Palladian Partners LP & Ors v Republic of Argentina & Anor

Factual and Procedural Background

On 9 June 2023, the Judge granted declarations sought by the Respondents regarding the proper construction of an "Adjustment Provision" in the terms governing EUR-denominated GDP-linked securities ("the Securities") issued by the Appellant ("the Republic") in 2005 and 2010. The Judge ordered the Republic to pay over EUR1.3 billion plus pre-judgment interest to the Second Defendant (as Trustee of the Securities) for Reference Year 2013 and to specifically perform obligations related to subsequent years.

The monetary judgment and post-judgment interest were to be paid within 45 days after lifting a stay of execution pending appeal. On 18 January 2024, permission to appeal was granted subject to the Republic paying approximately 20% of the judgment sum into escrow pending appeal determination. The Republic sought reconsideration of this condition due to administrative errors in evidence submission, leading to an oral hearing and further submissions. It was agreed that the imposition of conditions on permission to appeal was to be reconsidered afresh.

Legal Issues Presented

1. Whether there is a compelling reason to impose a condition requiring payment or security of payment on the grant of permission to appeal under CPR 52.6(2)(b).
2. How the court should exercise its discretion in imposing or varying such conditions under CPR 52.18, considering the Republic's financial situation and conduct.
3. The relevance of prior conduct and enforcement difficulties in assessing the necessity of conditions on appeal permission.

Arguments of the Parties

Respondents' Arguments

• The Republic has a history of defaults and enforcement difficulties, increasing the risk of non-payment and delay if no condition is imposed.
• The Republic’s emphasis on harm to its population from payment increases the likelihood of obstruction and delay.
• The Respondents argued that allowing the Republic to appeal without any payment would amount to a "one way bet," enabling delay without assurance of payment if the appeal fails.
• The proposed condition to pay 20% of the judgment sum into escrow is a proportionate measure demonstrating good faith and preventing delay tactics.

Appellant's Arguments

• There is no compelling reason to impose a condition; such reasons must arise from the appellant’s conduct in the case at hand.
• The Republic has complied with all court orders, including prompt payment of interim costs.
• The Republic has the means and has stated unequivocally it will pay if its appeal is unsuccessful.
• References to prior conduct and enforcement difficulties are exaggerated and irrelevant, especially given a new administration.
• Imposing the condition would cause irremediable harm to the Argentine population by diverting funds from essential services.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by identifying the applicable legal framework under CPR 52.6 and 52.18, confirming that the imposition of conditions on permission to appeal requires a "compelling reason," a high threshold reflecting the rarity of such orders. The court acknowledged that the merits of the appeal are generally relevant only to the exercise of discretion, not to the existence of a compelling reason, but did not exclude the possibility that weak appeals pursued to delay enforcement might contribute to such a reason.

In assessing the facts, the court considered the Republic’s history of sovereign debt default and restructuring, the difficulties faced by creditors in enforcement, and the Republic's prior recalcitrant conduct in other jurisdictions. The court also evaluated the Republic’s current economic distress and inability to budget for payment of the judgment sum, while noting that the Republic admitted it would find funds to pay if the judgment were upheld.

The court rejected the Republic’s argument that compelling reasons must arise solely from conduct in the present case, holding that prior conduct and enforcement history are relevant contextual factors. It found a very high risk that the Republic would appeal but not pay if unsuccessful, thereby causing enforcement difficulties and delay.

On discretion, the court weighed the Republic’s claims of irremediable harm to its population from diverting funds to pay the condition but found the evidence insufficiently specific or persuasive. The court emphasized its independence from the prior unconditional stay of execution and concluded that the compelling reason justified imposing the condition despite potential economic hardship.

Accordingly, the condition requiring payment of approximately 20% of the judgment sum into escrow pending appeal was maintained, with an extended compliance deadline.

Holding and Implications

The court UPHELD THE CONDITION imposed on the Republic’s permission to appeal, requiring payment of approximately 20% of the judgment sum into escrow by 5 April 2024.

This decision ensures that the Republic cannot pursue an appeal without demonstrating good faith by securing part of the judgment sum, thereby mitigating the risk of delay and enforcement difficulties. The ruling does not set new precedent but applies established principles to the unique factual context of sovereign debt enforcement and economic hardship. The condition balances the interests of justice with the Republic’s financial constraints, without stifling its right to appeal.