A bondholder of Argentine restructured debt filed for an injunction before the Argentine courts against the Bank of New York Mellon, as trustee under the exchange bonds. The plaintiff claimed the distribution of funds – frozen by a US court order – that Argentina had deposited into the Bank of New York Mellon's account to comply with the payments under those bonds. The Argentine courts dismissed the request, concluding that they lacked jurisdiction.
In December 2001 Argentina faced one of the deepest crises in its history, which had economic, political and social consequences. In this context, the country's interim administration announced one of the largest ever sovereign debt defaults. The impact of the emergency measures implemented by the then government and those that followed continue to have significant effects domestically and internationally.
After the default, two debt restructurings took place. The first in 2005 was accepted by approximately 76% of bondholders, while its subsequent reopening on identical terms in 2010 increased the rate of restructured foreign indebtedness in default to over 90%.
Under these circumstances, Argentina restarted payments by means of the exchanged bonds issued within the restructurings, but rejected making any payments to creditors that did not accept debt restructuring in 2005 and 2010 (ie, holdouts). Instead, some of the remaining creditors preferred to litigate against Argentina and initiated lawsuits in different jurisdictions.
The sovereign debt litigation with the greatest international impact was NML Capital Ltd v Republic of Argentina, which is ongoing before the US courts. In NML the plaintiffs (holdouts) claimed 100% payment from Argentina of the amount due and outstanding under the defaulted bonds that they held, issued under a fiscal agency agreement prior to Argentina's 2001 default. The claim represented an aggregate principal and interest amount outstanding of approximately $1.33 billion.
In 2012 NML obtained an injunction from the US District Court for the Southern District of New York based on the pari passu provision under the fiscal agency agreement, which ordered Argentina to make payments to the plaintiffs if a payment was made under the 2005 and 2010 restructured bonds.
The district court's decision – subsequently upheld by the US Court of Appeals for the Second Circuit – also resolved that the third parties involved in the payment mechanism of the restructured bonds (including the Bank of New York Mellon) are bound to the injunctions issued within this litigation.
This injunction had been stayed until June 16 2014. On that date, the US Supreme Court rejected the petition for a writ of certiorari filed by Argentina and the injunction became effective. Consequently, as provided by the injunction, any payment to be made by Argentina under the exchange bonds triggered its obligation to pay 100% of the amount of principal and interests owed to NML.
On June 26 2014 Argentina transferred the funds to the relevant intermediary financial institutions in order to comply with the payments under the exchange bonds scheduled for June 30. One of these payments concerned the deposit made into the account that the Bank of New York Mellon – as trustee and common depositary under the trust indenture that governs a certain portion of the exchange bonds – has with the Central Bank of Argentina.
As a result of the injunction issued by the US courts, the funds that Argentina transferred to the Bank of New York Mellon were and remain frozen, which implied that the chain of payments could not be completed. Among the bondholders was Origenes Seguros de Retiro SA, an Argentine company that offers life insurance and retirement services to individuals.
In this context, Origenes applied for a self-enforcing injunction before the federal contentious administrative courts in Argentina. In its capacity as holder of exchange bonds, Origenes requested that the Argentine courts order the Bank of New York Mellon to immediately release and distribute the funds that Argentina had deposited into the Bank of New York Mellon's account at the Central Bank of Argentina.
This kind of self-enforcing injunction is intended to obtain an urgent judgment that definitively resolves the dispute raised by the applicant. Thus, unlike other precautionary measures, this type of ex parte process concludes if the court renders a favourable decision – except for the other party's right to appeal the injunction once it has been granted – and is not intended to safeguard the effectiveness of a future judgment.
In order to justify its request, Origenes held that the Bank of New York Mellon had admitted that Argentina had deposited the funds into its bank account at the Central Bank of Argentina, but had refused to make the payments to the bondholders based on the injunction issued by the US courts.
According to Origenes, the trust indenture that governs the exchange bonds contains a dual jurisdiction clause that confers jurisdiction to the courts in Argentina and the United States. Further, the plaintiff remarked that the Bank of New York Mellon's domicile under the trust indenture was located in Argentina and that the frozen payments were also situated in Argentina, as they had been deposited with its Central Bank. On that basis, Origenes considered that the Argentine courts had competence and jurisdiction to hear the claim against the Bank of New York Mellon.
Origenes concluded that the Bank of New York Mellon's failure to remit to the exchange bondholders the payment that Argentina had made was based on a decision issued by the US courts which had no legal effect and was unenforceable in Argentina, given that it had not been recognised as a foreign judgment by the Argentine courts.
Origenes sought for the application of the case law established by the Supreme Court of Argentina in Claren Corporation v Estado Nacional.
On March 26 2015 the Court of Appeals in Federal Contentious Administrative Proceedings dismissed the appeal filed by Origenes and thus upheld the first-instance decision that had rejected the self-enforcing injunction requested by the plaintiff.
The appeal court considered that the injunction that had frozen the payments that Argentina had made constituted a judicial order whose "validity, scope and eventual revocation" could be challenged only before the same courts that had issued the measure (ie, the US courts).
Further, according to the decision, it would be improper if an Argentine court were to "interfere, obstruct or ignore" the decisions handed down by a foreign court. Accordingly, the appeal court concluded that, in principle, it lacked jurisdiction to overturn the US courts' judicial decision, which had ordered the Bank of New York Mellon not to distribute the payments that Argentina had made.
Similarly, the Argentine court stated that it could not interfere with the enforcement of a judicial decision or suspend other proceedings pending before a different court by means of an injunction.
The appeal court also considered that the Argentine Supreme Court decision in Claren on March 6 2014 was not applicable to this dispute.
Claren – a bondholder that did not accept the debt restructurings in 2005 and 2010 – had requested the recognition of the judgment rendered by the US courts (which ordered Argentina to pay 100% of the defaulted bonds that it held) before the Argentine courts.
Claren's claim was rejected by the Argentine Supreme Court on the grounds that granting the exequatur would violate Argentine public policy. The court pointed out that the admission of the exequatur would imply the possibility of evading the emergency regulations that the competent authorities had passed regarding public debt restructuring, by raising an individual claim brought before a foreign court.
Further, in Origenes the appeal court considered that the US court injunction that had ordered the funds not to be distributed was a judicial decision rendered by courts with jurisdiction over the Bank of New York Mellon and was aimed directly at that entity and not at Argentina. Consequently, the appeal court concluded that this case did not involve the recognition of a foreign judgment to be enforced in Argentina and thus the case law from Claren was not applicable to Origenes.
From a strictly procedural point of view, the appeal court held that self-enforcing injunctions should be restrictively interpreted, as they involve the issuance of a decision that may be definitive without the intervention of the opposite party. Therefore, the Argentine court concluded that it is impossible to admit the claim made within the framework of a self-enforcing injunction, given that what the appellant substantially intends is the release of restricted funds by a judicial order issued by another court. According to the appeal court, this would mean that, if the claim were admitted, the effects of the prior judicial interdiction would be restrained and this result could not validly derive from another judicial order.
For further information on this topic please contact Ricardo Ostrower or Martin Vainstein at Marval O'Farrell & Mairal by telephone (+54 11 4310 0100) or email (email@example.com or firstname.lastname@example.org). The Marval O'Farrell & Mairal website can be accessed at www.marval.com.ar.
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