Two Cayman Island hedge funds have appealed a US court ruling that State-owned Irish Bank Resolution Corporation can avail of sovereign immunity to avoid being sued in the US by bond holders who lost money in its restructuring.

The funds – Fir Tree Capital Opportunity Master Fund and Fir Tree Value Master Fund – bought $200 million (€148 million) of subordinated Anglo Irish Bank bonds in November 2010 and unsuccessfully sued the bank in the US courts in 2011 after the Government forced bondholders to take write-downs on the value of their subordinated bonds as part of the bank’s restructuring.

Paul Smith, representing Fir Tree, argued in the US Court of Appeal in New York yesterday that IBRC could not avail of the 1976 Foreign Sovereign Immunity Act. The Act protects foreign governments from US litigation related to sovereign Acts, but does not apply to purely commercial activity and is often waived by treaty.

He told the court that in this case, IBRC fell under the commercial-transactions exception to the bar on US suits against a foreign nation because the Irish Government was attempting to stabilise its banking system by reorganising Anglo Irish.

Presiding judge Richard C Wesley responded that he remained unconvinced of the federal court’s jurisdiction: “Fir Tree purchased Anglo Irish bonds after the bank had been nationalised,” Wesley pointed out. He said that because Anglo Irish was nationalised, Fir Tree didn’t have a simple commercial contract in New York, facing a bank: it was now having to line up with other bank creditors of the Irish Government.

IBRC’s defence attorney, Walter Stewart, highlighted this point during his allocated 12-minute court address: “They [Fir Tree] bought unsecured notes, and given that it was after nationalisation, we can guess that their discount opportunity was good,” he said, dubbing Fir Tree a “predator” in this case.

Mr Stewart added that what Fir Tree was now asking was for the assets in question to be sequestered. “They’re trying to put some kind of umbrella around these assets, to elevate their status from an unsecured debt crisis purchase to a fully secured creditor, ” he said.

Mr Stewart also argued that Fir Tree’s promised payments had been ongoing from the Irish Government.

The court reserved judgment but is expected to rule in a matter of weeks.

The hedge funds had acquired the $200 million of subordinated bonds, issued by the bank in 2005, in November 2010. The bonds were being held with the Depository Trust Company, a member of the Federal Reserve, according to Fir Tree.

They were destroyed in New York after the vault where they were stored was flooded during Hurricane Sandy last October.

Last week Fir Tree was denied its request to have the oral arguments postponed, after telling the court that a conditional deal to sell the bonds was in effect. It claimed the buyers of the bonds may or may not want to replace Fir Tree as the appellant in the case. Fir Tree’s and IBRC’s attorneys said they could not comment before a ruling on the case.