ARTICLES
“universally understood” only meant unsecured and unsubordinated creditors ranked pari passu with external creditors.61 Conversely, the Plaintiffs argued the preferential payments made to Exchange bondholders meant the FAA Bondholders was de facto subordinated to the Exchange bonds without any express provision for subordination.62 Nevertheless, the Second Circuit Court agreed with the Plaintiffs. It was held that there was no evidence to suggest the “equal ranking simpliciter” interpretation constituted any settled market understanding of pari passu clauses,63 which do not have a clear and consistent meaning in the sovereign bonds market.64 Moreover, the Clause encompassed two sets of rights and obligations in separate sentences to which Argentina failed to give its full effect.65 Contracts must be interpreted without “leav[ing] one of its provisions substantially without force or effect”.66 The Court held the first sentence restricts the issuer from “formally subordinating” the FAA Bonds.67 The second sentence restricts Argentina qua debt payor from repaying similarly-situated creditors unequally.68 This interpretation was also adopted by the Brussels Court of Appeal holding that “the various creditors benefit from a pari passu clause that in effect provides that the debt be repaid pro rata among all creditors”.69 Thus, the Clause prohibits both de facto and de jure or formal
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question of contract interpretation.”). 61 NML (n 10), 258. 62 NML (n 10), 258. 63 ibid. 64 NML (n 10), 258-60, citing with approval, Lee C Buchheit, ‘The Pari Passu Clause Sub Specie Aeternitatis’ (1991) 10(12) International Financial Law Rev 11, 11; G Mitu Gulati and Kenneth N Klee, ‘Sovereign Piracy’, (2001) 56 Business Law 635, 646; Stephen Choi and G Mitu Gulati, ‘Contract As Statute’, (2006) 104 Michigan Law Review 1129, 1134; Philip R Wood, Project Finance, Subordinated Debt and State Loans (Sweet & Maxwell 1995) 165. 65 NML (n 10), 258-60. 66 Singh v Atakhanian, 31 AD 3d 425, 818 NYS 2d 524, 526 (NY App Div 2d Dep’t 2006). 67 NML (n 10), 259 (emphasis added). 68 NML (n 10), 259. 69 Translation provided by Brief for the United States of America as Amicus Curiae, in NML (n 10), 14; Original: Elliot Associates, LP v Banco de la Nacion, General Docket No
and informal subordination of the FAA Bonds or otherwise similarly-situated, unsubordinated and unsecured external debt. Consequently, Argentina was held to have breached its obligations under the Clause.70 Argentina’s moratoriums against the payment on FAA Bonds and the legislation of the Lock Law constituted informal and formal subordination, respectively. These frustrated the Plaintiff ’s right to “direct, unconditional, unsecured and unsubordinated obligations”.71 However, the Court held that even if Argentina’s equal ranking simpliciter interpretation was adopted, it would still have breached their obligations under the Clause.72 While the Court does not elaborate on this holding, the Court read the two sentences separately. Their accompanying rights and obligations were held to be distinct, though symbiotically connected. This means that even if Argentina had only violated the first sentence, that was sufficient to constitute a breach of the Clause. Accordingly, the Court upheld the injunctive relief ordered by the lower court. Monetary damages and acceleration were considered “ineffective” because Argentina would refuse to pay and leave judgment-debtors without further recourse to reclaim their loans.73 As injunctions do not attach to the state’s property,74 As injunctions do not attach to the state’s property,75 Further, there were no legislative prohibitions on injunctions against states.76 Finally, the Court found no evidential basis for suggesting the injunctions would impose undue burdens on the state by causing another financial crisis or usurping the restructuring plan.77 Thus, 2000/QR/92 (Court of Appeals of Brussels, 8th Chamber, 26 September 2000) (Unreported) 3. 70 NML (n 10), 260. 71 NML (n 10), 260. 72 NML (n 10), 260. 73 NML (n 10), 262. 74 Stephens v Nat’l Distillers & Chem Corp, 69 F.3d 1226, 1229 (2d Cir.1995). 75 NML (n 10), 262. 76 NML (n 10), 262-3. 77 NML (n 10), 263-4.