Friday, March 15, 2013

The Whitelocke "Parri Passu" defence back in business

The brouhaha over the Argentine sovereign debt litigation reminded me of some of my own finest work in front of the US 2nd Circuit Court of Appeals
Everyone at the Mosman Rower’s Club is talking about the Argentine Republic’s wildly entertaining court battle with its creditors. Argentina’s plucky attorney Jonathan Blackman Esq. delved into the T.B Whitelocke playbook and boldly submitted to the Court that his beloved Argentina would not voluntarily obey any order to pay the defaulted bondholders whenever it makes payments on restructured debt. Naturally the independently minded and flamboyantly passionate people of Argentina would consider this a violation of their sovereignty. To do otherwise would be to spit on the memory of Hugo Porta and the Libertador, José de San Martin.
In response to Mr Blackman’s argument (based largely on first principles of public international law and some obscure provisions of Andean Community of Nations’ Cartagena Agreement of 26 May 1969), U.S. Circuit Judge Reena Raggi asked:
“So the answer is you will not obey any order but the one you propose?”
Showing vision and nimble footwork worthy of any of the great Argentinean trequartistas, the ever-plucky Mr Blackman responded in emphatic terms “We would not voluntarily obey such an order.”
We all knew that was coming!
My dear friends Hernan Lorenzino, Argentina’s minister of economy, and Vice President Amado Boudou were, at the time, seated next to Blackman on the leather panelled counsel table as he addressed the bench and, knowing them as I do, they would have been rolling in the aisles.
I should mention that I have regularly enjoyed a Parilla, a glass or two of Malbec and an after dinner tango with Blackman, Lorenzino and Boudou as well as my other core Argentinean consigliore Sergio “Kun” Aguero, Gabriella Sabatini, Pope Francis I and firebrand former international rugby player Federico Mendez. Referring to ourselves as ‘Los Amigos para Siempre” we have been nigh on inseparable since an infamous and nationally televised celebrity capybara hunt organised by a charity sponsored by Sabatini in the early nineties.
Back to the hearing and Blackman went on to claim that a lower-court order obliging Argentina to pay the defaulted bonds whenever it makes payments on restructured debt would not only violate Argentina’s sovereignty but would threaten to trigger a new financial crisis and would quadruple the number of similar cases in New York federal court. It would, in short, clog up the entire US legal system with Argentinean Bond cases. Given the main purpose of the US court system is to create fodder for Law & Order episodes, Blackman submitted forcefully that this would make for fairly dry fare and could have dire ratings consequences for NBC.
Signing off in style, Blackman remarked “We’re representing a government and governments will not be told to do things that fundamentally violate their principles.”
Now we all know that this sovereignty mumbu jumbo is just a smokescreen to deflect the Court’s attention from the main issue. What is really at play is the uncertain meaning of the obscure ‘pari passu’ clause in the context of sovereign debt contracts.
The court has been alive to this problem since I pioneered both the use of the parri passu clause and then the strident criticism of its inherent ambiguities in an eerily similar dispute many years ago. That was, of course, when I was acting for the good people of the Chincha Islands (a humble archipelago close to the Peruvian town of Pisco – the home of the eponymous aphrodisiac) in their infamous Guano Bonds litigation.
It is a matter of public record that, in the earlier 1980s, the Chincha Islands issued millions of dollars worth of bearer bonds to retail investors in the South West United States backed only by its local guano deposits. When the first of the holders, a humble share cropper from New Mexico called Reynold if I recall, attempted to redeem his tranche of bonds (with a face value of no more than $1,000), the Chincha Islands promptly defaulted as the previously abundant supply of guano had, as it turned out, been thoroughly exhausted some forty years previous.
Instructed and summoned across the Pacific Ocean with all haste by the military junta that controlled the Chinchas at the time, I was able to resist against enforcement of an implied sovereign guarantee by arguing both limbs of the defence now in use by Blackman. In short, my argument was as follows:

  1. the parri passu clause in any Chincha law document had to be read in light of the practice of skull binding that was widespread within the Paracas culture that thrived in the region around 300 BC; and
  2. to require the Chincha government to pay the face value of the bonds would be the worst attack on Chincha sovereignty since Isabel II seized the islands in 1864.
Needless to say that the US 2nd Circuit Court of Appeals was wowed by my argument and though, ultimately unsuccessful, I received private congratulations from a slim majority of the Bench for my ingenuity and the quality craftsmanship of the paper mache skulls I tendered to demonstrate the long term implications of skull binding. My two-headed (though unbound) defence strategy is still taught in all law schools in South America (no doubt Blackman topped his class in this subject!).
We now wait to see whether the law has developed enough in the intervening years for the inherent rightness of this defence to be recognised by the Court. Mr Blackman will have my eternal thanks if he is able to put to bed the wrongs of the past. For the record the good people of the Chincha’s took the loss in the Guano Bonds matter in their stride and pressed on with appeal after appeal; the final outcome of which is still bogged down in the US legal system though it is said to be the subject of an upcoming episode of SVU.
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