The extraterritorial British empire

 The U.K. goes a little bit further than the United States in letting people use its courts against foreign sovereigns. The basic law is laid out in the State Immunity Act of 1978. First, the British law does not require that any state-owned property must have some sort of economic connection with the activity that gave rise the underlying claim. (E.g., there is no equivalent of Section 1610(a)(2) in the British law.)

Second, in general it is a little easier to “pierce the corporate veil” and go after the assets of state-owned companies. For example, 2006 a British company went after the Congolese Republic for unpaid debts. The Congolese government tried to sell oil through the  state0owned Société Nationale des Pétroles du Congo (SNPC), which then sold it through a web of holdings. The British courts held that SNPC was an “organ of state” because:

1. The board of SNPC could delegate powers to a chairman appointed by the President of Congo;
2. SNPC had unaudited and unverifiable financing arrangements with the state; and
3. SNPC neither declared dividends nor returned profits to the state in cash. Instead it made expenditures normally made by government.

Other than maybe the first half of the third clause, that would certainly apply to PDVSA.

Now, that case did not involve sovereign debt per se, but a similar one did in 2005. That year, a British vulture fund managed to grab the revenues from Congolese oil sales. Now, the Congolese had done a good job of protecting themselves. SNPC established a subsidiary, Cotrade.  Cotrade sold oil to the Africa Oil & Gas Corporation (AOGC), incorporated in Canada. AOGC then sold the oil to a company called Sphynx, which in turn sold it to Glencore. The vulture fund successfully intercepted the money that Glencore owed Sphynx by arguing that SNPC and Cotrade had no independent existence from the Congolese state and AOGC was nothing more than a convenient front. (This is the best link for the story.) That seems rather more direct than what happened in Texas! 

Now, to be fair, a similar attempt to go after a joint venture part-owned by the government of the Democratic Republic of the Congo failed in 2012. So while easier than in America, it is not a sure thing.

Finally, there is the global Mareva injunction. British courts can freeze assets in advance of a judgment. No sneaking things out of the country here! 

I AM NOT A LAWYER! I have no idea how difficult it would be to wield these tools against Venezuela in the advent of a default. I kinda think it would be hard, since the bonds were issued under New York law and Citgo assets are in the United States. But Mareva injunctions can be global. So I suspect U.K. courts will play a role in whatever happens.

Which will be default --> legal mess --> restructuring. Hold on to your hats.

Comments

[Will Baird]

hegemony.

[Noel Maurer]

Actually, just extraterritorial judicial jurisdiction. But it is pretty neat.

My opinion on vulture funds is situational. They were right to go after the Congo Republic. They were wrong to go after the Argentine Republic. As a practical matter, I think they're counterproductive ... but emotionally I would generally want to support them.