Argentina scored a major victory as a US appeals court reversed a ruling ordering it to pay $16.1 billion over the seizure more than a decade ago of state-run oil company YPF SA.
The Manhattan judge who issued the award wrongly ruled in favor of former shareholders who said they were harmed by the nationalization of the Argentine oil company, the US Second Circuit Court of Appeals said Friday in a 2-1 ruling.
Litigation funder Burford Capital Ltd. financed the suit and would have taken a large share of the award, which swelled to more than $18 billion with interest. Burford’s US shares plunged on the news Friday, closing down 47% to $4.14 after earlier falling as much as 54 percent.
“The Second Circuit decision is obviously very disappointing and a remarkable abandonment of the rights of minority NYSE shareholders,” Burford Chief Executive Officer Christopher Bogart said in a statement. “However, we have always said that there was risk associated with litigating this case in the US courts.”
Burford said the plaintiffs were considering further appeals, including to the US Supreme Court, as well as other avenues. The firm said it expected to take a “non-cash write-down” based on “the substantial carrying value of the YPF matter on Burford’s balance sheet,” though it had yet to determine the magnitude of the write-down.
The appeals court ruling marks a significant victory for Argentine President Javier Milei and helps clear the government’s path to a return to international markets at some point. He had refused to negotiate with the plaintiffs, creating a standoff that could have muddied future bond sales in this legal saga.
“It’s historic, unthinkable, the greatest judicial victory in national history” Milei posted on X. Argentina has said the judgment is equivalent to nearly half its 2024 government budget and argued that paying it would be economically ruinous.
“It’s obviously incredibly important to Argentina, to President Milei and to the country’s recovery,” Robert Giuffra Jr. of Sullivan & Cromwell LLP, Argentina’s lead lawyer on the case, said in a phone interview. “Just in terms of sheer size — it was something that was hanging over the government of Argentina.”
The Burford-backed plaintiffs could try to appeal to the full Second Circuit or the US Supreme Court, processes that could drag on for months or even years. In its statement, Burford said both possibilities were under consideration, along with investment treaty arbitration.
The ruling for now shuts down efforts by Burford to collect on the judgment and puts its chances of ever being paid in greater doubt.
US District Judge Loretta Preska issued the award in 2023, after finding the nationalization violated YPF’s by-laws requiring a tender offer to shareholders. The Second Circuit said Preska misinterpreted Argentine law.
Even before the appeals court’s ruling, Burford had been struggling to collect on the judgment, filing cases around the world to try to attach Argentine government assets.
Friday’s order likely moots a ruling by Preska requiring Argentina to turn over its 51% stake in YPF to satisfy the judgment. That order was put on hold by the higher court and is the subject of a separate appeal. The US Justice Department has opposed allowing Burford to seize YPF shares, warning US overseas assets could be vulnerable to similar orders by foreign courts.
US Circuit Judge Denny Chin, writing for the majority of the three-judge appeals court panel, said that the case turned on “the narrow legal question” of whether Argentina’s laws would have permitted the claim in its own courts.
“Notwithstanding the Republic’s knowing and flagrant violation of the promises it made to foreign investors, the answer to that question is no,” Chin wrote. The judge had also expressed skepticism about the case during oral arguments in October.
“It does have a feel like it should have been litigated in Argentina,” he said at the time. “How would we be feeling about letting Argentina decide on issues against the US?”
US Circuit Judge Jose Cabranes dissented, praising Preska’s “meticulous care” in considering the case and suggesting foreign investors could not have expected fair treatment in Argentine courts.
Burford had been hoping that the outstanding judgment would be a continuing obstacle to Argentina accessing international capital markets, eventually forcing the nation to settle. Argentina did eventually settle claims by Elliott Management’s Paul Singer, who engaged in a 15-year legal battle with the country over its 2001 sovereign debt default.
Key Takeaways
- The US appeals court ruling marks a significant legal victory for Argentina, potentially clearing the path for future international investments.
- The case highlights the complexities of international law and its impact on foreign investments.
- Burford Capital’s substantial financial loss underscores the risks associated with litigation financing.
