It rarely happens that after a judge’s verdict, both sides – both plaintiff and defendant – speak of a victory. The High Court in London on Tuesday ruled in a dispute over part of Cuba’s legacy debt dating back to the 1980s that private equity fund CRF I Limited bought unpaid debt from the National Bank of Cuba (National Bank of Cuba, BNC) lawfully acquired. At the same time, the court relieved the Cuban state of responsibility.
The case could point the way beyond the specific amount in dispute. The fund, established in the Cayman Islands in 2009, had sued Cuba and the BNC in 2020, demanding payment of around 72 million euros for two loans and overdue interest. It is about loans granted by the European banks Crédit Lyonnais and Istituto Bancario Italiano in 1984. After an out-of-court settlement was not reached in 2018, the case ended up before the British court.
CRF: Cuba’s largest private creditor
Before the trial began, the Cuban Central Bank (Banco Central de Cuba, BCC) called CRF a “vulture fund” and claimed that it had illegally acquired the debt, even bribing a high-ranking bank official. Also, the debtor BNC no longer acts as a central bank. The BCC was founded in 1997 and took over many of the functions of the BNC.
CRF denied the allegations, saying it had tried for years to negotiate a debt restructuring deal with Cuba without receiving a response.
The fund was set up to invest in distressed Cuban government bonds. He is now Cuba’s largest private creditor and has a bond portfolio worth €1.2 billion in 2017, according to the court documents. Investors like CRF typically buy up debt portfolios cheaply and then sue the debtor in international courts for payment in full. This can be a very profitable business.
Solomon’s Judgment on Cuban Debts
In her ruling, Judge Sara Cockerill now recognized that CRF lawfully acquired the said debt from ICBC Standard Bank, a UK subsidiary of Chinese bank ICBC. BNC, on its own behalf, consented to the assignment of its rights and obligations under the Agreements by ICBC to CRF; however, it lacked the authority to consent to the assignment of its rights under the guarantee by ICBC to CRF on behalf of Cuba.
The Republic of Cuba, which had sued CRF as “guarantor” for the debt, is no longer part of the court case. According to Judge Cockerill, CRF has the right to demand payment of the debt from the BNC, but not from the Cuban state itself.
This is an important point. Should a court order BNC to pay the more than 70 million euros it is seeking in the future, Tuesday’s ruling would mean that the sum can only be recovered at the expense of BNC’s assets and resources. Assets owned by the Cuban government, such as oil tankers or offshore companies, would be safe from eventual confiscation in the event of non-payment.
Both sides feel like winners
Accordingly, Havana rated the London judgment as a success. “Republic of Cuba wins legal battle in London: CRF is not a creditor of the Cuban state,” headlined the daily news. And President Miguel Díaz-Canel tweeted: “Cuba also won in London. Once again, the nation’s enemies lost. Their lies were met with a professional and respected court.”
But CRF CEO David Charters also spoke of a “complete victory for CRF”. The English High Court recognized CRF as a responsible creditor and did not confirm the allegations of bribery. “The CRF remains committed to finding a solution with Cuba that will not burden the Cuban budget for at least five years, given the difficult economic situation the country is in,” Charters said after the verdict. “The BNC was the Cuban central bank and remains responsible for managing this unpaid Cuban debt.”
State creditors give Havana a moratorium on payments
John S. Kavulich, president of the New York-based lobby organization US-Cuba Trade and Economic Council, shares this view. “If you read the entire 94-page judgment, Cuba still owes the money. That’s important.” According to Kavulich, previous and current Cuban governments were not exonerated by the court’s decision. “On the contrary – now more than ever the issue is what and who the Cuban government owes. And that the country provides a grossly inadequate environment for the public and private sectors outside of Cuba to expect the funds to go to the be repaid on terms originally set.”
The Cuban government, on the other hand, has repeatedly declared that it will meet its payment obligations. In the summer of 2021, she agreed to a deferral of payments with the Paris Club of State Creditors. Because of the crisis triggered by the corona pandemic and the tightening of the US blockade, Cuba was no longer able to service its debts. Cuba has not yet reached an agreement with its private creditors in the so-called London Club and is therefore excluded from the international capital markets.
Cuba is suffering from an ongoing economic crisis
CRF is expected to proceed with the lawsuit against the BNC. Repayment of the debt would then be decided in a separate procedure. First, however, it is probably in the appeal hearing.
Cuba: debts of around seven billion US dollars
Cuba’s Justice Minister Oscar Silvera said Wednesday that the BNC’s defense will appeal the verdict. The deadline for this is May 19th. “We believe that she (CRF, ed.) is not a legitimate creditor of the BNC because the act recognizing that assignment is unlawful,” Silvera said.
The case will continue to be closely followed by other Cuban creditors who are trying to recover a total of $7 billion worth of debt from Havana.