Sitting, Waiting, Wishing: Argentina Initiates Sovereign Default Claim Before the ICJ

On 7th August 2014, The Argentine Republic (‘Argentina’) made good on threats emanating from its latest sovereign default of the previous week by filing an application instituting proceedings against the United States of America (‘USA’) before the International Court of Justice (‘ICJ’ or ‘the Court’). The official Press Release summarises Argentina’s contentions as being:

 ‘… that the United States of America has committed violations of Argentine sovereignty and immunities and other related violations as a result of judicial decisions adopted by US tribunals concerning the restructuring of the Argentine public debt. ‘

Early academic reaction has, very summarily, dismissed the claim as ‘frivolous’, primarily based on jurisdictional barriers. However, this post aims to provide a more detailed analysis of the question of jurisdiction, while also considering alternative options should this litigation be indeed fated to fail.

Background

The proceedings initiated by Argentina commence the latest chapter in a tale of litigation related to the Argentinian sovereign debt crisis. Following Argentina’s December 2001 initial $100bn default on issued sovereign bonds, Argentina attempted to restructure its debt in both 2005 and 2010. Despite high participation rates in the restructurings (76% in 2005, up to 93% in 2010), a minority of bondholders refused to participate, as was their right in the absence of the bonds containing Collective Action Clauses to compel participation. Instead, such bondholders initiated ‘holdout litigation’ against Argentina. This litigation, typified in the saga of NML Capital Ltd v Republic of Argentina, has played out in courts around the world, as the ‘vulture fund’ has fervently attempted to enforce judgments in their favour in States such as the UK, USA and Ghana (leading to the infamous dubiously-reasoned ITLOS Provisional Measures Order in ARA Libertad).

However, the events of the previous weeks have set the scene for a piece of role reversal, placing Argentina in the position of claimant. After Federal Judge Thomas Griesa in the US District Court for the Southern District of New York ruled that Argentina must first pay $1.5bn to holdout investors prior to servicing bonds of creditors that had participated in 2005 and 2010 restructurings, Argentina were once again staring down the barrel of a sovereign default. When Argentina’s creditors were not paid on 30th July 2014, despite the fact that Argentina was both willing and able to pay the $539m due on the restructured bonds, Standard & Poor’s immediately listed the country as being in ‘selective default’. Argentina’s response was to indict the US justice system, with cabinet chief Jorge Capitanich claiming ‘mala praxis’ and the complicity of Judge Griesa in forwarding the interests of vulture funds. Despite initially considering options including tabling a debate in the United Nations or bringing a claim before the ICJ, Argentina has opted for the latter, initiating the claim of 7 August 2014.

 Jurisdiction – Hoping For A Miracle?

Due to the USA’s high-profile withdrawal of their Optional Clause Declaration in the midst of the Nicaragua dispute, ICJ compulsory jurisdiction under Article 36(2) ICJ Statute over the dispute is out of the question. As such, Argentina’s application instituting proceedings adopted the only stance it could: request the USA to consent to jurisdiction. The Press Release reflects that Argentina ‘seeks to found the jurisdiction of the Court on the basis of Article 38, paragraph 5, of the Rules of Court’. Such a statement is somewhat misleading; Article 38(5) Rules of Court does not provide a basis of jurisdiction per se, but amounts to a unilateral offer by Argentina to the USA to accept the ICJ’s jurisdiction for this specific case. Furthermore, unless and until the USA consents to the jurisdiction of the ICJ over this claim, the application shall not be entered in the General List, nor will any further progress be made.

The early skepticism regarding the claim’s jurisdictional basis is understandable. Why would the USA consent to granting the ICJ jurisdiction over a claim brought against them? Yet, upon further reflection, such a situation is not unheard of, and we do not even have to look beyond recent history. In Djibouti v France, after Djibouti instituted proceedings basing jurisdiction upon Article 38(5) Rules of Court, France was happy to oblige and consent to jurisdiction. Nevertheless, there are justifiable doubts as to whether the USA, noting their historically rocky relationship with the Court, would oblige in the same manner.

When it really comes down to it, whether the USA will accept the ICJ’s jurisdiction is a matter beyond the realm of positive law; arguably the matter is ultimately one of international relations, or one that sees us venture into the realms of ‘Game Theory’ or other rational-choice theories, broadly premised on the idea that State decision-makers are rational actors aiming to maximise benefit resulting from their behaviour. In a rudimentary application of such theories, the traditional costs in consenting to jurisdiction are of course still there: financial costs of litigation, chance of losing the case, etc. On the other hand, accepting jurisdiction grants the USA the chance to prove their actions were in conformity with international law, and strengthen their position overall with regards to the involvement of US courts in adjudicating on sovereign defaults. It remains in the hands of the USA as to whether the former factors outweigh the latter, or vice versa.

Advisory Opinion – A Viable Alternative?

In the event that the USA refuses to provide consent to the ICJ’s contentious jurisdiction, Argentina may have a further option: tabling a debate before the UN General Assembly with a view to gaining the necessary support for an advisory opinion request to be sent to the ICJ. Both the UN General Assembly and Security Council are both empowered to make such requests under Article 96 UN Charter, however, since it is likely the USA would exercise their veto in the Security Council, and block any resolution requesting an advisory opinion, it seems the General Assembly would be Argentina’s only option.

If support could be mustered, a key point to note is that advisory opinions are not legally binding on either the UN organ requesting them or any interested State. As such, the utility of an advisory opinion may be somewhat limited on the facts at hand. Underlying the possibility of an advisory opinion is the question of what Argentina are attempting to achieve through filing this application with the Court. If Argentina are hoping for more than a declaratory judgment, some form of compensation for the actions of the US courts which caused them to fall into ‘technical default’, this could not be achieved via an advisory opinion. However, if we adopt a sceptical perspective, namely that Argentina filed this claim knowing the strong possibility the USA would never consent, therefore the intention was primarily to engage in a bout of grandstanding, an advisory opinion would be the perfect option.

Conclusion

In conclusion, the above initial assessment regarding the jurisdictional basis of this claim reveals a potentially insurmountable hurdle for Argentina. In reality, the future of the claim lies at the mercy of USA decision-makers, with the practical effect of basing jurisdiction on Article 38(5) Rules of Court being to leave the application in a state of purgatory.

Beyond the question of jurisdiction, a number of legal issues remain for further reflection. For example, could provisional measures be ordered to overrule the judgment of Judge Griesa and allow the frozen funds to be paid to investors, or would this be prejudging the merits? If ordered, would the USA comply, or would we witness LaGrand Part II? Furthermore, how would the Argentinian claims be formulated on the merits? Would the waiver of sovereign immunity in Argentinian bonds extend so far as to cover the most recent judicial activity? Finally, even if an internationally wrongful act could be established, what would be Argentina’s requested reparation? Until a decision by the USA on whether consent to jurisdiction is granted, at which point presumably the full Argentinian statement of claim would be released, such questions remain purely hypothetical. Nevertheless, they provide food for thought, and it is hoped that further academic consideration will be given in the forthcoming weeks.

As for now, having defaulted on the latest round of bond payments, the pressure is truly on Argentina to finally reach a solution with the long-term holdout bondholders. Litigation before the ICJ may provide assistance in reaching a long-term solution, but in the short-term, Argentina surely cannot be content to remain sitting, waiting, wishing on the USA to accept their Hail Mary attempt to seize the ICJ.

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