Abaclat vs. Argentina: Vulture Funds
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  • Amount demanded: US$3 billion
  • Outcome: Case settled (investor awarded US$1.4 billion)
  • Treaty invoked: Argentina - Italy BIT
  • Sector: Financial services
  • Issue: Financial stability

After the 2001 financial crisis, Argentina defaulted on its debt and struck a deal with some holders of its defaulted sovereign debt, whereby they would get 30-35% of the amount due to them. While the majority of the bondholders agreed, some 60,000 did not accept the reduction of value of the bonds and sued Argentina before the International Centre for Settlement of Investment Disputes (ICSID), in 2007, for US$3 billion.

They claimed that Argentina “expropriated” their investment and did not treat them in a “fair and equitable” manner. But can bondholders be considered legitimate investors when they have no real economic project in Argentina?

Two of the three arbitrators sitting in the Abaclat arbitration panel decided that bond instruments qualify as investments and agreed to hear the mass claim. However, the third arbitrator disagreed and argued that sovereign bond instruments should be excluded as a protected investment under the Argentina-Italy BIT or the ICSID Convention. He pointed out that the bonds were sold in financial markets outside of Argentina, denominated in foreign currencies, channelled through intermediaries in other countries, and subject to laws outside of Argentina. He concluded that it was not an investment that “contributes to the economic development of the host country, i.e. to the expansion of its productive capacity.”

After almost nine years of litigation, the case was settled in January 2016. The bondholders were awarded almost US$1.4 billion.

Last update: May 2021

source: IISD