YPF case: US court overturns US$16 billion sentence against Argentina

The U.S. Court of Appeals for the Second Circuit in New York has reversed a district court’s ruling in the prolonged trial over the expropriation of the state-owned oil company YPF.  Argentina is exempt from paying a sum exceeding $16.1 billion to Burford Capital, a UK-based hedge fund that sued the country in 2015. In 2023, New York Judge Loretta Preska ruled that the country had breached its contract. In a Friday 56-page ruling that the Herald has seen, the court said that Burford Capital’s claim, based on the YPF bylaws, was precluded by Argentina’s law governing expropriations. Christopher Bogart, Burford’s Chief Executive Officer, called the ruling “obviously very disappointing and a remarkable abandonment of the 2 rights of minority NYSE shareholders.” In a statement, he said that “unless plaintiffs can overturn this regrettable panel decision,” the firm could resort to “investment treaty arbitration” — a mechanism allowing foreign investors to directly sue host states for breaches of international treaties before independent tribunals. Burford’s shares sank by 40% after the ruling was made public.  “Burford’s business today is driven by a large portfolio of matters apart from YPF. That core business continues to perform strongly,” he said. YPF’s shares climbed by over 5%. Burford said the ruling is “sufficiently extraordinary that we expect that the plaintiffs will seek rehearing en banc by the entire Second Circuit, although statistically the Court rarely grants such requests.” En banc means a session in which all the judges of a court sit to hear a case, and not just a panel. Following that decision, the firm would “consider further steps, including whether to seek further review from the Supreme Court of the United States.” The top court should first accept the case. The case The case dates back to 2012, when Argentina’s Congress expropriated 51% of YPF shares from Spanish multinational Repsol, which was the majority shareholder at the time, giving the state majority control of the company. Argentina expropriated the company without conducting a tender offer to minority shareholders, as required by YPF’s corporate bylaws. In 2015, Burford Capital sued Argentina in the District Court for the Southern District of New York after buying the right to litigate in the name of Petersen Energia Inversora and Petersen Energía, two companies belonging to the local Ezkenazi family, which owned part of the remaining shares. They got the litigation rights by financing the lawsuit for Armando Bentacor Álamo, the court-designated insolvency administrator of the Petersen companies. Last year, Preska even ordered Argentina to hand over its shares of YPF as a partial payment to the plaintiffs. The appeals court’s ruling concluded that the “breach of contract damages claims against the Republic are not cognizable under Argentina’s civil codes and public law governing expropriation.” The U.S. government has consistently backed Argentina in the case. Recently, the U.S. Justice Department supported an emergency motion filed by Argentina to suspend a discovery process, considering it excessively intrusive and contrary to the principles of international comity and reciprocity. Burford was trying to obtain communications from Argentine officials in an attempt to find assets it could seize as partial payment for the trial. Political reactions President Javier Milei celebrated the ruling during an event at the Human Capital Ministry’s education center. “We’ve beaten Burford in the United States,” he said. He thanked YPF CEO Horacio Marin and the Treasury Prosecutor’s Office. “We’ve managed to prevent Argentina from having to pay $18 billion,” he said, referring to the principal and the interests which the country was also ordered to pay by Judge Preska. The president also added: “Since I’m Milei, I’m going to say it Milei-style. We had to come in and clean up the messes made by that useless, idiotic, incompetent [Axel] Kicillof during the second administration of the corrupt and imprisoned [former president] Cristina Fernández de Kirchner.” Kicillof, a Peronist leader and the current provincial governor of Buenos Aires, was in charge of the YPF takeover as deputy economy minister in 2012. Many now consider him Milei’s main political rival in the 2027 presidential elections. Over the years, different national governments maintained the same legal strategy, without changing the law firm representing the country — Sullivan & Cromwell LLP. Sebastián Soler, who served as deputy Treasury prosecutor during Alberto Ferrnández’s administration (2019-2023), noted that there is a political consensus that the renationalization of YPF benefited the country, but that some insisted that the firm was “improperly expropriated.” “Starting today, they can’t say,” he said in a post on X. “The case was won because the expropriation was carried out properly, in compliance with the only laws that matter — those of our country,” he wrote. “And because, despite President Milei’s distasteful and opportunistic statements, his government reiterated in the appeal the same legal arguments that the Argentine defense had already raised during the previous administration.” Former president Cristina Fernández de Kirchner said in an X post that Sullivan & Cromwell LLP “upheld Argentina’s legal arguments that the provisions of a corporation’s bylaws cannot prevail over the National Constitution and a country’s legal system.” She added that Argentina’s position was supported by the United States’ government, under both Democratic and Republican administrations.  “It is also clear that the political decision to reclaim YPF and our energy sovereignty was strategic for our country; because with the development of Vaca Muerta, beginning in 2012… today we can proudly say that Argentina has a surplus of billions of dollars in its energy balance,” she concluded.