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That value of English law thing again

Bondholders, who were forced to accept losses of around 75pc on their debt two months ago or lose everything, hired lawyers to claim they were \”fraudulently misled\” after Athens repaid €435m to debtors who resisted the restructuring.

The bondholders who got paid out in full were the people holding English law bonds, not Greek law ones. That is, bonds that the Greek Parliament could not retrospectively alter the terms of as they did the Greek law ones.

Shows something of the value of this rule of law malarkey really, doesn\’t it?

16 thoughts on “That value of English law thing again”

  1. “repaid €435m to debtors” ??

    Surely they mean creditors?

    But even the Economist struggles with the distinction between debtors and creditors sometimes…..

  2. So Much For Subtlety

    It is a shame London is so successful as a source of international contract arbitration. If it was merely one centre among many, we could compare the different outcomes.

    After all, it is possible that the London-based bonds are being paid out because they are foreign held. Not because of the London thing. If they were held under Brazilian law, they may still have been paid out.

    So if they were arbitrated all over the world, they would, presumably, be priced differently. Then we could write a really interesting paper showing a comparison of the value of the Brazilian or South African or whatever legal systems. It would neatly show how much corruption and incompetence actually costs. Do you think bonds held under French law would be closer to ones held under English or ones held under Argentinian law?

    But as it, we can’t tell if it is London wot does it.

  3. Tim, I think you’ve got this back to front?
    The hold out bondholders refused to exchange their old (Greek law) bonds for haircut (English law) bonds.
    The due date arrives and the hold out bondholders arrive at the cashier’s window. To avoid more grief, they get paid out 100%.

    Given that the haircut bonds are trading at 20% of par (a 94% loss) I’m not surprised the other bondholders are spitting.

  4. Yes, two things mixed up here – English law and ‘foreign’ law (‘foreign’ in this context meaning ‘not Greek’).

    I suspect the main advantage is the ‘not Greek’ bit, to reduce the risk of manipulation by the Greek government or parliament.

    Maybe also a non-euro advantage to English law? Although in this case I think I’d have gone the whole hog and chosen a non-EU country. Delaware?

    But if things get much worse it might be an advantage to have UK gilts issued under non-UK law.

  5. Can the English make a law so powerful that they cannot later overturn it?

    Nope. The doctrine of parliamentary supremacy. Although, as the Blair govt found out with the reform of the role of the Lord Chancellor (they wanted to abolish it) stuff can be so embedded in so many statutes and assumptions that it can be difficult to excise.

  6. Tim is right: the Greeks paid out on these bonds because they are governed by foreign (in fact English) law.

    I think they made a mistake in paying; they’re likely to get sued now at least by previous holders of English-law debt who accepted the write-down. They might as well have kept their money and let the vulture funds sue: it would have been open to an incoming government to settle later if it so chose.

  7. If I’m right and the refuseniks got paid out at par on old greek bonds under greek law then…

    The restructured (robbed) bondholders will have to winge all the way to Athens. (Good luck with that.)

    The ECB should be shitting their pants. Sure, like the IMF they are senior creditors. But to preserve at least a banking system the Greeks might repay all the domestic banks (junior) that have lent them money, then say to ECB (now bust) Sorry no money left.

    Noone has dared to do this to the IMF yet, but there’s a first time for everything.

  8. Paul B at 7. I agree. Vulture funds might well get a judgment from an English court. But getting a judgment is not the same thing as enforcing it.

  9. What is England going to do if Greece refuses to pay out on bonds governed by English law? Send in the army?

    Ultimately any state can tell you to go get shagged.

  10. But if things get much worse it might be an advantage to have UK gilts issued under non-UK law.

    No, it won’t. The UK is not going to default on its debt; anyone who believes the UK is going to default on its debt has literally no idea what they are talking about. Because the UK issues its debt in pounds.

    So the UK may, if things go badly-but-not-impossibly-so, inflate away its debt. But that isn’t considered to be default, so the law under which the bonds are issued doesn’t matter in the slightest.

    If the markets believed that this was possible/likely, then the UK would find itself obliged – like many developing countries – to issue bonds denominated in foreign currencies. At *that* point, foreign law might be an advantage.

  11. So Much For Subtlety

    JamesV – “What is England going to do if Greece refuses to pay out on bonds governed by English law? Send in the army? Ultimately any state can tell you to go get shagged.”

    In America people often seize the assets of the State. So if the unrepentant but slightly reformed Communists renationalise everything the bond holders can ask the British police to seize every airplane from Hellenic that touches down at Heathrow. Maybe even stuff from the Embassy. Governments usually have some money in British banks.

  12. SMFS, sure you can get court orders for confiscation of your debtor’s assets, but the assets of the Greek government accessible to the UK courts are going to be trivial compared to the value of bonds that might be defaulted – and would likely be run down substantially before any planned default.

    Dunno about the planes either – I vaguely remember a case of an Israeli wanted somewhere in Europe who travelled to that country without knowing it (I believe he found out on the way) and stayed on the plane while it turned around – the authorities were not permitted to board the plane even while on their soil. I’m sure there are some limitations to jurisdiction over ships and aircraft just because they happen to call in your ports. But it’s academic, if Greece could settle its debts by handing over a couple of second-hand 737s there would be no issue.

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