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Cuba may face more lawsuits after ruling on Castro-era debts

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

Yamil Lage | AFP | Getty Images

Cuba will likely face more — and costlier — lawsuits over billions of dollars’ worth of unpaid commercial debts from the 1980s after a decision Tuesday by a UK High Court judge.

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

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The loans were granted 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.

Justice Sara Cockerill, who delivered Tuesday’s decision, oversaw a trial that started in late January and lasted two weeks and was beset by intrigue and chaos outside the UK High Court.  

That trial was about four issues: whether CRF could sue in the UK; whether the debts were properly transferred to the investment fund; whether the central bank could be sued; and whether the Cuban government was a guarantor on the debt and could be sued as well.

The judge ruled in favor of CRF on three of four of the issues. She said the High Court has jurisdiction, the debt was properly assigned to CRF, and that the former central bank is responsible.

Yet she ruled that Cuba itself is not a guarantor of the debt, a win for the communist nation.

David Charters, the CRF1 chair, described Cuba’s win as temporary, and based on a technicality. He said the fund on Tuesday filed once again with ICBC Standard Bank, the debt’s custodian, to have Cuba assigned as the guarantor. He said BNC has 28 days to respond and believes CRF will prevail.

“BNC was the Central Bank of Cuba and remains responsible for managing these unpaid Cuban debts,” he said. “Cuba won a technical point in this judgement which we have already remedied, and we do not expect this issue to impact the eventual final outcome, which is a complete victory for CRF.”

Lawyers for CRF said the fund can now proceed to a trial to determine whether it can recover “the sovereign debt that in unequivocally owns.

What the ruling means 

This trial was seen as a test case. CRF owns more than $1 billion in face value of Cuba’s defaulted debt. If CRF were to win on this small slice of Cuba’s total outstanding commercial debt, estimated at $7 billion, it could lead to lawsuits from CRF other debt holders.

The judge said Cuba’s description of CRF as a vulture fund “was not persuasive,” as the fund had made repeated attempts to settle with the Cuban government.

The judge also went to great lengths in the written judgement to emphasize that Cuba had withdrawn an accusation of bribery against one of CRF’s officers, Jeet Gordhandas. The judge said Gordhandas “has been damaged” as a result of the accusation.

If Cuba is ever to reenter the international capital markets, it will have to settle many outstanding debts.

“Cuba owes money, lots of money, to CRF, to governments, to companies, and $1.9 billion in 5,913 certified claims” to U.S. entities whose assets were seized during Fidel Castro’s communist revolution, said John Kavulich, longtime head of the U.S.-Cuba Trade and Economic Council. “Successive governments of Cuba have not been absolved by the decision of the court.”

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

Charters, the CRF chairman, said the fund would still prefer a negotiated solution rather than litigation.

“CRF remains committed to finding a solution with Cuba that has zero 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 reached through constructive dialogue and cooperation.”

Cuban officials declined to comment despite repeated requests. The Cuban government did publish an article in its state-run newspaper, Granma, with the headline: “Republic of Cuba wins lawsuit in London: CRF is not a creditor of the Cuban State.”

However, the article goes on to acknowledge that Banco Nacional de Cuba will be subject to litigation.


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