Argentina: Sovereign Litigation In Latin America: Top Five Issues To Think Of When Doing Business With A Latin American Country

"We are in the soup" exclaimed, federal judge Thomas Griesa, referring to Argentina allegedly defaulting on its sovereign bonds. And so we are.

According to bondholders, on July 30 of 2014, Argentina defaulted on its sovereign debt for the eighth time in its history. That a developing nation is accused of defaulting on its international debt might not warrant legal headlines, but in this case the "soup" was precipitated by a court order from Judge Griesa, of the Southern District of New York. Judge Griesa is presiding over litigation brought by Argentina's "hold-out" bondholders, including hedge funds who refused to restructure their bonds after Argentina's previous bond default in 2001, and chose instead to pursue judicial relief.

The hold-outs' litigation against Argentina is but the latest prominent example of how Latin American countries and the companies that do business with them can become embroiled in international commercial litigation and arbitration—often involving considerable time and expense that were not factored into underlying business decisions. Judicial actions involving a Latin American country can arise from many international business activities:

  • privatizations and initial public offerings;
  • sovereign bond issues;
  • debt restructurings;
  • construction projects;
  • international trade issues;
  • project finance and infrastructure development; and
  • public-private partnerships.

Despite the wide variety of ways in which businesses and Latin American countries can become involved in international litigation, there are several common questions every company, business owner or counsel advising such companies should evaluate prior to doing business with a Latin American country. Latin American governments doing business with foreign companies should also consider these factors.

Can a Private Party Sue a Foreign Sovereign in U.S. Court?

If a U.S. forum is available, it is often, but not always preferable for a U.S. party. However, there are certain gateway issues that a claimant must consider before filing suit in the U.S. To proceed with a lawsuit against a Latin American country in the U.S., the claimant must comply with the Foreign Sovereign Immunities Act ("FSIA"), which provides the sole basis to sue a foreign sovereign in the U.S. Generally, if a foreign defendant qualifies as a "foreign state" under the FSIA, the Act provides that it shall be immune to suit in any U.S. Court—federal or state—unless a statutory exception to immunity applies. The most common exceptions are: (i) when the sovereign waives immunity or agrees to submit a dispute to arbitration, (ii) engages in a commercial activity and the lawsuit arises from such activity, (iii) commits a tort in the United States; or (iv) expropriates property in violation of international law.

Perhaps the most important exception to the FSIA is the commercial activity exception. To determine whether a sovereign's activities are commercial, and thus subject to litigation in the U.S., the FSIA requires courts to look to the nature of the act itself, rather than the purpose for which the sovereign is engaged in the act. The commercial activity itself may occur in the United States or somewhere else, but if the commercial activity occurs outside the United States, it must have a direct effect on the United States.

What if the Fight Has to Take Place On Foreign Sovereign Turf?

Sometimes, a U.S. forum is not available (e.g., as a result of a forum selection clause), or it might make sense to litigate overseas (e.g., the substantive law is favorable or witnesses are more accessible). Historically, parts of Latin America have sometimes been perceived as hostile environments for foreign parties to engage in international dispute resolution due to purportedly unreliable courts, lax evidentiary standards, the difficulty of enforcing judgments, and the perception of corruption in the adjudicating tribunal. Although many Latin American countries have ratified international conventions on international arbitration and judicial assistance, there has been a backlash in countries such as Venezuela and Bolivia.

If a private party has legitimate concerns that it cannot receive a fair trial in the home court system of a foreign sovereign, it may try to force the dispute into an alternative forum perceived as more neutral—either a different court system or, where feasible, international arbitration. No party, private or sovereign, should agree to litigate in an obviously biased forum with the hope that if things turn out badly it can avoid recognition or enforcement by invoking bias after the fact. Avoid this advice at your own peril.

For example, in February 2011, after Chevron successfully moved to dismiss litigation in the U.S. in favor of proceeding in Ecuador, an Ecuadorian court ordered Chevron to pay $8 billion in compensation in connection with ecological problems arising from the development of the Lago Agrio oil field in Ecuador. Chevron subsequently convinced a U.S. court that the verdict was obtained through coercion, bribery, money laundering and other misconduct, although that decision (in a collateral proceeding) is on appeal in the United States Court of Appeals for the Second Circuit .

Where is the Evidence?

A claim involving a sovereign party is likely to raise problems with access to witnesses and evidence. Before commencing litigation, a party involved in such an international dispute should create a game plan identifying key witnesses and evidence necessary to proceed with (or defend) the claim. If evidence is likely to be inaccessible, the parties should proactively consider whether alternatives exist. One strategy is to begin gathering information and evidence before initiating the litigation. In addition, U.S. law, foreign law and international law provide mechanisms for gathering evidence across borders, although such procedures can add time, expense and uncertainty to the dispute resolution process.

How Much Will It Cost?

Any litigation can be expensive – hiring counsel, undertaking the relevant factual and legal investigations, and preparing a complex case for trial or arbitration can easily cost hundreds of thousands of dollars, if not millions. Litigation in Latin America or involving Latin American parties (sovereign or otherwise) may entail additional expenses. Any litigation budget should consider expenses such as the cost of service of process overseas, certified legal translators and interpreters, travel expenses, local counsel, and the fees paid to an arbitral tribunal. Also, the savvy practitioner should be aware that different regimes may make it harder or easier to recover the cost of the proceedings themselves, including attorneys' fees awarded to a prevailing party. In some cases, a claimant may have to advance the other side's share of expenses as a prerequisite even to having its claims heard.

How Will I Collect On a Judgment?

Even if you are able to obtain an award from a U.S. court or another neutral forum, the losing party may resist recognition and enforcement of a judgment (or arbitration award), either where it was issued or wherever the prevailing party seeks enforcement. Although there are several widely ratified treaties that address recognition and enforcement of foreign arbitral awards, there is no equivalent international agreement regarding foreign judgments. The law regarding foreign judgments varies from country to country, and in some countries it may be difficult to obtain recognition of an award or judgment against the local sovereign. Enforcement can be difficult as well, because many sovereigns and private companies take great care to maintain their assets in forms and locations intended to protect them from attachment, including via corporate instrumentalities that have distinct legal personalities. A claimant should be prepared to dig in for the long haul and opportunistically enforce the judgment wherever there is an opportunity.

The foregoing considerations are important for private parties and sovereign governments alike, and they may lead to radically different litigation strategies depending on the circumstances of a particular dispute. The most important decision a claimant (or party facing a claim) can make is to hire experienced counsel who not only understands how to proceed with litigation involving a sovereign, but can also navigate the various cultural and language issues that are likely to play a part in any sovereign litigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
20 Feb 2019, Seminar, Orange, United States

The annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

21 Feb 2019, Seminar, Orange, United States

The seminar is designed to provide a guide to Human Resource Officials, Personnel Specialists, Consultants, Supervisors and other management officials through the ever-increasing maze of state and federal employment discrimination laws.

26 Feb 2019, Seminar, Pasadena, United States

The annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions