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Argentina May Ignore Bond Judge Sanctions, TIG Case Shows

Argentina May Ignore Bond Judge Sanctions, TIG Case Shows

Posted by Juan Gavasa on October 10, 2014

The U.S. judge deciding how to force Argentina to obey court orders in a dispute over $1.5 billion in bond payments may want to take a look at TIG Insurance Co.’s debt-collection travails.

TIG sued an Argentine government-owned company in Chicago federal court in 2000 claiming about $4.2 million and won.

The insurance company pursued that debt for more than a decade in court, arbitration, Congress and the New Hampshire Legislature, through the administrations of Presidents George W. Bush and Barack Obama and with Argentina’s embassy in Washington. It hasn’t seen a dime of the money, now $29 million including interest, attorney fees and a $4,000-a-day sanction for violating a court order.

TIG’s attempts to collect from what one court panel called “a uniquely recalcitrant debtor” illustrate the pitfalls U.S. District Judge Thomas Griesa faces in the bonds case in trying to force a sovereign nation to comply with his orders when it’s determined to resist.

“There’s almost no effective means for the judge to enforce whatever fine he may impose,” said Mark Weidemaier, a professor at the University of North Carolina School of Law. “The practical effect of a fine would be very limited.”

Sovereign Immunity

Argentina has powerful legal protection in the doctrine of sovereign immunity, which limits the ability of claimants to sue foreign countries in the U.S. Sovereign immunity also helps Argentina shield assets from creditors by putting many of them out of reach.

Griesa, the Manhattan federal judge overseeing lawsuits tied to Argentina’s 2001 foreign debt default, barred the nation from paying its performing debt without also paying more than $1.5 billion owed to a group of investors led by NML Capital, a unit of Paul Singer’s Elliott Management Corp., and Aurelius Capital Management LP. Griesa found the nation in contempt of court Sept. 29 for trying to circumvent the ruling through a plan to pay bondholders locally, outside the reach of his court.

The judge is considering the hedge funds’ request to fine Argentina $50,000 a day until it complies.

Argentina Economy Minister Axel Kicillof today criticized Griesa’s contempt finding, claiming the order and any fine the judge may impose would violate Argentina’s rights as a sovereign nation.

Same Rights

“They think that we are a prisoner at large, practically,” Kicillof said at Argentina’s embassy in Washington. “We are a sovereign country and we have the same rights as the U.S.”

The hedge funds are among a group of investors holding bonds that were repudiated by Argentina in its record $95 billion default in 2001. Argentina offered to exchange the defaulted bonds for new ones in restructurings in 2005 and 2010 at a discount of about 70 percent. Holders of about 92 percent of the defaulted debt accepted the exchange bonds. Many of the holdouts sued for full payment in New York, the forum specified in the original bond contracts.

Assets Shielded

The holdouts had little trouble winning court judgments for amounts they were owed. Collecting on them is a different matter.

Creditors have scoured the world for Argentine assets not shielded by sovereign immunity, going so far as trying to seize the presidential plane and a navy ship.

Argentine officials, led by President Cristina Fernandez de Kirchner, have vowed never to pay, calling the hedge funds “vultures.” That led to a decision last year in favor of the defaulted bondholders by the U.S. Court of Appeals in New York, which labeled Argentina “a uniquely recalcitrant debtor.”

Argentina claims Griesa was wrong to try to enforce the holdouts’ claims by blocking payments to the restructured bondholders. That ruling triggered a new default when Argentina failed to make an interest payment on the restructured bonds by July 30.

The ruling was “profoundly unfair, profoundly surprising,” Kicillof said. It will make future sovereign debt restructuring impossible, he said.

Argentina has said it can’t afford the billions of dollars it would have to pay other holdouts in addition to the $1.5 billion to the NML group.

The hedge funds led by NML refused to negotiate, Kicillof said.

Vulture Funds

“The problem is not Argentina, it is not us,” Kicillof said. “It is the vulture funds.”

More than 10 percent of the claims currently pending before the International Centre for Settlement of Investment Disputes are against Argentina. When Argentina loses, it often appeals.

Richard Samp, chief counsel of the Washington Legal Foundation, characterized Argentina’s litigation behavior as “leaving no stone unturned, even if there are no stones to turn.”

Samp’s group supported the hedge funds’ position in the bond litigation against Argentina.

In one U.S. case, BG Group Plc (BG/) won a $185 million arbitration award against Argentina in 2007. The country appealed, succeeded in having the U.K. natural gas company’s award thrown out and then lost in the U.S. Supreme Court. Argentina is now seeking to have the case heard again in the Supreme Court.

TIG’s Odyssey

TIG’s attempts to collect from Argentina began in 2000 when a predecessor company filed two lawsuits against Caja Nacional de Ahorro y Seguro, a government-owned insurer, to collect $4.2 million due under a series of reinsurance contracts. Manchester, New Hampshire-based TIG won judgments in both cases.

In one case, the judge fined Argentina $2,000 per day in 2003 for failing to follow his orders in the litigation. The judge raised the daily fine to $4,000 a day in 2005.

As of June 30, Argentina owed $28,578,743 in the two TIG cases, with $4,000 in sanctions accruing daily.

TIG, a unit of Toronto-based Fairfax Financial Holdings Ltd. (FFH), said its offers to settle with Argentina over the years went unanswered.

TIG has enlisted the help of the U.S. State Department and New Hampshire’s Congressional delegation. The firm lobbied the Obama administration against foreign aid and loans to Argentina. TIG’s hometown state senator, Lou D’Allesandro, sponsored a bill that would give the state’s Liquor Commission authority to limit the sale of Argentine wine in New Hampshire.

‘Extremely Frustrating’

“It has been extremely frustrating trying to engage Argentina in settlement discussions,” the company said in an e-mailed statement. “Argentina does not seem to care about resolving matters amicably.”

The nation’s unpaid claimants include Jorge Moreira, a New York lawyer who argued on behalf of Argentina that sovereign immunity protected it from TIG’s claims.

In a suit against the Argentine government, Moreira claimed Argentina stopped paying him in 2002. Both sides agreed to binding arbitration, in which Moreira won a $286,000 award in 2005.

While the arbitration was proceeding, the government filed a criminal complaint against him in Argentina, alleging he had engaged in fraudulent billing practices, Moreira said. He won and the government appealed, twice, unsuccessfully.

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