Palladian Partners LP v The Republic of Argentina

JurisdictionEngland & Wales
JudgeMr Justice Picken
Judgment Date05 April 2023
Neutral Citation[2023] EWHC 711 (Comm)
Docket NumberCase No: FL-2019-000010
CourtKing's Bench Division (Commercial Court)
(1) Palladian Partners LP
(2) HBK Master Fund LP
(3) Hirsh Group LLC
(4) Virtual Emerald International Limted
(1) The Republic of Argentina
(2) The Bank of New York Mellon (as Trustee)

[2023] EWHC 711 (Comm)


Mr Justice Picken

Case No: FL-2019-000010






Royal Courts of Justice

Strand, London, WC2A 2LL

Ms Susan Prevezer KC, Mr Alex Barden and Mr James Shaerf (instructed by Quinn Emanuel Urquhart & Sullivan UK LLP) for the Claimants.

Mr Ben Valentin KC, Ms Tamara Oppenheimer KC, Mr Samuel Ritchie and Ms Francesca Ruddy (instructed by Sullivan & Cromwell LLP) for the First Defendant.

Mr Adam Zellick KC and Mr Ian Bergson (instructed by Reed Smith LLP) for the Second Defendant.

Hearing dates: 24, 25, 27, 28 and 31 October 2022 and 1, 2, 3, 7, 8, 9, 10, 14, 15, 16, 17 and 18 November 2022.

Judgment provided in draft: 28 March 2023.

Mr Justice Picken



This is a case which, as will appear, turns on the construction of a single provision (the so-called ‘Adjustment Provision’) in an admittedly long and complex contractual framework.


I have concluded that the Claimants, four institutional and corporate investors (Palladian Partners LP, HBK Master Fund LP, Hirsh Group LLC and Virtual Emerald International Limited — collectively, ‘the Claimants’), are right in what they have to say on that construction issue and, it follows, that it is unnecessary to go on to consider an alternative case advanced by the Claimants that the First Defendant (‘the Republic’) acted in bad faith in producing certain Gross Domestic Product (‘GDP’) data in March 2014.


I have concluded, indeed, not only that it is unnecessary to address that alternative case but that it would be undesirable to do so given that it only arises in the alternative, given furthermore the seriousness of the allegations which it entails and given that those allegations are levelled against a sovereign state. Accordingly, I say no more about this alternative case.


Not having to deal with the alternative case has the additional advantage that this judgment can be shorter than would otherwise be the case. This is because, combined, the written submissions ran, in total, to some 800 or so pages, with more than half of those submissions being taken up with the construction issue, including what each side has suggested is factual matrix. In truth, however, as will appear, I have not been persuaded that the factual matrix is either as substantial as has been suggested or, in any event, that it is as helpful as has also been suggested.


I shall endeavour in what follows to be as concise as possible whilst, in doing so, seeking to address as many of the matters raised as is sensible. I have decided, indeed, that this is a case, in which, despite the length of the submissions advanced, the issues which need to be determined in order to resolve the dispute do not require a judgment which is overly long. Suffice it to say, therefore, that if I do not deal with a particular point, it should not be assumed that I have failed to take it into account; on the contrary, I have considered every matter raised.


Before saying something about the factual background, I should mention that this judgment also addresses a discrete issue which has arisen between the Claimants and the Second Defendant (‘Bank of New York Mellon’ acting as ‘the Trustee’). Again as will appear, I have reached the conclusion that the Claimants are right in what they have to say on this issue also.



The claim relates to certain Euro-denominated securities issued by the Republic in two tranches, in the years 2005 and 2010 respectively, which are linked to its GDP (the ‘Securities’). Specifically, the claim turns on whether an obligation to make a payment under the Securities arose for Reference Year 2013, and all the years after it.


The Securities are governed by English law with an English jurisdiction clause.


There are large sums at issue. If the action succeeds, the Claimants estimate that the amounts potentially due under the Securities for Reference Year 2013 to the majority of holders not party to the action range from c. €758 million to €1.18 billion.


The Claimants originally raised their claims with the Trustee, and in May 2019 served a letter before action on the Republic. After the parties were unable to resolve their dispute in correspondence, a claim was issued on 9 August 2019. The Republic's Defence was filed on 6 November 2019. 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).


