAA is ‘governed by New York law and further provides for jurisdiction in ‘any state or federal court in The City of New York’. The core claim was that Argentina violated the equal treatment, or pari passu, clause of the FAA, which, in paragraph 1(c), provided that:

[t]he Securities will constitute […] direct, unconditional, unsecured and unsubordinated obligations of the Republic and shall at all times rank pari passu without any preference among themselves. The payment obligations of the Republic under the Securities shall at all times rank at least equally with all its other present and future unsecured and unsubordinated External Indebtedness […].

These proceedings before the District Court of New York resulted in the grant of injunctive relief in February 2011, on the basis that Argentina had violated the pari passu provision of the FAA. The ‘district court granted plaintiffs summary judgment and enjoined Argentina from making payments on debt issued pursuant to its 2005 and 2010 restructurings without making comparable payments on the defaulted debt’.

Argentina appealed the decision and raised a series of counter claims before the Court of Appeals, ranging from purely procedural and domestic (New York) law arguments to arguments based on international law or policy. Argentina claimed that (1) there is no violation of the equal treatment clause, (2) the Foreign Sovereign Immunities Act (FSIA) would be violated by the injunctions granted by the District Court as Argentina was ordered ‘to pay plaintiffs with immune property located outside the United States’, (3) the assets that the Injunction restrained were not the property of Argentina but, rather, they are held in trust for exchange bondholders and thus, under NewYork law, ‘may not be reached by creditors’, (4) the harm suffered was only monetary and, therefore, could not constitute ‘irreparable harm’, (5) the complex and difficult process of debt restructuring undertaken by Argentina is in sharp contrast with the fact that the claimants bondholders ‘bought their debt at or near default with full knowledge of the limitations on their ability to collect’, and the injunction could jeopardise Argentina’s economic stability ‘thrust[ing] the Republic into another economic crisis’, and, finally, that (6) the plaintiffs’ claims are barred by laches.

On 26 October 2012 the US Court of Appeals (2nd Circuit) affirmed in part and remanded in part. From an international legal perspective, the arguments concerning the interpretation of the equal treatment clause, sovereign immunity and the economic and political implications of the injunction granted are perhaps the most interesting.

Argentina unsuccessfully tried to distinguish between de jure and de facto treatment of bondholders with regard to the interpretation of the pari passu clause, which constitutes the core issue of the judgment. Argentina claimed that the pari passu clause refers only to ‘legal subordination’ and that the scope of application of the equal treatment clause was limited to legal treatment, and covered only priority in a court of law over other claims, such as those based on exchange bonds.

The Court of Appeals rejected Argentina’s submissions and affirmed the District Court’s decision granting the injunction. As the Court found, ‘Argentina effectively has ranked its payment obligations to the plaintiffs below those of the exchange bondholders’, and ‘after declaring a moratorium on its outstanding debt in 2001, Argentina made no payments for six years on plaintiffs’ bonds while simultaneously timely servicing the Exchange Bonds.’

However, it is noteworthy that the court was very cautious in interpreting pari passu and emphasised that it did not pronounce on the question of whether preferential payments to the International Monetary Fund (IMF) and other multilateral organisations would violate the equal treatment clause. Also, in this case, the plaintiffs pleaded exactly the opposite case.

With regard to Argentina’s claims concerning immunity, the Court of Appeals noted that as ‘[i]njunctions do not transfer any dominion or control over sovereign property to the court’, there is no violation of paragraph 1609 FSIA, and, in any case, Argentina has voluntarily waived its immunity.

Finally, the economic and political arguments raised by Argentina were easily dismissed. First, the Court accurately observed that Argentina ‘had sufficient funds, including over $40 billion in foreign currency reserves, to pay plaintiffs the judgments they are due’, without endangering its financial stability and risking plunging into another economic crisis. Second, the Court held that the possibility of another nation falling into Argentina’s position was rather slim, and, with regard to the Eurozone Debt Crisis, specifically stated that ‘none of the bonds issued by Greece, Portugal, or Spain – nations identified by Argentina as the next in line for restructuring – are governed by New York law’.

The Court of Appeals, in rejecting Argentina’s claim, observed that the interpretation of the pari passu principle is ‘general, uniform and unvarying’, making reference to the inconsistent US case law on the matter. Pari passu is a contractual obligation; however, the question of non-discrimination between different creditors is not settled in public international law either. For example, in Certain Norwegian Loans (France v Norway), the ICJ did not rule on the merits, holding that the question was a matter of national rather than international law. Judge Read, in his dissenting opinion (at p. 89), disagreed and held that the ICJ had jurisdiction. In an obiter dictum Judge Read also linked the suspension of payments in gold with ‘equal treatment to all creditors involved’ (at p. 79).

Ghanaian Decision on Immunity from Execution

Earlier, in October this year, the NML successfully obtained a decision by the Commercial Court of Accra, Ghana, to attach ARA Libertad, an Argentinian Naval training warship. The ship was on a goodwill trip in West Africa. The NML refused to release the ship until Argentina had paid at least $20 million of the total $370 million owned to the fund. Of particular interest, from an international law perspective, is that the Ghanaian Court rejected Argentina’s claim to immunity on the basis that Argentina has waived its immunity by signing the FAA. This is also in line with the NML v Argentina case recent decision of the US Court of Appeals.

