Breakthrough verdict in unpaid Cuban loan dispute

It is rare that, after a judge’s verdict, both sides – plaintiff and defendant – speak of victory. London’s Supreme Court ruled on Tuesday that private investment firm CRF I owed unpaid debts to the National Bank of Cuba (BNC), the country’s former central bank. At the same time, the court said that the Cuban government is not responsible.

CRF was established in the Cayman Islands in 2009 and sued Cuba and the BNC in 2020, demanding repayment of around €72 million ($78 million) for two loans and overdue interest.

These loans date back to 1984 and were granted by the European banks Credit Lyonnais and Istituto Bancario Italiano. After a 2018 out-of-court settlement failed to materialise, the case ended up in British court.

A race around the court

The High Court case involved four issues: CRF can sue in the UK, CRF properly acquired the debts, the Cuban central bank can be sued, and the Cuban government is the ultimate guarantor of those debts.

Before the start of the trial, the new central bank, the Central Bank of Cuba, called the CRF a “vulture fund” and claimed that it had illegally acquired the debt, even bribing a senior bank official in the process.

It also claimed that the debtor, the BNC, was no longer a central bank. The Central Bank of Cuba was founded in 1997 and has taken over many of the functions of the old central bank, but it is still a separate entity.

The CRF denied the allegations, saying it had tried for years to negotiate a debt restructuring deal with Cuba without receiving a response.

The CRF fund was created to invest in distressed Cuban government bonds. Today, it is Cuba’s biggest private lender and had a bond portfolio worth €1.2 billion in 2017, according to court documents. These investors typically purchase portfolios of debt at low cost and then attempt to sue the debtor in international courts to obtain full payment. It can be a very lucrative business.

In her decision, Judge Sara Cockerill said that CRF had legally acquired the debt of ICBC Standard Bank, a British subsidiary of Chinese bank ICBC.

At the time, BNC consented to the assignment of its rights and obligations arising from the contract. However, it lacked the authority to consent on behalf of Cuba. As a result, Cuba is no longer part of the judicial process, as it is not a guarantor of the debt, according to the London court. The CRF has the right to demand payment of the debt from the BNC, but not from the Cuban State itself.

Should a court order the National Bank of Cuba to return the more than 70 million euros, Tuesday’s decision means that the amount can only be recovered with assets and resources from the BNC. Assets owned by the Cuban government, such as oil tankers or offshore companies, would be safe from possible confiscation in case of non-payment.

Both sides see themselves as winners

Consequently, Havana considered the London trial a success. “Republic of Cuba wins lawsuit in London: CRF is not a creditor of the Cuban State”, headlines the state daily grandfather. And Cuban President Miguel Diaz-Canel tweeted: “Cuba also won in London. Once again, the nation’s enemies lost. Their lies were received by a professional and respected tribunal.”

But CRF CEO David Charters also spoke of a “complete win for CRF”. The English Supreme Court recognized CRF as a responsible creditor and did not uphold any allegations of bribery.

“CRF remains committed to finding a solution with Cuba that has zero impact on its budget for at least five years, recognizing the difficult economic situation facing the country,” Charters said after the verdict. “The BNC was Cuba’s central bank and remains responsible for managing these unpaid Cuban debts.”

Other creditors waiting in the wings

John Kavulich, president of the New York-based US-Cuba Trade and Economic Council lobbying organization, shares this view. “Reading the entire judgment, 94 pages, Cuba still owes the money. This is important.”

According to Kavulich, the previous and current Cuban governments were not exonerated by the court’s decision. “On the contrary, there is now more focus than ever on what the government of Cuba owes, to whom the government of Cuba owes it, and that the country provides a woefully inadequate environment from which public and private sectors outside of Cuba can expect to be repaid within the terms under which the money was initially provided.”

The Cuban government, on the other hand, has repeatedly stated that it will meet its repayment obligations. In the summer of 2021, it agreed to postpone payments with the Paris Club, a group of countries that coordinate payments from debtor countries.

Due to the crisis triggered by the COVID-19 pandemic and the tightening of the US blockade, Cuba was no longer able to pay its debts. Cuba has yet to reach an agreement with the London Club, an informal group of private creditors. This means that they have been excluded from international capital markets.

The expectation is that the CRF will proceed with the process against the BNC. Debt repayment would then be decided in a separate case. But first it will likely appeal the current decision.

Cuban Justice Minister Oscar Silvera said on Wednesday that the BNC will appeal the verdict. You have until May 19th to do so. “We believe that CRF is not a legitimate creditor of BNC because the act of acknowledging it was illegal,” said Silvera.

The case will continue to be closely watched by other Cuban creditors who are trying to recover a total of $7 billion in Havana’s sovereign debt.

This article was originally written in German.