Suspension of Payment of Sovereign Debt: The Argentine Supreme Court of Justice Rejects the Exequatur of a Foreign Court Judgment

On March 6, 2014, the Argentine Supreme Court of Justice (the “Supreme Court”) decided on the appeal proceedings brought by plaintiff in re. “Claren Corporation c/ Estado Nacional (Artículos 517/518 CPCC Exequátur) s/ Varios” (the “Case”).
The decision of the Supreme Court was against the recognition of the judgment of a court of the United States of America ordering Argentina to pay to plaintiff amounts owed under bonds representing public external debt that were included in the payment deferral of the year 2002. The decision was grounded on the conclusion that the recognition of such foreign judgment would affect principles of Argentine public policy (orden público).

1. Background
Claren Corporation brought the Case before the Argentine courts to obtain the recognition of the judgment rendered by District Judge Thomas P. Griesa, of the Southern District of New York, United States of America, that ordered the Republic of Argentina to pay a given amount of money to plaintiff due to the default of certain public debt bonds issued by the Argentine government (“Bonex 2017”).
The claim raised by Claren Corporation was rejected by the first instance court and the appellate court, on the ground that admitting the exequatur would violate Argentine public policy. Please refer to our comments in Marval News # 94 and # 103.
Claren Corporation brought appellate proceedings before the Supreme Court to attempt to change the appellate court’s decision. The appellate proceedings were granted, and the Attorney General stated in her opinion that the appellate court’s decision had to be affirmed. Please refer to our comments in Marval News # 127.

2. The Supreme Court’s decision
The Supreme Court agreed with the arguments put forward by the Attorney General in her opinion, including the following:
(a) the consent given by the Republic of Argentina to submit to the jurisdiction of the courts of New York does not exclude the subsequent foreign judgment from being scrutinized under Argentine public policy principles;
(b) the control of public policy principles must be made at the time an exequatur is brought before an Argentine court as a condition precedent to the recognition of the foreign judgment and may not be postponed to the time of enforcement of such judgment; and
(c) Bonex 2017 were included in the emergency measures taken by the Argentine government since 2001 because of its inability to honor the sovereign debt payment in the manner agreed upon, in order to face the  serious crisis that emerged at the end of such year.
In this context, the Supreme Court shared the conclusion of the Attorney General: granting the exequatur would violate public policy since it would allow plaintiff, by means of an individual action brought before a foreign court, to circumvent the restructuring process put in place by the Argentine government through the relevant emergency rules passed by the competent authorities.
The Supreme Court also explained that the above conclusion is in line with its own precedents. In re “Brunicardi” and in re “Galli”, the Supreme Court had already made a broad construction of the powers of the Argentine government to take exceptional measures in times of grave crises that could limit, suspend or restructure debt payments in accordance with the government’s actual payment capacity, the provision of essential public services and the fulfillment of basic public duties.
From that perspective, the Supreme Court affirmed that “the rules passed by the competent authorities in accordance with the Argentine Constitution and by means of which the Argentine government exercises the above powers, are part of the Argentine public policy; consequently, a foreign judgment which is contrary to that policy may not be recognized.” Therefore, the Supreme Court affirmed the appellate court’s decision.

3. Final comments
The Supreme Court’s decision sets a precedent that precludes the recognition of foreign judgments condemning the Republic of Argentina in relation to obligations arising from its public debt, at least for as long as the rules currently applicable to this matter remain effective.
To the extent that it may not be feasible (i) to enforce a foreign judgment outside of Argentina for lack of appropriate assets, (ii) to obtain the conversion of the foreign judgment into an Argentine instrument recognizable and enforceable in Argentina, or (iii) to obtain an Argentine judgment condemning the Argentine government (as this would be contrary to the precedent set in “Galli” - and reaffirmed in this Supreme Court’s decision-), thus the possibility of collecting payment through judicial means is precluded. The only channel left would be through the debt exchange offer to bondholders made in the year 2005, and reopened in 2010 and in 2013 (though the implementation of the latter is still pending).