Palladian Partners L.P v The Republic of Argentina
| Jurisdiction | England & Wales |
| Judge | Mrs Justice Cockerill |
| Judgment Date | 21 July 2020 |
| Neutral Citation | [2020] EWHC 1946 (Comm) |
| Court | Queen's Bench Division (Commercial Court) |
| Docket Number | Case No: FL-2019-000010 |
| Date | 21 July 2020 |
[2020] EWHC 1946 (Comm)
Mrs Justice Cockerill DBE
Case No: FL-2019-000010
IN THE HIGH COURT OF JUSTICE
OF ENGLAND AND WALES
COMMERCIAL COURT
QUEEN'S BENCH DIVISION
Royal Courts of Justice,
Rolls Building
Fetter Lane, London,
EC4A 1NL
Susan Prevezer Q.C. and Alex Barden (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Claimants
Ben Valentin Q.C. and Tamara Oppenheimer Q.C. (instructed by Sullivan & Cromwell LLP) for the First Defendant
Adam Zellick Q.C and Ian Bergson (instructed by Reed Smith LLP) for the Second Defendant
Hearing dates: 29, 30 June 2020
Draft Judgment sent to parties: 13 July 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
The claim is concerned with amounts said to be due to each of the Claimants under certain Euro denominated securities, originally issued by the First Defendant, the Republic of Argentina (“the Republic”) in 2005 and 2010 and linked to its Gross Domestic Product (“GDP”) (“the Securities”).
The Republic issued the Securities as part of a restructuring which gave creditors 25 to 35% of what they were originally owed. The Securities provide for payment each year of an amount linked to GDP (“the Payment Amount”), if certain pre-conditions are satisfied.
One such pre-condition to payment under the Securities in any given year (“the Performance Condition”), relates to the year on year economic performance of Argentina. For any given year, it compares percentage growth in Actual Real GDP measured in constant (base year) prices to percentage growth in a prescribed Base Case GDP also measured in base year prices. Initially and until 2013 the base year used (“the Year of Base Prices”) was 1993.
The Securities give the Republic the freedom to rebase its GDP statistics to a different Year of Base Prices. In 2013 it did so, and as a result, the Ministry of Economy announced the Payment Condition for that year was not met and that no payment was due to any of the Holders of the Securities.
The Claimants take issue with that decision and process. They say that they are owed the amount which would have been payable if the Year of Base Prices had not been changed, an amount totalling between allegedly €525–€645 million (depending on the basis of calculation). They have claimed in this court for a variety of forms of relief. The claim is for breach of contract, but also comprehends declaration, order for payment, damages or specific performance.
By this Application, issued on 4 March 2020, the Republic seeks to short circuit this claim by seeking two orders, which if granted would dispose of the claim. Those two applications are:
i) For summary judgment. Its contention is that on the proper construction of the terms and conditions applicable to the Securities and in particular according to the terms of what has been called the “Binding Effect Provision”, the Ministry of Economy's determination that no payment was due to the Claimants in respect of Reference Year 2013 is binding on the Claimants, unless they have properly pleaded and can prove bad faith, wilful misconduct or manifest error on the part of the Ministry of Economy (the “Construction Issue”); and
ii) To strike out the claim on the basis that the Claimants' pleaded case in respect of the essential secondary allegation of bad faith, wilful misconduct and/or manifest error is defective (the “Pleading Issue”).
Unsurprisingly that application is hotly contested by the Claimants. In a nutshell their position is that:
i) The Binding Effect Provision is not applicable to the exercise with which it takes issue, namely the ascertainment of whether the Performance Condition was met, but only to a subsequent exercise of calculation of the Payment Amount;
ii) Even if it were so applicable it is not applicable to all of the Claimants claims; and
iii) Even if both of those points were wrong, they have a perfectly adequately pleaded case on manifest error, wilful misconduct and/or bad faith.
The legal principles underpinning the exercise of the powers to grant summary judgment and to strike out were not in issue, and need not be considered here.
Background
The background to the Securities involves the fact that the original Holders were formerly owed money by the Republic and as part of the arrangement for the issue of the Securities took what might be colloquially described as a considerable haircut. The Securities thus at their inception provided billions of dollars of debt relief to the Republic. At the same time they provided for contingent additional payments to the holders of the Securities — if but only if certain thresholds were exceeded.
Under the Securities, which have a 30-year lifespan from 2005–2034, the question of such further payment is assessed annually by reference to calendar years (defined as “Reference Years”).
