Public Interests in Sovereign Debt Litigation: An Empirical Analysis

Abstract

Our research investigates the treatment of public interests in sovereign debt litigation by domestic courts. For our initial dataset, we have collected and coded about 200 decisions of US courts since 1970 (including only selected landmark cases against Argentina). Debtor states usually introduce their public interests into the lawsuit by invoking specific types of legal defenses. We therefore code all legal defenses invoked by the respondent debtor states in the sample and track their success as well as the reasoning of the court with respect to these defenses (e.g., dismissing them summarily or after careful discussion) and the degree of judicial discretion claimed. We find that the use of these defenses and their success has varied considerably over time. Public interest defenses had considerably high success rates in the 1980s and in the 1990s. Only the 2000s saw a decline in their success rate. At the same time, the success rate of private law-based, mostly contractual defenses rose. In the current decade since 2010, the success rate of public interest defenses has plummeted while the effectiveness of private law-based defenses has stagnated. We also discover that the success of both public interest and private law-based defenses is strongly correlated with discretionary reasoning. The upshot of this is that US courts are generally receptive to the political context of their decisions. They have endorsed and supported the spread of holdout litigation during the last decades as an integral part of the deliberate privatization and atomization of sovereign debt markets during the last decades. Even recently, the US government has barely shown its disapproval of such practices and declined to support numerous global initiatives to improve the situation of debtor states. This stands in contrast to the experience of the 1990s, when US courts were still much more receptive to public interest defenses, in line with the political views of the US government and international institutions at the time. It also stands in contrast to the reaction of European courts to challenges of safeguard measures on the level of the European Union and in international arbitration, which is mapped here only anecdotally. On the whole, it seems unlikely that courts are able to preserve the public interest without the support of the political system. This is bad news, as there is currently too little political momentum for a binding international sovereign debt restructuring mechanism, or even a weaker, soft law version of it. Methodologically, this paper tries to bridge the gap between the hermeneutic approach of classical legal scholarship, and empirical legal studies. We make the hermeneutics of court decisions the object of our empirical study. In the future, we plan to expand our research to other jurisdictions to take account of the practice of courts in countries and regions where the hyper-privatization of the market for sovereign debt is viewed more skeptically.