Cuba may face extra courtroom circumstances after deciding Castro-era debt

A woman walks past a graffiti of the Cuban flag in Havana, May 31, 2022.

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Cuba is likely to face more – and more costly – lawsuits over billions of dollars worth of unpaid trade debts dating back to the 1980s, after a UK Supreme Court judge ruled on Tuesday.

The judge ruled primarily in favor of CRF1, originally named the Cuba Recovery Fund. The fund filed suit in 2020 against Cuba and its former central bank, the Banco Nacional de Cuba, for approximately $72 million in principal and past due interest on two loans it now owns.

The loans were granted to Cuba by European commercial banks in the 1980s, when Fidel Castro ruled the Caribbean country, and were denominated in German marks, a currency that no longer exists.

Judge Sara Cockerill, who announced the decision on Tuesday, oversaw a trial that began in late January and lasted two weeks and was riddled with intrigue and chaos in Britain’s High Court.

Four questions arose in this process: whether CRF can sue in the UK; whether the debts have been properly transferred to the 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 CNI three out of four cases. She said the High Court had jurisdiction, the debt had been duly assigned to CRF and the former central bank was responsible.

Still, she decided that Cuba itself was not a guarantor of the debt, a win for the communist nation.

David Charters, the CRF1 chairman, described Cuba’s victory as temporary and a matter of form. He said the fund applied again Tuesday to ICBC Standard Bank, the custodian of the debt, to assign Cuba as guarantor. He said BNC has 28 days to respond and believes CNI will prevail.

“BNC was the central bank of Cuba and remains responsible for managing this unpaid Cuban debt,” he said. “Cuba won a technical point in this judgment that we have already fixed and we do not expect this issue to affect the eventual end result, which is a complete victory for CRF.”

Lawyers for CRF said the fund could now go to court to see if it can “collect the government debt that it clearly owns.”

What the verdict means

This process was viewed as a test case. CRF owns more than $1 billion in face value of Cuba’s delinquent debt. If CRF were to win on that small chunk of Cuba’s total outstanding trade debt, estimated at $7 billion, it could lead to lawsuits from other CRF debtors.

The judge said Cuba’s description of CNI as a vulture fund was “unconvincing” given the fund’s repeated attempts to settle with the Cuban government.

The judge also went to great lengths in the written ruling to emphasize that Cuba had dropped a charge of bribery against one of the CRF officers, Jeet Gordhandas. The judge said Gordhandas had been “harmed” by the charges.

If Cuba is ever to return to international capital markets, it will have many outstanding debts to pay off.

“Cuba owes CRF, governments, corporations and $1.9 billion in 5,913 certified claims money, lots of money,” said John Kavulich, longtime head of the US-Cuba Trade and Economic Council. “Successive governments of Cuba have not been acquitted by the court’s decision.”

The judge’s ruling also revealed more about the behind-the-scenes negotiations the fund had attempted over the years. In March 2021, the Cuba Fund offered a zero coupon instrument with no principal payments for five years. In November 2017, CRF offered to “exchange the commercial debt balance for licenses, concessions and/or permits for major investment projects, in accordance with the priorities identified in the portfolio of opportunities published by the Cuban government.”

Charters, the chair of the CRF, said the fund still prefers a negotiated settlement to litigation.

“CRF remains committed to finding a solution with Cuba that has no budgetary implications for at least 5 years and recognizes the difficult economic situation the country is facing,” he said. “We believe that through constructive dialogue and cooperation, a mutually beneficial solution can be reached.”

Cuban officials declined to comment despite repeated requests. The Cuban government published an article in its state-run Granma newspaper headlined: “Republic of Cuba Wins Lawsuit in London: CRF is Not a Cuban State Creditor.”

However, the article goes on to acknowledge that the Banco Nacional de Cuba will be the subject of a legal battle.