The question of whether a payment is to be made is determined by the satisfaction of three Conditions – being (i) the GDP Level Condition, (ii) the Performance Condition and (iii) an Aggregate Payments Condition:
“Notwithstanding anything to the contrary hereunder, Holders of this Security shall not be entitled to receive any payment pursuant to this Security in respect of any Reference Year unless (i) Actual Real GDP for such Reference Year is greater than Base Case GDP for such Reference Year [the GDP Level Condition], (ii) Actual Real GDP Growth for such Reference Year is greater than Base Case GDP Growth for such Reference Year [the Performance Condition], and (iii) the aggregate amount of all payments made by the Republic hereunder, when added to the amount of such payment, does not exceed the Payment Cap [the Aggregate Payments Condition].”
The determination of any Payment Amount, is contingent on satisfaction of those Conditions. Determination of the Payment Amount involves a formula to determine what is defined as “Excess GDP” and “ Available Excess GDP”. It is then necessary to apply a “ unit of currency coefficient” and a “ free market exchange rate” to determine the amount actually payable to holders of securities in the relevant currency.
The Payment Amount is defined thus, (with one of the so called Binding Effect provisions in dispute here forming the last part of the clause):
““Payment Amount” means, for any Payment Date, an amount equal to (i) the Available Excess GDP (converted to [U.S. dollars] [euro] [Other currency]) for the Reference Year corresponding to such Payment Date, multiplied by (ii) the notional amount of this Security outstanding as of such Payment Date; provided that, if for any Payment Date, the Payment Amount determined in accordance with the foregoing would, when added to all prior Payment Amounts paid by the Republic hereunder, exceed the Payment Cap, the Payment Amount for such Payment Date shall instead be an amount equal to the Payment Cap minus the sum of all such prior Payment Amounts. The Payment Amount shall be determined by the Ministry of Economy on the Calculation Date preceding the relevant Payment Date. All calculations made by the Ministry of Economy hereunder shall be binding on [all relevant persons including holders], absent bad faith, willful misconduct or manifest error on the part of the Ministry of Economy”.
Whilst the Payment Amount produced by the formula may be positive in any given year, the Republic is only required to actually make a payment in years when each of the Conditions are also met. So if the Performance Condition is not met, the Republic will not go on to calculate the Payment Amount, even if that separate calculation would produce a positive figure. GDP is therefore critical to the obligation to make a payment. Page 1 of the Securities makes this very clear: “ The only amounts payable in respect of this security are the payments contingent upon and determined on the basis of the performance of the Gross Domestic Product of The Republic of Argentina (“The Republic”) referred to herein”.
The Securities are governed by a document called the Trust Indenture, the terms of which were incorporated into the Securities; a point which becomes relevant to the arguments on the Binding Effect provisions at the heart of this dispute.
At the heart of the dispute is the operation and application of the “Performance Condition”. As noted above, for the Performance Condition to be met in respect of any Reference Year, “ Actual Real GDP Growth” must exceed “ Base Case GDP Growth”.
As for the relevant terms;
i) “ Actual Real GDP Growth” is defined as:
“…the percentage change in Actual Real GDP for such Reference Year, as compared to Actual Real GDP for the immediately preceding Reference Year; provided that, if the Year of Base Prices employed by INDEC for determining Actual Real GDP for such Reference Year and the immediately preceding Reference Year shall differ, then Actual Real GDP for the immediately preceding Reference Year shall for this purpose be measured using constant prices for the Year of Base Prices applicable to the Reference Year in respect of which Actual Real GDP Growth is being determined.”
ii) “ Base Case GDP Growth” is defined as:
“…the percentage change in Base Case GDP for such Reference Year, as compared to Base Case GDP for the...
To continue reading
Request your trial
-
Palladian Partners LP v The Republic of Argentina
...This was followed by an application by the Republic for summary judgment. Cockerill J dismissed that application on 21 July 2020: [2020] EWHC 1946 (Comm). 11 The Securities were first issued as part of a major sovereign debt restructuring launched in 2005, in the wake of a national financi......
-
Sebastian Townsend Ukegheson v Gresham Insurance Company Ltd
...give summary judgment on a claim for fraud was a “draconian” step, relying on the statements of principle in Palladian Partners LP and others v The Republic of Argentina and another [2020] EWHC 1946 (Comm). I have also in mind the statements of the House of Lords in Three Rivers DC v Bank ......