From Pari Passu to Par in Parem ? A Brief history of Argentina’s Sovereign-Debt Litigation and its Outcome

International Law Matters is pleased to welcome this guest post from Alexandre Belle.  Alexandre is a LLM student at the University of Glasgow in Scotland.  He completed his master’s degree in law at the Université catholique de Louvain in Belgium. Follow him on twitter @Alexlubelle

Sovereign-debt litigation is interesting for two reasons. First of all, the topicality of the question is undeniable as demonstrated by recent US decisions and the emotion they provoked in the legal doctrine. But more than this, sovereign-debt litigation also reminds us of a fascinating and frightening reality: that a nation state, the cornerstone of modern society, can default. The sudden growth of litigation on sovereign debt also highlights the fundamentally hybrid nature of sovereign debt as an instrument created through contractual means in order to achieve a public purpose.

The purpose of this contribution is to focus on Argentina’s reconstruction and its troubles with US courts, as it constitutes a clear-cut example of the judicial, economic, and political issues on sovereign-debt litigation. At the origin of today’s litigation before US courts lies Argentina’s economic crisis between 1998 and 2001 that was caused by a forced deflation of Argentina’s economy and a lack of liquidity of the South American republic government.  This economic crisis led Argentina into the most important debt-restructuring process in history[1] ($85 billion dollars (US)). In 2005, cumbersome and fruitless negotiations with its creditors led Argentina to make a unilateral offer, proposing to pay $62.3 billion (US) of the total sum owed in principal[2]. Ninety-three percent of the bondholders accepted this offer; and since then, Argentina has fulfilled its obligation towards them.

However, this whole process was threatened by two of Argentina’s holdout creditors: NML Capital, a Cayman Island based hedge fund; and Elliott Management Corporation, a New York City based hedge fund founded by Paul Singer (who also serves as the CEO). Their investment techniques principally consist of purchasing devalued sovereign bonds on the secondary market to obtain from the issuer payment on their facial value. They do so by accumulating important amounts of debt, enabling them to exercise pressure on the restructuring State and to ensure a return on an otherwise economically risky enterprise[3]. The activity of such hedge funds is currently rising with a total of 109 litigation procedures engaged between 1980 and 2010[4] world-wide.

Both NML Capital and Elliott Management Corporation brought the matter before US courts who, in line with the US Supreme Court case law, lifted Argentina’s immunity status[5]. The main issue arising from these litigations was the new interpretation of the pari passu clause by US tribunals. While the pari passu clause was generally defined as “the borrower’s promise to ensure that the obligation will always rank equally in right of payment with all of the borrower’s other insubordinate debts, US courts found in these particular contractual provisions (paragraph 1(c) of the Fiscal Agency Agreement) an obligation for Argentina to cease payments towards its other creditors, until the two hedge funds were paid[7].

Argentina refused to comply with this decision which negatively affected ninety-three percent of its creditors but profited only two, in part, because it could have lead to other enforcement attempts. It did so by continuing to make payments to the ninety-three percent of its creditors and by removing its trustee, BNY Mellon, who had been ordered to retain the funds deposited to pay the bondholders[8].

This decision also had repercussions at an international, political, and judicial level. Internationally and politically speaking, it created tensions between the Argentinean republic and the US. Argentina claims that the actions of the US courts were unacceptable and was a display of imperialism. Judicially, it led to a claim before the International Court of Justice (ICJ) under Article 38, paragraph 5 of the Rules of the Court.

Argentina’s claim relies mainly on the violation of its sovereignty and immunity and could therefore allow the ICJ to illuminate its previous jurisprudence regarding states immunity by clarifying the distinction between acta de iure imperii (acts by right of dominion[9]) and acta de iure gestionnis (acts by right of management[10]). Because the US has to consent to the ICJ’s jurisdiction in this case, the claim is unlikely to result in a decision.

In the meantime, the political tensions were once again exacerbated when Judge Thomas Griesa, District Court Judge for the Southern District of New York, issued a contempt order because of Argentina’s failure to comply with his previous orders. On October 23, 2014, the US Court of Appeals dismissed that order citing lack of jurisdiction [11].

Moreover, Argentina has not been the only sovereign that has faced litigation by its creditor before US courts after a reconstruction process. Recently, the District Court of the Southern District of New York granted the creditors of the Democratic Republic of the Congo $69.5 million. It should be noted, however, that the DRC based its defense purely on the creditors’ inability to claim repayment and the invalidity of the legal documents produced by the previous Congolese dictatorial regime[12]. Another example can be found in the still pending litigation opposing Grenada and the Import-Export Bank of the Republic of China[13]. This case is particularly interesting as Grenada’s creditor also based its claim on the pari passu clause, illustrating that Argentina’s case is not unique[14].This whole situation asks an important question regarding the suitability of domestic court to handle sovereign-debt litigation. On one hand, it is well established that the core of the matter is by nature contractual, the financial instruments supporting the claims as well as the reconstruction process being fundamentally contractual. But on the other hand, the sovereign nature of the bond issuer and the purpose of its acts (the bond issuance as well as the reconstruction process) clearly displayed a sovereign intent. Given the highly political repercussions of any decisions and their economic consequences, one could wonder if an international framework for sovereign-debt restructuring and the fight against vulture funds could be created.

This solution has been advocated by the UN General Assembly who decided on the 28th of August “to elaborate and adopt through a process of intergovernmental negotiations … a multilateral legal framework for sovereign-debt restructuring processes with a view, inter alia, to increasing the efficiency, stability and predictability of the international financial system and achieving sustained, inclusive and equitable economic growth and sustainable development, in accordance with national circumstances and priorities”[15].

While the UN General Assembly’s decision is certainly a step in the right direction, one should keep in mind that General Assembly resolutions are not legally binding and that the adoption of the above-mentioned multilateral instrument has already been jeopardized by the opposition of developed countries, especially the US and the UK and the abstention of most European countries[16]. Given the fact that both the US and British tribunals are the most commonly elected forum for sovereign-debt litigation, such an instrument might well be deprived of all practical effect.


[1] M. Kiguel, Argentina’s 2001 economic and financial crisis : Lessons for Europe, available at :

[2] J. F. Hornbeck, Argentina’s defaulted sovereign debt : Dealing with the holdouts, available at :

[3]H. Muir Watt, L’immunité souveraine et les fonds “vautours”rev. crit. dr. intern. privé, 2012, n°4, pp.789

[4] U. Das, M. Papaioannou, C. Trebesch, Sovereign Debt Restructurings 1950-2010 : Literature Survey, Data and Stylized Facts, IMF Working Papers, 2012, available at

[5] Republic of Arg. v. Weltover, Inc. (91-763), 504 U.S. 607 (1992).

[6] L. CL Buchheit, J. S. Pam, The pari passu clause in sovereign debt instruments, Emory Law Journal, vol. 53 Special Edition, 2004, p. 870.

[7] F. Salmon, Argentina, Elliott and the pari passu war :

[8] S. Chaudurii, Argentina wants BNY Mellon out as a Trustee, The Wall Street Journal, available at :



[11] US Appeal Court sends Argentina back to judge Griesa on BONY’s case, MercoPress, available at :

[12] Argentina/NML – The Global Impact, Jubilee USA Network, available at :

[13] idem

[14] J. Cotherill, Sovereign Pari Passu and the litigators of the Lost Cause, available at :

[15] UNGA, resolution towards the establishment of a multilateral legal framework for debt restructuring processes, A/68/L.57/Rev.1

[16] UN votes for rules to stop vulture funds, Jubilee Debt Campaign, available at :



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