As the pari passu saga in New York rattles towards its end… (or is it?)
The contest of wills and/or highly-paid lawyers between Elliott and Argentina goes on elsewhere, of course.
NML Capital’s use of the pari passu clause against the Argentine government is novel — and it’s working — but so far it’s been applied only to defaulted debt on which they haven’t secured an actual judgment that Argentina must pay out. It’s more about injunctions and remedies, pioneering how holdouts can seize sovereign assets — or those assets as they pass through the hands of third parties — in pursuit of their claims.
On that note…
It’s worth noting how the Cour de cassation in France treated some of NML’s judgment debt last week.
Having won a judgment from Judge Griesa in New York in 2006, NML has been busy trying to attach taxes and royalties owed to Argentina by French companies. It also tried to attach Argentine diplomatic funds in France before, but it got brushed off on a finding of diplomatic immunity. You might argue tax debts are more arguable as immune sovereign assets — but the French court didn’t. It effectively took NML’s claim to the cleaners.
Here are the judgement summaries:
The Cour de cassation uses the same reasoning for them all (warning — windy legalese translated from the French):
Whereas having noted, on the one hand, that the attachments in question were on tax and social security claims of the Argentine state, that is to say on resources necessarily connected to the exercise by this state of prerogatives related to its sovereignty and, on the other hand, that the bond contracts did not provide any express waiver by the Republic of Argentina of its immunity from attachment of resources of a fiscal or social nature, the court of appeal accurately inferred from this that the attachments in question were nullified… the plea is unfounded on any of its grounds.
As Conflict of Laws notes, it’s a slightly mysterious reasoning, because the court is talking about the waiver in Argentina’s 1994 “Fiscal Agency Agreement” debt (NML and other plaintiffs are toting FAA bonds in the pari passu litigation). The waiver there refers to “revenues, assets or properties” of Argentina. It doesn’t spell out the status of specific assets like tax and social security, but the court here is saying that because Argentina didn’t explicitly waiver them, they’re safe from enforcement.
It’s an… unusual way to interpret the scope of sovereign debtor immunity, compared to where the US or English legal systems seem to be going. It’s a victory for Argentina.
But maybe not just Argentina. The court also says that it drew this rule from a United Nations convention on states’ immunity from jurisdiction. (The convention isn’t yet in force but according to the court, it reflects customary international law which already exists.) The finding that international law is OK with this reading of bond contract waivers therefore also means that it’s OK with the European Convention on Human Rights, the court adds. (So that means that the ECHR should be a meter of how much immunity for a sovereign an ECHR state’s courts should accept, surely?) The ECHR provision that holdouts could raise would be Article 6, covering the right of access to courts.
Why might that matter? Well, as Cyprus shows, the Europeans now seem happy to put the full repayment of government debt right at the top of the mast, even as the rest of the good ship eurozone sinks beneath the whitecaps (and uninsured bank depositors get locked in the hold).
But that may not always be true, and future eurozone governments may need to restructure their debt and go through a default. When they do, they will probably need to deal with holdouts who are able to secure judgments in courts outside the eurozone — for example on the kind of foreign-law debt that the authorities apparently wouldn’t dare clip in Cyprus. Judgment in hand, those holdouts could then file suit in the courts of eurozone governments in order to attach assets.
There’s already been one top-down proposal on this potential problem — to amend the ESM treaty to include a “shark cage” protecting euro sovereigns’ assets from execution in fellow currency union members’ courts. (Holdouts could still collect judgments… assuming they found that an economic proposition.) But, if those courts follow the lead of the Cour de cassation, simply radically reinterpreting the rules on the waiver of immunity anyway, and they cite international and European human rights law as in favour of this, then maybe that’s the beginning of a way out. Or maybe not. Maybe the French court has been uniquely cryptic here. And people do like to claim Argentina is a uniquely afflicted sovereign…
Related link:
Holdouts and the eurozone – FT Alphaville series
NML v Argentina in the UK Supreme Court – UKSC Blog (2011)
The escape of the ARA Libertad – FT Alphaville
Holdouts and the eurozone – FT Alphaville series
NML v Argentina in the UK Supreme Court – UKSC Blog (2011)
The escape of the ARA Libertad – FT Alphaville
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