Court of Appeal rules on construction of securities linked to Argentina’s gross domestic product

On 12 June 2024, the Court of Appeal gave judgment in Palladian Partners LP v The Republic of Argentina [2024] EWCA Civ 641, dismissing Argentina’s appeal against a judgment of Picken J ([2023] EWHC 711 (Comm)) which awarded €1.33bn to institutional and corporate holders of certain Euro-denominated debt securities linked to Argentina’s GDP (“the Securities”) under which Argentina had failed to make payment.   The Securities were issued by Argentina in 2005 and 2010 against the backdrop of the Argentine financial crisis, and the resulting restructuring of its sovereign debt obligations, the largest of its kind in history.

The appeal (and the judgment below) turned upon the proper construction of a provision in the Securities regulating how ‘Base Case GDP’ – enumerated in the Securities in 1993 year of base prices (“YOBP”) as a benchmark for (in general terms) determining whether a payment should be made – was to be adjusted once the YOBP used by the Republic was inevitably updated (‘rebased’) (“the Adjustment Provision”).  In short, the Claimants (the Respondents on the appeal) contended that the Adjustment Provision required Base Case GDP to be adjusted annually after a rebasing, whereas Argentina contended for a one-off adjustment.  

In a judgment by Popplewell LJ (with which Lewison and Falk LJJ agreed), the Court of Appeal held that Picken J had been correct to apply the Claimants’ “annual adjustment” construction of the Adjustment Provision, rejecting Argentina’s contention that Picken J had wrongly applied the principles of contractual construction and failed to take proper account of the commercial implications of the parties’ respective constructions.  The Court of Appeal said that Argentina’s “arguments about commercial and economic consequences do not come close to the threshold of rendering the Claimants' construction arbitrary, absurd, irrational or nonsensical” (the threshold that would need to be crossed for the Court effectively to rewrite the language adopted by the parties).

Aside from its rulings on the specific contract at issue, the Court of Appeal’s judgment contains a comprehensive and helpful summary of the principles relating to contractual construction and of the Court’s power to correct mistakes other than by way of rectification, particularly when considering publicly traded instruments, such as the Securities.    

39 Essex Chambers member James Shaerf acted as part of the Claimants’ counsel team, both at trial and in the Court of Appeal. He was instructed by Quinn Emanuel Urquhart & Sullivan UK LLP. Read more about the judgment here.