Arbitral awards on “pesification”

In March 2003 Marval, O´Farrel & Mairal obtained two favorable arbitration awards at the Cámara Arbitral de la Bolsa de Cereales. The issues raised were on certain money debts maintained by local corn producers with a corn export company, one of our firm’s clients.

The remarkable fact about both awards is the treatment given by the Arbitration Court to the interpretation and application of the economy emergency regime to those payments which were in arrears before the passing of Economy Emergency Law No 25,561 and Decree No 214/02.

In connection with the application of the economic emergency and debt “pesification” regime created by Law No 25,561 and Decree No 214/02 the Arbitration Court construed that the debtor cannot self-benefit over the course of time in detriment of a legitimate creditor, and that the defaulting party should always be responsible for the damages caused to creditors for itsr own delay, even if the situation could be characterized as force majeure.

The Arbitration Court made a strict application of certain Civil Code and Argentine Constitution rules, also fixing the scope of application of Section 11 of Law No 25,561 and Section 2 of the Decree No 214/02, stating that this “pesification” regime should not be applicable to those cases between individuals when payments were in arrears before the passing of said law.

The Arbitration Court also held that such emergency regulations should be analyzed together with Section 2 of Decree No 320/02, which stated that for the determination of the exchange rate applicable to the cancellation of obligations agreed in foreign currency, the replacement value of the things, goods or services involved should be considered in the first place.

In these particular cases, the Arbitration Court ruled that the corn seeds owed still maintained the same value they had at the time the contract was executed. The Argentine grain market has a net exporter tendency, and therefore follows international prices for the grains themselves and for the agro-chemicals and other raw materials usually used in the Argentine agricultural industry.

Finally, the Arbitration Courtr ordered both corn producers to cancel their debts in the original currency agreed (US dollars) plus a 12% interest annual rate. In addition, the Arbitration Court ordered that, if the producers could not pay the dollars fixed by the award, they should pay the amount of pesos necessary to acquire the amount of dollars fixed in said award in the free trade market.