Notes From a Native Son: The Rise of Supranational Organisations May be Barrack’s Lifeline

Hal Austin

Introduction:
Excuse me for being a bit more boring than usual this week, but bear with me as the issues I intend to discuss are of central importance to the constitutional and economic future of our tiny island. They impact on the juncture where law, financial services and macroeconomic policy meet. Equally, they may also impact on the disgraceful logjam that is preventing this rogue government from resolving the Bds$70m (and growing) problems it has with property developer Mr Barrack and its stubborn refusal to even treat the gentleman with common courtesy and respect.

But first, recently a leading public commentator criticised the lack of progress on the Caribbean Court of Justice and called for greater support from member-states of Caricom/CSME. This call coincided with a number of developments taking place in the US, Africa, South America and Europe, which have more or less reinforced my suggestion in another place that the Westphalian model of the nation-state is dying on its knees. Supranational organisations – the United Nations, International Criminal Court, etc, are taking control. It is the globalisation of our democratic structures.

Two recent issues have made this quite clear, both involving Argentina, one in Ghana and the other in New York, and they raise serious questions about global governance and the interplay of economic law. The first was the seizing of an Argentinian Naval vessel in Ghana on the injunctive orders a New York court; and, the second, again involving extra-territorial powers of a New York court, ordering Argentina to pay an outstanding debt. Put aside the rather obnoxious tendency of US institutions to believe they rule the world, for a moment, both involved important issues about territoriality, sovereignty and national debt.

Analysis:
In November 82-year-old New York judge Thomas Griesa ordered Argentina to pay fully and promptly all its creditors who had refused to participate in a debt restructuring programme which followed its 2001 default on US$81bn of debt. Most of you would have been aware that for years Argentina has been a rogue nation, refusing to pay its sovereign debt and ignoring the rest of the world. (To my mind with merit, but that is another question).

The debt has been temporarily stayed with a final ruling expected in February, but Judge Griesa’s judgement – on the technical meaning of a pari passu clause (Latin for step by step or side by side) – raised a number of far wider implications. First, it gave victory to so-called Vulture Funds, which in itself is rather controversial, but more importantly, we had a relatively small New York court (the Southern District) giving a judgment that involved a sovereign state, so questions about jurisdiction are also central to the issue. In political terms, the court also intervened in an attempt by the US government to resolve the row behind the scenes and work also being done by the United Nation’s department of economic and social affairs Expert Group to reach an amicable settlement. The problem dates back to 2005, and again in 2010, when Argentina restructured its debt with 93 per cent of its debt holders. The seven per cent who held out formed a class action group in order to retrieve their original debt. However, Argentina had in the meantime passed a law prohibiting the government from paying the seven percent of holdout creditors. This was the4 issue involving the New York court.

Let us now skip to Ghana, where a number of the creditors, also so-called Vulture Funds, armed with a New York court injunction, had the Argentinian Navy frigate impounded in the Ghanaian port. However the court was ordered by the International Tribunal for the Law of the Sea to release the vessel as, the ITLS alleged, the court did not have jurisdiction. But before it could do so, the Ghanaian government freed the vessel – again, bringing about a potential conflict between the Ghanaian courts and the government.

Let us pause and reflect on the likelihood of a US court impounding a military vessel from another sovereign state, which was then ordered by an international tribunal to release the vessel. Would the US government have intervened to carry out the instructions of the international tribunal? Just remember that the US does not recognise many of these so-called supranational bodies, such as the International Criminal Court and the International Convention on Human Rights.

