Court ok’s Argentine fishing expedition

This is not the latest Malbec-themed eco-lodge in Mendoza. The Supreme Court, led by Justice Scalia, determined in a 7-1 decision that Argentina’s hold-out creditors can use US courts to obtain information about the government’s assets all around the world. The case is called Republic of Argentina v. NML Capital (“NML”). NML was requesting information on the global transactions made for Argentina by Bank of America and Banco de la Nacion, including with individuals, defense ministries, subfederal governments, and more.

This information would be used to eventually attempt to ask courts (in the US and elsewhere) to attach Argentina’s assets to make up for what the creditors feel they are owed. In short, the Supreme Court’s authorized a global fishing expedition to find Argentine assets. This is an interesting contrast with the sharp limitations put on tax authorities using similar techniques to find laundered and tax-evaded income (see page 52 of this report, for instance).

NML is the latest in a long saga of investor and bondholder complaints related to steps that Argentina took following its 2001-02 financial crisis.

The case shows how US courts are becoming increasingly embroiled in sensitive foreign affairs issues. It comes on the heels of a March Supreme Court decision (BG Group PLC v. Republic of Argentina) that found that US courts will defer to investment arbitrators’ awards against sovereign states, even when (as Argentina and the Obama administration suggested in their losing argument) that the investor complainant hadn’t complied with the terms of the underlying investment treaty. Chief Justice Roberts, in a dissent, wrote that the majority “trivializes the significance to a sovereign nation of subjecting itself to arbitration anywhere in the world, solely at the option of private parties…”

The present case is a bit different.

Continue reading “Court ok’s Argentine fishing expedition”

SCOTUS Not Crying for Argentina

The US Supreme Court tilted for @BGGroup and against #Argentina in the historic arguments on investor-state disputes (see background and liveblog earlier).

As mentioned in the earlier blog, the dispute revolved around whether US courts can overturn an investor-state arbitration award if an investor did not comply with a requirement to go to national courts before turning to international arbitration.

The four liberal justices (Sotomayor, Ginsburg, Breyer and Kagan) made roughly 24 interventions (7, 7, 7 and 3). Almost all of these were skeptical of Argentina’s arguments, and appeared concerned that the US would be going against international law norms if it were to not defer to learned arbitrators.

Turning to the conservative justices, Justice Scalia asked six clarifying questions, while Alito asked three clarifying questions and five Argentina-skeptical questions. Justice Thomas did not speak (he never does), while swing vote Anthony Kennedy made 5 interventions that were skeptical of Argentina’s position.

Only Chief Justice Roberts made a series of interventions that appeared to favor Argentina. In addition to 3 clarifying questions, he posed 4 questions that suggested that sovereigns are special, that investors need to also play by the rules of treaties, and that there is a non-trivial role for pre-arbitration dispute resolution requirements.

Based purely on the tenor of the oral arguments, I would predict some type of BG Group victory. Only 4 of around 53 interventions seemed receptive to Argentina, and those four were really about Chief Justice Roberts contemplating a broader sovereignty argument that was not reflective of arguments that Argentina’s counsel actually made. It seems that Argentina’s counsel made a strategic decision (probably dictated in part by the limited legs they had to stand on given the lack of appeal options in investor-state arbitration) to focus on a very narrow aspect of the investor-state system related to consent. If there had been a way to get more of Argentina’s sovereign and policy concerns on the substance on the record, the tenor might have been different, particularly vis a vis the liberal justices.

That said, one benefit of Argentina’s legal strategy is that it seems to put the justices in a box. Would they be willing to go on the record as saying that the Argentine courts are completely futile – so futile that BG Group didn’t need to even formally register their grievances there despite explicit treaty language to the contrary? This would go against comity doctrines where national courts typically defer to one another.

The justices will have to decide whether they place greater value on comity or deference to international arbitrators. After today’s hearings, it is anyone’s guess how it will go.

Age of consent

The US Supreme Court considered its first investment treaty-related claim today. The issue: how much should US courts help ensure that countries are not sued by investors against countries’ consent? I describe some of the background, and do a bit of a deferred liveblog below.

