Payment Suspension of Public External Debt (2nd Part)

On December 30, 2010, Room V of the National Court of Appeals for Contentious-Administrative Matters affirmed the first instance ruling in re “Claren Corporation c/ Estado Nacional (Artículos 517/518 CPCC Exequátur) s/ Varios.” This measure had overturned the exequatur filed by Claren Corporation in order to obtain the recognition and enforceability of the ruling passed by a New York Southern District Court, United States of America. This ruling ordered the Republic of Argentina to pay a given amount of money to the plaintiff due to the default on External Global Bonds 2017 (please see “Payment Suspension of Public External Debt” published in Marval News # 94 dated May 31, 2010).

The ruling of the Court of Appeals, however, was not unanimous but issued with the vote of two judges (doctor Guillermo F. Treacy and doctor Jorge Federico Alemany) and the dissenting opinion of the remaining one (doctor Pablo Gallegos Fedriani).

It is worth mentioning the following arguments given by the judges in the majority:

a) The only issue to be resolved was whether the foreign ruling affected Argentine public policy.

b) The foreign ruling not only contravened Argentine public policy principles but also, specifically, the internationally-accepted principle of jus gentium (derecho de gentes).

c) Jus gentium offers objective grounds for the defense of public policy that could otherwise be challenged as being an easy way for local courts to make national laws prevail.

d) The Argentine Supreme Court (“ASC”) in re “Brunicardi” accepted the existence of a principle of international law that releases the government from international liability in case of suspension or changes, in whole or in part, regarding the payment of public external debt in case such suspensions or changes are adopted due to reasons of urgent financial need.

e) There is a difference between those liabilities that a government voluntarily undertakes with a given person and public debt. In public debt, the failure to fulfill obligations can be justified when there is a real and true inability to pay that should be recognized by the creditors as part of the risks inherent to this form of business.

f) In re “Galli”, the ASC highlighted court precedents and the opinions of international legal experts stating that a nation cannot be forced to honor agreements that exceed their repayment abilities.

g) The fact that the Argentine government had agreed to the change of jurisdiction did not imply that it was rescinding its faculties to pass any legislation deemed appropriate to solve the crisis of indebtedness. No prior governmental act can be understood to be the irrevocable waiver of a sovereign nation concerning the possibility of ruling on serious emergency situations that may arise in the future.

h) The regulation passed by the Argentine Congress in connection with the deferment of public debt payments is part of the Argentine public policy because it is mandatory law and according to it payment of the Argentine public debt in the country can be made. Such regulation pursues to guaranty the regular administration of the country and, at the same time, to avoid the crisis consequences.

We do not know whether the plaintiff will attempt to reach the ASC but even in such a scenario we cannot ignore the importance of the ruling under analysis –whether its opinions are shared or not– in particular because it is well founded on the jurisprudence of our Supreme Court for similar cases.