NML Capital and Argentina: Ghanaian court rejects Argentina's sovereign immunity challenge and NML Capital targets second vessel in South Africa

On 25 October, News agencies reported that a second Argentine navy vessel has been targeted by NML Capital, this time in South Africa. This followed the news on 11 October 2012, that the Ghanaian Commercial Court in Accra rejected a motion filed by the Argentinian government for the release of the ARA Libertad, an Argentine military training vessel. The ship had been detained in the Ghanaian port of Tema at the request of NML Capital, a subsidiary of the hedge fund Elliott Capital Management which is a creditor of the Argentine government. Elliott Capital is owed just under $300m by the Argentinian government following the country's default on $80 billion of public debt in 2001, the largest in history. The court ruled that Argentina had waived its sovereign immunity in relation to claims by NML Capital, a topic we covered in our webinar earlier this month on sovereign immunity and enforcement against state assets.

The dispute arises out of Argentina's default in 2001 on approximately $80 billion of public debt, including bonds that were issued under a 1994 Fiscal Agency Agreement (FAA). In 2005, and again in 2010, the debt was restructured, with 91% of creditors agreeing to accept new repayment terms offering a considerably reduced return on their original investment. However, some creditors, including Elliott Capital, decided to hold out and have sought to hold Argentina to the full value of the sums owed to them since the default, obtaining a US judgment under the bonds in 2006 and pursuing enforcement proceedings in many different jurisdictions.  

The Ghanaian court originally ordered that the Libertad be detained on 2 October 2012.  Thereafter, Argentina sought to secure the release of the Libertad by arguing that the vessel benefitted from sovereign immunity as a military asset under the Vienna Convention on Diplomatic Relations 1961 and therefore could not be detained. On 11 October 2012, the Court rejected this argument and ruled that the government had waived its immunity under the FAA pursuant to which the bonds in question were issued. The Ghanaian Court considered that the relevant wording of the FAA made it "so clear" that Argentina had waived sovereign immunity in respect of claims by bondholders under bonds issued pursuant to the FAA that it was bound to dismiss the motion for release.

The Argentine government has maintained that the ship is covered by diplomatic immunity as a military vessel and has signalled its intention to continue to resist NML Capital's claims and the continued detention of the Libertad.

The Ghanaian court order represents a victory for holdout bondholders seeking to locate Argentine state assets against which the US judgment may be enforced.  This judgment was recognised and declared enforceable in the UK following the Supreme Court decision in NML Capital v Argentina [2011] UKSC 31. In July this year, NML Capital and EM Limited, another bondholder, were able successfully to seize assets of the Argentine bank Banco Hipotecario SA located in the US worth $23 million, following an order permitting execution from a US District Court in New York. Most recently, on 26 October 2012, the US Court of Appeals for the Second Circuit upheld a district court injunction enjoining Argentina from making payments on debt issued pursuant to the 2005 and 2010 restructurings without making comparable payments on the defaulted debt.

The Ghanaian proceedings represent another chapter in the long-running legal battle by bondholders to extract full compensation from Argentina following its default. The decision of the Ghanaian Court is significant given the nature of the asset at stake. However, it is important to note that the Libertad has not been seized, only detained, and the Ghanaian courts have not yet issued an order which would entitle NML Capital to execute the US judgment it has obtained against the vessel. NML Capital has apparently stated that it will apply to have the current order lifted if Argentina posts a $20 million bond. Whether the Argentine government will choose to post that bond remains to be seen. However, the actions of 25 October in South Africa show that NML Capital has every intention of maintaining the pressure on Argentina until it does.