A/HRC/41/51 Democratic Republic of the Congo to South Africa. In February 2010, the Court of Appeal in Hong Kong froze about $100 million of a signing bonus for a $6 billion minerals-forinfrastructure agreement between the Democratic Republic of the Congo and China until the International Chamber of Commerce awards had been resolved. 18 The agreement included a payment of $221 million in mining entry fees to the Government, which FG Hemisphere sought to receive towards payment of the arbitral award. The Government claimed State immunity, but the Court of Appeal ruled that the country had no immunity in commercial proceedings.19 18. That is an unfortunate event for a country that needs money for development. The Democratic Republic of the Congo is rich in natural resources but is recovering from more than four decades of dictatorship and war that have destroyed its infrastructure. In fact, it is difficult to see how a country with one of the lowest Human Development Index rankings (176) can service its external debt obligations without at the same time harming its poverty reduction and economic development prospects (A/HRC/14/21, para. 20). The negative impact of vulture funds on the capacity of the State to create the conditions necessary to fulfil its human rights obligations is therefore evident. C. NML Capital Ltd. v. Argentina 19. The deteriorating economic, financial and social situation that led Argentina to a catastrophic collapse in 2001 has been well documented (see, for example, A/HRC/25/50/Add.3). Soon after defaulting, the Government recognized the need to restructure roughly $81 billion of debt. In two successive exchanges of offers, in 2005 and 2010, Argentina succeeded in reaching an agreement with more than 92 per cent of its creditors, which agreed to take an approximately 70 per cent “haircut” on their bond holdings. 20. A group representing 1.6 per cent of bondholders, led by NML Capital Ltd. (a hedge fund based in the Cayman Islands), refused to restructure and decided to sue the country in the New York State courts for the full amount. 20 Some of the defaulted bonds had been bought on the secondary market just before the country’s default in 2001, but most were purchased afterwards, at bargain prices. The vulture funds allegedly paid about $48.7 million for more than $220 million in defaulted bonds soon after the default; others were purchased even after the bond exchanges of 2005 and 2010 (ibid., para. 32). 21. In November 2012, a New York district court judge ordered Argentina to pay NML Capital and other “hold-outs” in full (about $1.3 billion), an amount that may represent a profit of about 1,600 per cent.21 The court ruling was first confirmed by a decision of the United States Court of Appeals for the Second Circuit and subsequently endorsed by the Supreme Court, which stated that the country could not pay the creditors that had accepted the exchange offers until the “hold-out” creditors had been paid in full. 22. Those rulings represented a major departure from the traditional market or legal understanding of the pari passu clause, a common component of bond contracts. 22 NML 18 19 20 21 22 6 See Michael J. Kavanagh, “Congo, U.S.-controlled venture lose $100 million vulture claim”. Kathryn Crossley, “Case analysis: Democratic Republic of the Congo and Ors v. Hemisphere Associates LLC”, Asian Legal Business (17 June 2011). Elliott Management investment fund controls NML Capital and has brought actions against Argentina and many other countries. The chief executive officer, Paul Singer, is one of the main financial backers of the Republican Party in the United States, which gives him enormous lobbying power, as well as substantial political and legal support for carrying out these operations. See Romina Kupelian and María Sol Rivas, “Vulture Funds: the Lawsuit Against Argentina and the Challenge They Pose to the World Economy”, p. 10. See letter dated 9 July from Axel Kicillof, Minister of Economy and Public Finance of Argentina, to the Financial Times. “By equal step or without preference”: the international financial markets have long understood that this clause protects a lender against the risk of legal subordination in favour of another creditor. See Lee C. Buchheit and Jeremiah S. Pam, “The pari passu clause in sovereign debt instruments”, Emory Law Journal, vol. 53 (special edition, 2004).