A woman walks past Cuban flag graffiti in Havana on May 31, 2022.
Yamil Lage | AFP | Getty Images
Cuba will likely face more and more costly lawsuits over billions of dollars in unpaid trade debts since the 1980s after a ruling by a UK High Court judge on Tuesday.
The judge ruled mostly in favor of CRF1, originally called the Cuba Recovery Fund. The fund sued Cuba and its former central bank, Banco Nacional de Cuba, in 2020 for about $72 million in overdue principal and interest on two loans it now holds.
The loans were extended to Cuba by European commercial banks in the 1980s, when Fidel Castro ruled the Caribbean nation, and were denominated in German Deutschmarks, a currency that no longer exists.
Judge Sara Cockerill, who delivered Tuesday’s ruling, oversaw a trial that began in late January and lasted two weeks and was plagued with intrigue and chaos in the UK High Court.
This lawsuit focused on four issues: whether CRF could sue in the UK; whether the debts have been correctly transferred to the investment fund; whether the central bank could be sued; and whether the Cuban government was a guarantor of the debt and could also be sued.
The judge ruled in favor of the CRF on three of the four issues. She said the High Court had jurisdiction, the debt had been correctly attributed to the CRF and the former central bank was liable.
Yet she ruled that Cuba itself was not a guarantor of the debt, a victory for the communist nation.
David Charters, the president of CRF1, described Cuba’s victory as temporary and based on a technicality. He said the fund filed a new request on Tuesday with ICBC Standard Bank, the debt depository, to name Cuba as a guarantor. He said BNC had 28 days to respond and believed CRF would prevail.
“The BNC was Cuba’s central bank and remains responsible for managing these outstanding Cuban debts,” he said. “Cuba won a technical point in this judgment which we have already remedied, and we do not expect this issue to have an impact on the eventual final result, which is a complete victory for CRF.”
Lawyers for CRF said the fund can now proceed with a trial to determine whether it can recover “sovereign debt which is unequivocally its own”.
What the decision means
This trial was considered a test case. The CRF holds more than $1 billion in face value of Cuba’s defaulted debt. If the CRF were to earn on this small slice of Cuba’s total outstanding commercial debt, estimated at $7 billion, it could result in legal action from other holders of the CRF’s debt.
The judge said Cuba’s description of the CRF as a vulture fund “was not convincing” because the fund had repeatedly attempted to settle with the Cuban government.
The judge also went to great lengths in the written judgment to point out that Cuba had withdrawn a corruption charge against one of the CRF officers, Jeet Gordhandas. The judge said Gordhandas “was damaged” as a result of the charge.
If Cuba ever wants to re-enter international capital markets, it will have to settle many outstanding debts.
“Cuba owes money, a lot of money, to the CRF, to governments, to companies, and $1.9 billion in 5,913 certified claims” to US entities whose assets were seized during the communist revolution in Fidel Castro, said John Kavulich, longtime leader of US-Cuba. Economic and commercial advice. “Cuba’s successive governments have not been absolved by the court’s decision.”
The judge’s decision also revealed more about the behind-the-scenes negotiations the fund has attempted over the years. In March 2021, the fund offered Cuba a zero-coupon instrument, with no principal payments for five years. In November 2017, CRF offered to exchange “the balance of commercial debt for licenses, concessions and/or permits for large investment projects, in line with the priorities established in the portfolio of opportunities published by the government Cuban”.
Charters, the chairman of CRF, said the fund would always prefer a negotiated solution to litigation.
“CRF remains committed to finding a solution with Cuba that has no impact on its budget for at least 5 years, recognizing the difficult economic situation the country is facing,” he said. “We believe that a mutually beneficial solution can be found through constructive dialogue and cooperation.”
Cuban officials declined to comment despite repeated requests. The Cuban government has made publish an article in its state newspaper, Granma, with the headline: “The Republic of Cuba wins a lawsuit in London: the FIU is not a creditor of the Cuban state”.
However, the article goes on to acknowledge that the Banco Nacional de Cuba will be subject to litigation.