SCOTUSBlog has a pretty good preview of what is at issue in this case. In a nutshell, a UK investor (BG Group) successfully challenged Argentina in investor-state arbitration. In the arbitral award handed down in 2007, a trio of arbitrators deemed that Argentina had breached its obligations under the UK-Argentina bilateral investment treaty by changing the payment regime for privatized utility providers following a national crisis.*

The case was heard under rules established by the UN agency UNCITRAL under the New York Convention treaty, but the tribunal was “seated” in Washington, DC. In arbitration-ese, this means that either BG or Argentina could have asked a US court to set aside the arbitral award.

In this particular case, it was Argentina that asked in 2008 for US courts to vacate or modify the 2007 award, on the grounds that the tribunal lacked jurisdiction. Specifically, the UK-Argentina BIT requires investors to submit their disputes to Argentine courts for 18 months before resorting to transnational arbitration – something that BG Group did not do. As a consequence, Argentina argued that the tribunal should have found that the country had not given its consent to be sued. In 2010, the US District Court for the District of Columbia denied Argentina’s petition, and confirmed the award a year later. In 2012, the appeals court for the district overturned these decisions and vacated the arbitral award.

This is extremely rare, as US courts (and other national courts) have evolved a policy over the last few decades to defer almost completely to arbitral decisions. Still, there has been controversy about whether US courts should defer to arbitrators as much in investor-state cases as in cases involving only private parties (which has accounted for all of the arbitration-related precedents previously before the Court). This complex of issues are probably among the reasons why the US Supreme Court granted certiorari. And this decision garnered a lot of interest, with the Obama administration and Ecuador’s Correa administration agreeing with parts of Argentina’s arguments, and a variety of international business interests siding with BG Group.

So how did the justices weigh in on this historic case? What follows is a delayed liveblogging of the oral arguments, since space did not suffice for members of the public (including yours truly) to get into hear the whole case.

Continue reading “Age of consent”

I can haz navy?

Billionaire Paul Singer made headlines in recent days with his company’s move to seize an Argentine navy ship off the coast of Ghana.

Singer is is founder and CEO of Elliott Capital Management, which owns the hedge fund NML Capital Limited. NML bought some of Argentina’s bonds (before and after the country’s default in its 2001-02 financial crisis), and has been attempting to collect as much payback as possible for them.

Over the next decade, NML convinced US courts and UK courts to side with its efforts, even as other bondholders settled with the government as part of a debt restructuring. The Ghanaian courts are pointing to these judgements as the reason for their authorization of the forced docking of the ship. According to The Finder newspaper,

Lawyer for the Argentine government, Larry Otu have argued that as a military vessel, the Libertad enjoyed immunity.

He argued that Article 3 of the 1996 Convention concerning the immunity of state-owned ships stipulates that state-owned ships which were not used for commercial purposes would not be subjected to arrest, and that Argentina was enjoying a sovereignty in Ghana; and even if the government has waived any immunity from pre-judgement and execution attachment of any of its asserts and properties, waiving it in Ghana will be invalid with the law.

The court, however, ruled that Argentina waived immunity as part of the agreement it entered with NML Capital in the Fiscal Agreement Agency on October 19, 1994.

Justice Adjei said even though the 2004 United Nations Convention on the law of the sea recognises the immunity of warships, that recognition was based on the rules and principles of customary international law which permits the immunity to be waived, including by contract.

This case does not directly relate to investor-state dispute settlement. Indeed, Argentina’s bond issuance terms were pretty unilaterally sovereignty sacrificing. (There are a number of closely related cases making their way through the international law realm.)

What Singer’s latest move shows however is how hedge funds are becoming increasingly sophisticated in using both developed and developing country courts, both standard judicial processes and arbitration, in order to get what they want.

The question does become, if Ghanaian courts are so reliable for international capital, why the push to allow multinationals to evade Ghana’s courts when it comes to Ghana’s regulations? Stay tuned to see if a Ghana-US bilateral investment treaty actually moves forward.