Crisis-hit Argentina defaulted on over $100bn (£65bn) of debt in 2002 and has restructured its debt twice, slashing 75 per cent off the value of the bonds.
Over 90 per cent of bondholders agreed to write off most of the amount owed.
But vulture funds NML Capital and Aurelius, which picked up the debt in secondary markets on the cheap, demanded that Argentina pay the entire $1.3bn and refused to take a "haircut."
However, Argentina refused to pay anything, arguing that to do so would be discriminating against reasonable bondholders who co-operated with the country's efforts to rebuild its economy.
The case has now been referred to the US Supreme Court, but developing world debt activists doubt that it will be accepted for consideration.