Posts Tagged Argentina

Belgian initiative to tackle ‘vulture funds’ acknowledges these are, after all, migratory birds.

Update 21 March 2016 (these updates seem to follow an equinox pattern) NML Capital Ltd reportedly are contesting the legality of the Act before the Belgian Constitutional Court. (Update 24 March the Constitutional Court has the case down under three seperate actions, 6371, 6372, 6373).

Update 21 September 2015: the Act was adopted in July and enters into force today.

I have delayed reporting on this initiative for exam reasons. The Belgian Parliament is currently debating a private members’ proposal for statute to address so-called ‘vulture funds’. These funds are described by the financial dictionary as ‘A fund that buys distressed debt of commercial companies or sovereign nations at a cheap price and then often sues them for the entire value of the debt. The resemblance to vultures is because these funds profit from the debt of failing companies or poor nations.

The text of the proposal (in Dutch and French) is available here. Vulture funds litigation is generally called immoral in the proposal. Reference is made to a number of high-profile recent judgments where vulture funds have been given approval by various courts worldwide, to seek redress against assets held by the sovereign nations concerned, or indeed their creditors. Particularly sore is the enforcement sought against funds destined for development aid.

The proposal essentially defines ‘vulture funds’ and then suggests that recognition and enforcement of relevant judgments or arbitral awards, regardless of the law applicable to the underlying relationship with the government concerned, is considered to be contrary to Belgian ordre public international, hence unenforceable. The proposal as it stands now adds (probably superfluously) that relevant EU (read: the Brussels I recast Regulation) and international (read especially: the 1958 New York Convention) law takes priority.

The part of the proposal that is bound to attract attention is the attempt at defining the ‘vulture’ in vulture funds. Frits Bolkestein for instance (former EU Commissioner) has remarked that buying up ‘bad debt’ need not always be morally reprehensible (I would suggest it is not that part of the fund’ activities which has attracted the Belgian Parliament’s attention). The enforcement /recognition part of the proposal is interesting because it applies ordre public in a categorical manner, rather than in the ad hoc application which both EU law and residual Belgian conflicts law (the Belgian Private International Law Act) ordinarily call for. For residual Belgian law, this is probably Parliament’s prerogative. However for EU law (and the New York convention), a general apprehension against vulture funds may not qualify as a proper exercise of the ordre public exception. Courts at the least may wish formally to disregard the act when the judgment /award concerned is covered by Brussels I cq. New York; however they can point to the sentiment expressed in the Act, to support incompatibility with Belgian ordre public when tested against an individual case.

The drafters are aware that this initiative may be a drop in the ocean. Reference is made to other, national initiatives (France, UK, US) which may point to an emerging pattern of anti-vulture funds sentiment. Indeed the realities of forum shopping mean that vulture funds action will migrate away from the Belgian legal order. On the other hand, Belgium’s safe harbour may also mean that relevant assets will seek refuge there. All of course, presuming the initiative will actually be adopted by Parliament.

Geert. Disclosure: I advised the MPs concerned on the technical aspects of the recognition and enforcement leg of the proposal. [My advice may or may not have been followed ].

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WTO compatibility of biofuels sustainability criteria: The Argentinian complaint

Argentina has requested consultations, the first step in the WTO’s dispute settlement procedure, with respect to the EU’s biofuels sustainability criteria, contained in RED, its renewable energy Directive. The development of biofuels criteria per se is full of pitfalls. For starters, the EU’s Directive has effectively skirted the issue of sustainability. As all students of environmental law and policy have been told ad nauseam, sustainable development has three pillars (ecological, economic, social), not just the one (ecological /environment) which the Directive has quantified. On social and economic impact of the EU’s regime, the European Commission is merely to report. Evidently, quantifying all three is not straightforward: witness also the demise of the Clean Development Mechanism, CDM,  one of the flexible mechanisms under the Kyoto Protocol to the United Nations Framework Convention on Climate Change.

With respect to the environmental pillar, RED employs a standard value of CO2 emission reduction which for soybean biodiesel (the main export of Argentinian biofuel) is 31%. This falls short of the 35% required for renewable energy to count towards Member States’ renewable energy targets (and co-inciding fiscal and other incentives).  In other words, fuel not meeting the standard can still be imported into the EU: but it will not be very popular (one can sense a de facto /de iure discrimination debate). One way of getting around the issue, is for individual shipments to show that they meet the 35% threshold with all the extra costs this implies (arguably imposing a measure equivalent to a quantitative restriction), or for the European Commission to recognise relevant voluntary schemes meeting the higher threshold through certification. An Argentinian scheme presented to the EC was not accepted by it.

The Argentinian request includes a long list of GATT and WTO obligations which it argues are infringed by the EU (and by relevant Member States implementing measures).

Having a Panel and Appellate Body express some rules of thumb for sustainability criteria (which Argentina explicitly says it does support in principle) would be very useful indeed.


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