Barrack:
Mr Barrack is a locally-based builder who undertook a project on behalf of the government, as an individual or a corporation. Subsequently he has been in dispute with the government over the payment of that debt, now estimated to be about Bds$70m, but growing everyday with growing interest. The bottom line is that the DLP government has effectively subordinated Mr Barrack’s debt, which in itself is prima facie illegal, and has through its behaviour also introduced in practice, if not in law, its own version of the Argentinian Lock Law, which legalised the restructuring, in that it is determined to pay Mr Barrack, but only on its own terms. Again this is illegal, since Mr Barrack should have had preferred creditor status for the work he undertook on the state’s behalf. Certainly he should have been prioritised above the promised guarantee and loan to Four Seasons, for example. This quite clearly is a case crying out for resolution by the moribund CCJ, since the local courts are clearly unable to resolve it, a clear conflict between a corporate citizen and the state. In the US, the Supreme Court prioritises all conflicts of law between state courts, a constitutional role which should have been written in the treaty agreement of the CCJ, giving higher status to legally minor cases such as that of Myrie. In fact, I have argued that the CCJ should not be a court of First Instance, by rather solely the final Appellate Court for Caricom/CSME. But that too is another story.

If the CCJ had such a function, selecting and adjudicating on cases of important conflicts of national law that set a precedent, as a final appellate tribunal, rather than a court of first instance for legally minor cases (and allegations of assault by state employees are minor and should have been resolved within days by disrepute resolution), then its legal importance would have been obvious. As it is, this function is not yet clear to those of us who are not gown-wearing litigation lawyers. But what does all this gobbledegook mean for Mr Barrack’s unpaid loan?

Conclusion:
These cases are not as far removed from each other as they may at first appear (I could have included Greece, but the point has been made). Both involve the recognition of sovereignty and liability and the state’s abuse of its powers not to pay legitimate bills. Mr Barrack, on the advice of his legal and financial advisers, have an opportunity to sell his debt to an overseas private equity or Vulture Fund at a discount, on the principle that it is better to get Bds$50m in cash in his hand, than to hold out for $70mplus which he may never get. Were that to take place, that the government of Barbados runs the real risk of being declared a pariah state and being isolated from the global community.

Had I been asked for my advice, I would advise him that unless the government entered in to serious negotiations and soon, this would be the course to take. The failure to deal with integrity with the Barrack Affair is but a symptom of the decay at the heart of this DLP government. What it shows is that as small island states continue to lose influence in the wider world, in many cases giving way to jumped up so-called non-governmental organisations, they tend to turn inward on their own citizens.

The real challenges, however, are that for the 7000 islands and islets in the Caribbean to have any influence, we must speak with a single voice – Caricom/CSME can only speak for 15, and not even that. It also suggests that we must play a more active role in wider global organisations such as the Commonwealth and United Nations. The alternative, as we have seen, is that the other international treaty-bound tribunals and other organisations, are having a continuous power struggle which, as matters are resolved, continue to isolate the peripheral nations. These are serious matters which should concern the attorney general, minister of finance and the chief justice since if Mr Barrack was to sell his debt to a vulture fund, as suggested, Barbados runs the risk of having its assets held outside Caricom impounded, and maybe even within Caricom.

Maybe it is something that Mr Barrack should consider as it may resolve the debt gridlock in one fell swoop. To protect themselves, government and the central bank would have to introduce a collective action clause in its bond contracts, which in itself would raise a red flag, certainly for retail investors. It may also be too late in terms of the Barrack contract. (A collective action clause would compel investors to go down the route of a voluntary resolution in case of conflict).

There are other questions in financial law such as the legal status of a sovereign bond. Is it a protected investment, or can the state renege on its commitments? Again these are tests for the CCJ. More than that, the CCJ has not got a centralised mechanism for dispute resolutions, thus the conflict between Trinidad and Barbados over fishermen, with Barbados and Jamaica over Myrie, and Barbados and St Vincent over drug running, Barbados and Guyana over the alleged ill treatment of Guyanese citizens in Barbados.

Finally, the Barrack case and those of pensioners and government workers not being paid collectively repudiate the myth of Barbados being the centre of the financial universe. The first principle of being a global or even regional financial centre is that is stable capital flow, based on a voluntary market-based approach.