Argentina scored a major victory when a US appeals court overturned a ruling that ordered it to pay $16.1 billion for the seizure of state oil company YPF SA more than a decade ago.
The Manhattan judge who issued the award wrongly ruled in favor of former shareholders who said they were harmed by the nationalization of an Argentine oil company, the US Court of Appeals for the Second Circuit said in a 2-1 ruling on Friday.
Litigation investor Burford Capital Ltd. funded the lawsuit and would take a large share of the prize, which has grown to more than $18 billion with interest. Burford’s US shares tumbled on the news on Friday, closing down 47% at $4.14 after falling as much as 54% earlier.
“The Second Circuit’s decision is, of course, deeply disappointing and a remarkable abandonment of the rights of minority NYSE shareholders,” Burford CEO Christopher Bogart said in a statement. “However, we have always maintained that there is a risk associated with litigating this case in US courts.”
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Burford said prosecutors are considering other appeals, including to the U.S. Supreme Court, and other avenues. The firm said it expects to make a “non-cash write-down” based on the “substantial carrying value of the YPF matter on Burford’s balance sheet”, although it has not yet determined the size of the write-down.
The appeals court ruling marks a significant victory for Argentina’s President Javier Milea and helps clear the way for the government to return to international markets at some point. He refused to negotiate with the plaintiffs, creating a stalemate that could derail future bond sales in this legal saga.
“It is historic, unthinkable, the greatest judicial victory in the nation’s history,” Milei wrote on X. Argentina said the judgment was equivalent to almost half of its government budget for 2024 and argued that paying it would be economically ruinous.
“It’s obviously incredibly important for Argentina, for President Milea and for the recovery of the country,” Robert Giuffra Jr. said in a phone interview. of Sullivan & Cromwell LLP, Argentina’s lead attorney on the case. “Just in terms of the sheer size of it — it was something that hung over the government of Argentina.
Burford-backed plaintiffs could try to appeal to the full Second Circuit or the U.S. Supreme Court, which could drag on for months or even years. Burford said in a statement that both options are being considered along with arbitration of the investment agreement.
The ruling halts Burford’s efforts to obtain a judgment for now and casts doubt on his chances of ever being paid.
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U.S. District Judge Loretta Preska granted the 2023 award after finding that the nationalization violated YPF’s bylaws requiring an offer to shareholders. The Second Circuit said Preska misinterpreted Argentine law.
Even before the appeals court’s decision, Burford had been trying to get a judgment, filing lawsuits around the world to try to seize assets from the Argentine government.
Friday’s order likely alludes to Preska’s ruling requiring Argentina to hand over its 51% stake in YPF to comply with the ruling. That order was stayed by a higher court and is the subject of a separate appeal. The US Justice Department opposed allowing Burford to seize YPF shares, warning that US overseas assets could be vulnerable to similar orders from foreign courts.
U.S. Circuit Judge Denny Chin, writing for the majority of the three-judge appeals court, said the case turned on a “narrow legal question” of whether Argentina’s laws would allow the suit in its own courts.
“Despite the fact that the Republic knows and is clearly breaking the promises it made to foreign investors, the answer to that question is no,” Chin wrote. The judge also expressed skepticism about the case during oral arguments in October.
“I feel like it should be run in Argentina,” he said at the time. “How would we feel about letting Argentina decide issues against the US?”
U.S. Circuit Judge Jose Cabranes disagreed, praising Presky’s “meticulous care” in considering the case and suggesting that foreign investors could not expect fair treatment in Argentine courts.
Burford hoped that the pending judgment would be a continuing obstacle to Argentina’s access to international capital markets and would eventually force the nation to settle. Argentina has finally settled the claims of Elliott Management’s Paul Singer, who fought the country for 15 years in court over its 2001 sovereign debt default.
Key things
- The decision by the US Court of Appeals marks a significant legal victory for Argentina, potentially paving the way for future international investment.
- The case highlights the complexity of international law and its impact on foreign investment.
- Burford Capital’s significant financial loss underscores the risks associated with litigation funding.