The Securities were first issued as part of a major sovereign debt restructuring launched in 2005, in the wake of a national financial crisis of unprecedented scale. This followed the Republic having built up a considerable structural deficit during the 1990s, which it had funded through heavy borrowing on international capital markets after the Republic established a fixed monetary rule (the ‘convertibility’ regime) pursuant to which the Argentine peso was pegged to the US dollar at one-to-one parity, in response to a recurrence of hyperinflation and uneven growth in 1991–1992. However, following the Russian financial crisis in 1998, which shocked international financial markets, the Republic was forced to turn to domestic borrowing. The Republic, as a result, fell into recession in late 1998.


Two years later, in March 2000, voluntary domestic financing having dried up, the Republic signed a Standby Agreement with the International Monetary Fund (the ‘IMF’) for lending of US$7 billion.


A year later, in March 2001, the Standby Agreement was augmented to US$14 billion as a part of an international support package of US$40 billion.


Shortly after that, in June 2001, faced with unsustainable debt servicing costs, the then Minister of Economy, Mr Domingo Cavallo, launched a “Mega-Swap” of 52 government bonds with imminent payment obligations for new bonds with longer maturities. This involved postponing US$12.6 billion in cash payments for five years at an additional cost of US$22.1 billion, thereby significantly worsening the Republic's debt sustainability.


In late November 2001, following a substantial run on deposits, Mr Cavallo introduced crippling withdrawal limits at Argentine banks (the “Corralito”) in an effort to retain enough money in the banking system for the Republic to pay the interest falling due on its sovereign debt. This saw people being forbidden from withdrawing more than the equivalent of US$200 weekly from their bank accounts and led to widespread protests.


As a result, President Fernando de la Rúa resigned on 21 December 2001. There then followed the short interim presidency of President Adolfo Rodríguez Saá, who announced that the Republic would suspend payment of over US$80 billion of debt. At that time, this was the largest sovereign debt default in history.


These developments were followed by an intense economic depression in 2002, which paralysed economic activity, pushed inflation above 40% and tipped more than 50% of the Argentinian population below the poverty line.


By mid-2002, with a debt-to-GDP ratio of more than 130%, it was clear that the Republic needed to restructure its sovereign debt, since it would have been impossible to restart payments on its bonds as they stood. It was in this context that President Duhalde, who succeeded President Rodríguez Saá, appointed a new Minister of Economy, Roberto Lavagna, on 27 April 2002. Mr Lavagna and his team were charged with undertaking a detailed debt sustainability analysis to assess the necessary level of debt reduction and to model the level of payments which the Republic could afford to make in the future.


On 25 May 2003, Néstor Kirchner was sworn in as President. President Kirchner made implementing an effective sovereign debt restructuring and achieving debt sustainability a cornerstone of his administration's economic programme. He kept Mr Lavagna and his team in post at the Ministry of Economy (‘MECON’) in order to see through this important programme. At that time, it was “ the highest priority” of MECON to restore stability to the financial system and to return Argentina to good standing in the financial markets. This required the Republic to ensure that its debt burden was sustainable.


Before launching the exchange offer in 2005, the Republic held over 80 meetings with bondholders, including with retail investors and their brokers and representatives, as well as numerous meetings with institutional stakeholders such as the IMF, the World Bank and government officials from various countries, to negotiate and develop its restructuring proposals.


It emerged from these meetings that certain groups of bondholders believed that the Republic's economy would grow at a higher rate than that projected by MECON and that the Republic could, therefore, sustain higher levels of debt payments. Mr Katz explained in his evidence that some of the creditors thought that the Republic's potential output could be higher than 3%. It was for this reason, he explained, that the Republic introduced the concept of GDP-linked securities, which would provide bondholders with additional payments if the Republic did, indeed, grow at a higher than projected rate.


The first iterations of the proposed GDP-linked securities contained only one payment condition, which was that the level of GDP in the relevant year should be above what was known as the base case scenario for that year. However, it became clear that such a condition would not necessarily restrict payments to years when GDP growth was above trend. It was for this reason...

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