ARTICLE
Payment suspension of public external debt
A first instance ruling states that suspension of payment of public external debt is a public policy decision.
May 31, 2010
On March 2, 2010, in re “Claren Corporation c/ Estado Nacional (Artículos 517/518 CPCC Exequátur) s/ Varios”, judge Pablo G. Cayssials of the National Court in Federal Administrative Matters (Juzgado Nacional de Primera Instancia en lo Contencioso Administrativo Federal) No. 9 rejected the exequatur filed by Claren Corporation in order to obtain the recognition and enforceability of the judgment of the New York Southern District Court, United States of America that ordered the Republic of Argentina to pay a given amount of money to the plaintiff due to the default of External Global Bonds 2017.
The claim before the U.S. court had been based on the grounds that the agreements concerning the issue of such bonds have appointed the law of the State of New York as the governing law and the jurisdiction of the New York courts. Both the foreign law and foreign jurisdiction had been approved by Argentine law. In addition, the execution of the pertinent agreements and the issue of the bonds were private acts of the Republic of Argentina (iure gestionis) rather than governmental acts (iure imperii); consequently, neither the Republic of Argentina nor its assets were immunity protected.
The Republic of Argentina, on the other hand, alleged that the acts suspending payment of its external debt and restructuring due to the Public Emergency and Foreign Exchange Reform Law No. 25,561 (the “Emergency Law”) were public acts (iure imperii) and therefore, did have immunity protection.
As mentioned above, the Argentine judge rejected the exequatur. His ruling was based on the following arguments:
a) The exequatur proceeding must verify that the foreign judgment (i) does not affect Argentine public policy, (ii) resulted from a personal action, (iii) had been issued by a competent foreign court in accordance with the Argentine conflict of laws principles regarding jurisdiction, (iv) has guaranteed the defendant against whom enforcement of the judgment is sought had been given an opportunity to defend itself against the foreign action, and (v) must have been valid in the jurisdiction where it was rendered and its authenticity established in accordance with the requirements of Argentine law.
b) The main purpose of the exequatur is public policy protection.
c) Public policy is those principles that are established to protect legislative local policy and prevents foreign law from distorting it.
d) The immunity of jurisdiction of the Nation is among Argentine public policy principles.
e) Immunity of jurisdiction is based on each country’s sovereignty, equality and independence.
f) Immunity of jurisdiction applies to sovereign acts (iure imperii) but not to iure gestionis (commercial or private acts).
g) The Emergency Law declared the public emergency of social, economic and financial matters. The Emergency Law protects the primary necessities for the economic survival of the population in a historical national emergency context. The judge took this argument from what was awarded by the Italian Supreme Court of Appeal (Corte Suprema di Cassazione) in re “Borri” on April 21, 2005, in which the default of the Argentine Global Bonds 2008 was discussed.
h) The Argentine Supreme Court (Corte Suprema de Justicia de la Nación) has stated that to defer future payments is a sovereign act, regardless of the way such deferral was communicated to foreign creditors (re “Brunicardi” dated December 10, 1996).
i) Even when agreements and bonds have a private nature the default “due to law 25,561 because of the public emergency’s compelling circumstances is an act of sovereign will of the Republic of Argentina, a governmental act, regarding which the Argentine Government has not submitted to foreign jurisdictions.”
j) The New York Southern District Court has ignored the sovereign immunity principle regarding the Republic of Argentina.
This ruling is a first instance judgment so the exequatur is still waiting for a final resolution of the Federal Court of Appeals in Administrative Matters (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal) or of the Argentine Supreme Court (Corte Suprema de Justicia de la Nación). Notwithstanding, it is an important precedent, especially in times of the public-external-debt-exchange proceeding that the Argentine government has recently launched.
The claim before the U.S. court had been based on the grounds that the agreements concerning the issue of such bonds have appointed the law of the State of New York as the governing law and the jurisdiction of the New York courts. Both the foreign law and foreign jurisdiction had been approved by Argentine law. In addition, the execution of the pertinent agreements and the issue of the bonds were private acts of the Republic of Argentina (iure gestionis) rather than governmental acts (iure imperii); consequently, neither the Republic of Argentina nor its assets were immunity protected.
The Republic of Argentina, on the other hand, alleged that the acts suspending payment of its external debt and restructuring due to the Public Emergency and Foreign Exchange Reform Law No. 25,561 (the “Emergency Law”) were public acts (iure imperii) and therefore, did have immunity protection.
As mentioned above, the Argentine judge rejected the exequatur. His ruling was based on the following arguments:
a) The exequatur proceeding must verify that the foreign judgment (i) does not affect Argentine public policy, (ii) resulted from a personal action, (iii) had been issued by a competent foreign court in accordance with the Argentine conflict of laws principles regarding jurisdiction, (iv) has guaranteed the defendant against whom enforcement of the judgment is sought had been given an opportunity to defend itself against the foreign action, and (v) must have been valid in the jurisdiction where it was rendered and its authenticity established in accordance with the requirements of Argentine law.
b) The main purpose of the exequatur is public policy protection.
c) Public policy is those principles that are established to protect legislative local policy and prevents foreign law from distorting it.
d) The immunity of jurisdiction of the Nation is among Argentine public policy principles.
e) Immunity of jurisdiction is based on each country’s sovereignty, equality and independence.
f) Immunity of jurisdiction applies to sovereign acts (iure imperii) but not to iure gestionis (commercial or private acts).
g) The Emergency Law declared the public emergency of social, economic and financial matters. The Emergency Law protects the primary necessities for the economic survival of the population in a historical national emergency context. The judge took this argument from what was awarded by the Italian Supreme Court of Appeal (Corte Suprema di Cassazione) in re “Borri” on April 21, 2005, in which the default of the Argentine Global Bonds 2008 was discussed.
h) The Argentine Supreme Court (Corte Suprema de Justicia de la Nación) has stated that to defer future payments is a sovereign act, regardless of the way such deferral was communicated to foreign creditors (re “Brunicardi” dated December 10, 1996).
i) Even when agreements and bonds have a private nature the default “due to law 25,561 because of the public emergency’s compelling circumstances is an act of sovereign will of the Republic of Argentina, a governmental act, regarding which the Argentine Government has not submitted to foreign jurisdictions.”
j) The New York Southern District Court has ignored the sovereign immunity principle regarding the Republic of Argentina.
This ruling is a first instance judgment so the exequatur is still waiting for a final resolution of the Federal Court of Appeals in Administrative Matters (Cámara Nacional de Apelaciones en lo Contencioso Administrativo Federal) or of the Argentine Supreme Court (Corte Suprema de Justicia de la Nación). Notwithstanding, it is an important precedent, especially in times of the public-external-debt-exchange proceeding that the Argentine government has recently launched.
This insight is a brief comment on legal news in Argentina; it does not purport to be an exhaustive analysis or to provide legal advice.