As far as the political repercussions of the case are concerned, Argentina is engaged in a diplomatic marathon to persuade Ghana to release ARA Libertad. The incident also resulted to the removal of the Navy chief, Carlos Alberto Paz, and other navy officials (as mentioned in The Guardian’s report). The presence of the ship in the port of Accra has caused problems for the smooth functioning of the port, and, therefore, Ghana’s High Court ordered on Monday (5 November 2012) that the ship be moved in order to create space for the operation of cargo liners, following court action on behalf of Ghana’s Port and Harbours Authority. However, Argentina insists on its hard line, refusing to move the vessel and considering appealing the decisions (see here and here).

UK Supreme Court Decision on Immunity from Enforcement

NML did not limit itself to Argentina’s training warship; it also tried to enforce US awards obtained in the State of New York in the UK. This effort culminated in the UK Supreme Court ruling of July 2011. The Supreme Court decision was a clear victory for NML. The Court ruled, by 3-2, that Argentina was entitled to immunity on the basis of section 1 of the Sovereign Immunity Act of 1978 (SIA). Section 3(1)(a) provides an exception to immunity ‘as respects proceedings relating to a commercial transaction entered into by the State’, and Lord Mance, Lord Collins and Lord Walker ruled that the proceedings before the New York Courts were not such proceedings under section 3(1)(a) SIA; contrariwise, Lord Phillips, and Lord Clarke disagreed. However, this had no practical effect on the outcome as the Supreme Court unanimously held, under section 31 of the Civil Judgements and Jurisdiction Act of 1982 (CJJA), that Argentina was not entitled to immunity, and that, in any event, Argentina had waived its right to immunity. In paragraph 49 of the case, Lord Phillips held, in relation to section 31 of the CJJA, that:

State immunity cannot be raised as a bar to the recognition and enforcement of a foreign judgment if, under the principles of international law recognised in this jurisdiction, the state against whom the judgment was given was not entitled to immunity in respect of the claim.

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Matthias Goldmann says

November 11, 2012

Thank you, Michail, for the concise and educative overview on recent case law. As regards the issue of state immunities, I would, however, like to draw your attention to a difference I see between the recent decision by the US Court of Appeals for the 2nd Circuit and the Ghana case: The US case concerned the question of Argentina's general jurisdictional immunitiy against claims raised by NML in US courts; the Ghana case concerns immunities against post-judgement measures of constraint, i.e. the attachment of the Ship. Regarding the latter, US courts have consistently held that under US law, Argentina's waiver of immunity only covers property used for commercial activity. Naval ships like the ARA Liberdad certainly do not have a commercial purpose. There is thus a significant difference between US law and Ghanaian law with respect to state immunities against measures of constraint.

Dapo Akande says

November 12, 2012

Are you referring to cases in the US involving Argentina or involving other countries. I would be grateful for references that you might have. Also, it might be helpful for readers if either you or Michail can supply the text of the waiver that Argentina agreed to.


Michail Risvas says

November 11, 2012

Thank you very much for your elucidating contribution, Matthias. Indeed, the legal issues are distinct, but on my brief post I focused more on the similarities rather than differences of the three cases.

Michail Risvas says

November 12, 2012

Dapo, thank you very much for your comment. The bonds in question contained the following provision, quoted in NML v Argentina [2011] UKSC 31, paras. 127-129; NML Capital Ltd. v. Republic of Argentina, 08- CV-6978, U.S. District Court, Southern District of New York (Manhattan), para. 3; EM Ltd. v. The Republic of Argentina, 720 F.Supp.2d 273, 278 (S.D.N.Y. 2010):

The Republic has in the Fiscal Agency Agreement irrevocably submitted to the jurisdiction of any New York state or federal court sitting in the Borough of Manhattan, The City of New York and the courts of the Republic of Argentina (the “Specified Courts”) over any suit, action, or proceeding against it or its properties, assets or revenues with respect to the Securities of this Series or the Fiscal Agency Agreement (a “Related Proceeding”) except with respect to any actions brought under the United States federal securities laws. The Republic has in the Fiscal Agency Agreement waived any objection to Related Proceedings in such courts whether on the grounds of venue, residence or domicile or on the ground that the Related Proceedings have been brought in an inconvenient forum. The Republic agrees that a final nonappealable judgment in any such Related Proceeding (the “Related Judgment”) shall be conclusive and binding upon it and may be enforced in any Specified Court or in any other courts to the jurisdiction of which the Republic is or may be subject (the “Other Courts”), by a suit upon such judgment.

Irini Papanicolopulu says

November 14, 2012

Thank you Michail for the interesting post. A brief update: Argentina, which has already initiated proceedings against Ghana according to Part XV UNCLOS (on settlememnt of disputes) concerning the Ara Libertas, today lodged an application for provisional measures according to Art. 290 UNCLOS. In it, Argentina requests the International Tribunal for the Law of the Sea to decide that 'Ghana unconditionally enable the Argentine warship Frigate ARA Libertad to leave the Tema port and the jurisdictional waters of Ghana and to be resupplied to that end' (press release at

Nuwan Peiris, Sri lanka says

January 8, 2013

I agree with the comments posted here.

1. Just because you get a judgment against Argentina in USA or UK, you cannot enforce it against the Argentinean Embassy property in USA or UK – because the said embassy property is non commercial property – the same is the case for a argentine warship that comes to USA or UK port. And same is the case with regard to libertad in Ghana.

2. Neither UK nor USA judgments against Argentina did not say to implement it on Argentinean embassy property – it is mealy a judgment. (Enforcement under the civil procedure is another