Argentina v Ghana at ITLOS

The Libertad is a 100-meter-long tall sailing ship, used as a training vessel by the Argentine navy. It was arrested in Tema, Ghana on 2 September 2012 after a subsidiary of US hedge fund Elliott Capital Management (NML Capital) gained an injunction from the Ghanaian Commercial Court to prevent the ship and its crew members from leaving the port. The arrest of the ship arises in the context of the sovereign debt moratorium announced by Argentina in 2001.

NML Capital is the holder of Fiscal Agency Agreement (‘FAA’) bonds issued by Argentina, purchased at a discount on face value. In 2001, Argentina announced a temporary moratorium on principal and interest payments on public external debt, including the FAA bonds. In 2005 and 2010, Argentina initiated a restructuring of its debt, offering FAA bondholders the opportunity to exchange their defaulted bonds for new unsecured and unsubordinated external debt. The majority of bondholders participated in the exchange, accepting roughly 30 cents on the dollar for their FAA bonds. However, NML Capital held out on both the 2005 and 2010 debt restructurings. Before the Ghanaian Court, NML submitted that it is owed $370 million by Argentina (based on the outstanding principle plus interest).

NML Capital has sued Argentina for face value of the bonds plus interest and has sought to enforce its debt in a variety of judicial fora around the world, including the UK Supreme Court, the Tribunal de Grande Instance de Paris and the US District Court for the Southern District of New York. On 11 May 2006, NML Capital was granted a summary judgment by the US District Court for the Southern District of New York for the principal amount of the bonds valued at $284,184,632.30, plus interest thereon. The UK Supreme Court decision in NML Capital v Argentina [2011] UKSC 31 recognised and declared enforceable the US judgment. Most recently, on 26 October 2012, in the case of NML Capital Ltd v Republic of Argentina, the US Court of Appeal for the 2nd Circuit ruled that Argentina had improperly discriminated against NML Capital by giving priority to the payment of bondholders who had entered the 2005 and 2010 debt swaps.

Argentina claims that the order of the Ghanaian court is in violation of international law and, in particular, of the immunities enjoyed by warships. Article 32 of UNCLOS provides “With such exceptions as are contained in subsection A and in articles 30 and 31, nothing in this Convention affects the immunities of warships and other government ships operated for non-commercial purposes.” Under the terms and conditions governing the bonds held by NML Capital (as quoted in the UK Supreme Court judgment), Argentina waived sovereign immunity in relation to execution of judgments by bondholders as follows:

“To the extent that the republic … shall be entitled, in any jurisdiction … in which any … other court is located in which any suit, action or proceeding may at any time be brought solely for the purpose of enforcing or executing any related judgment, to any immunity from suit, from the jurisdiction of any such court … from execution of a judgment or from any other legal or judicial process or remedy, and to the extent that in any such jurisdiction there shall be attributed such an immunity, 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 … solely for the purpose of enabling … a holder of securities of this series to enforce or execute a related judgment.”

The Ghanaian Court held that this wording clearly amounted to a waiver of sovereign immunity by Argentina. Since the Argentine application to ITLOS has yet to be published, the Argentine position on this waiver remains unclear. Presumably, Argentina will argue that sovereign immunity of warships is unwaivable and that the waiver in the bond conditions does not apply to warships. It will be interesting to see how Argentina supports this argument.

The ITLOS Press Release regarding the application is available here.

 

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