Sovereign Debt and
the Problem of Sovereign
Immunity
Julian Ku
John D. Gregory Research Professor of Law
December 11, 2013
Overview
Introduction: Argentina’s Waiver
 Background: Foreign Sovereign Immunity in
the United States
 NML and Sovereign Immunity Workarounds
 Assessment and Proposals for Reform

Foreign Sovereign Immunity

A sovereign’s
immunity from
jurisdiction of
foreign courts is
“absolute.”
–

C.J. Marshall,
Schooner Exchange
v. McFadden (1812)
But waivers
permitted
Argentina’s 1994 Waiver

[Argentina] has irrevocably agreed not to
claim and has irrevocably waived such
immunity to the fullest extent permitted by
the laws of such jurisdiction and consents
generally for the purposes of the Foreign
Sovereign Immunities Act to the giving of any
relief or the issue of any ….
Argentina’s 1994 Waiver


Argentina also waived immunity for, “any of
its revenues, assets or properties” that
would otherwise be entitled to immunity
“from attachment prior to judgment, from
attachment in aid of execution of a
judgment or from any other legal or
judicial process or remedy.”
Submitted to jurisdiction of New York courts
Collecting Against Argentina

How much money has been collected
against Argentina in U.S. litigation since its
2002 default on around $80 Billion?
ZERO.
– ZERO.
– ZERO.
–
Background: Foreign Sovereign
Immunity in the United States




Pre-WWII: U.S. courts would allow sovereigns to
revoke waivers after litigation arose
Post WWII: U.S. shifted to a “restrictive” theory of
immunity for sovereign commercial activities
1976: Congress enacts Foreign Sovereign
Immunities Act (waiver revocations disallowed, no
immunity for commercial activity)
1991: U.S. Supreme Court finds that issuing
sovereign debt is a “commercial activity”
Spectator, UK
Why Can’t Creditors Collect?

Foreign Sovereign Immunities Act, Section
1610 and 1611:
–
–
Limits execution of judgments to assets used for
“commercial activity in the United States”
Further excludes:



Central bank property held for “its own account”
Military-related assets
Diplomatic assets
Creditors’ Workaround

EM v. Republic of
Argentina
–

Allege that many
central bank assets
are actually used for
other activities, such
as paying exchange
bondholders
Rejected by Court
of Appeals

NML v. Argentina
–

Demand repayment
under interpretation
of the pari passu
“equal treatment”
clause
Upheld by Court of
Appeals,
FSIA and the Pari Passu Injunction



Argentina argues that Pari Passu injunction
is really an “attachment” of assets outside of
U.S.
FSIA does not permit “attachment” of assets
outside U.S. territory
If Supreme Court grants certiorari, this will
likely be central issue
Assessment



Foreign sovereigns raising debt from private
creditors should be subject to same legal
obligations as private companies to the
extent possible
U.S. law effectively makes foreign sovereign
waivers meaningless for private creditors
“Pari Passu” workaround is a useful
corrective.
Proposals for Possible Reform

Take Waiver Seriously
–


Read general waivers like Argentina’s to include
central bank property, other non-commercial
assets (planes, ships, etc.)
Rely on domestic courts instead of new
international mechanisms
Do not fear deterring new foreign sovereign
debt offerings