Did an Argentine Appellate Court Just Undermine Foreign Currency Obligations?

A recent ruling by the Commercial Court of Appeals in the case of González v. Pinto¨[1] undermined foreign currency obligations, reverberating throughout the business world. The ruling holds that a debtor may cancel a dollar-denominated obligation by paying a like sum in Argentine pesos at the official exchange rate plus 30%. The decision is noteworthy because that “official” rate is more a tool of financial suppression than an accurate measure of value. As of this writing, the market (expressed in various “parallel” rates) values the dollar at about twice that of the official rate. The following paragraphs look at the González ruling and what it likely portends for the future.

Not long ago, we highlighted an important ruling by another appellate court, which upheld the integrity of an obligation expressed in a foreign currency[2]. That case looked at a party’s agreement to use dollars as a contract currency and recognition of this currency as a key term, expressly bargained for in forming the contract.

The court (correctly, in our opinion) reasoned that currency exchange controls—regardless of their severity—do not excuse the debtor from the term and do not allow the debtor to repay in local currency.

Instead, the appellate court opined, the debtor must explore “alternative lawful means” to obtain and pay over the contract currency, even if it increases costs or burdens a party. Indeed, alternative lawful means exist, including the time-tested use of dollar-denominated securities trading on exchanges such as the so-called contado con liqui (cash against settlement or “Blue-Chip Swap”) and the dólar MEP (stock exchange dollar).

The González ruling regrettably diverges from what was believed to be settled doctrine. While González is not necessarily binding, it creates legal uncertainty in the midst of a currency crisis. It is hard to think of a worse time for a court to cast further doubt on the integrity of an obligation.

The González case applies an equitable principle of “Shared Burdens” codified in the National Civil & Commercial Code. This principle allows a court to evaluate the overall “fairness” of an arrangement and, where an external event (not necessarily unforeseeable) creates an undue hardship on one party, the court may equitably apportion the burdens on both parties. In González, the court held that the inability to acquire dollars through the Argentine banking system did not require the debtor to observe the cost of “alternative lawful means.”

The reasoning in this case is questionable (wrong) for four reasons:

• The appellate court fails to acknowledge that the various other lawful exchange rates prevailing in present-day Argentina more accurately reflect the value of the peso relative to the dollar. Regrettably, the court dismisses these as a “dollarized investment alternatives” instead of valid exchange rates.
• The court levied a 30% surcharge to the official rate to make it comparable to the so-called “Solidarity Dollar” (an equalization tax imposed by the government to stop leakage through credit card and other financial transactions in foreign currency). Nonetheless, this 30% surcharge does not even come close to meeting the free market value of the dollar-peso exchange.
• The court cites a 2021 ruling from the Supreme Court of the Province of Buenos Aires[3], yet ignores that this same ruling acknowledged that the official exchange rate cannot be the sole benchmark for a fair resolution.
• A commercial court of appeal—as opposed to a civil court of appeal—is far less versed in business considerations or market dynamics. The González ruling shows the court’s lack of appreciation of the impact of its decision on commercial obligations.

Decisions like González have the potential to do great disservice to an economy and to the creation of a secure legal and institutional framework conducive to fostering legitimate investments. This court chose a consumer-like protectionist view to release a debtor from a key term of the contract. Would it not have been more equitable to have maintained the doctrinal stance previously validated by other courts, upholding the parties’ right to enforce lawful terms of a contract?

[1] CNCom., Sala B, “Gonzalez, Marcelo Ciego c. Pinto, María del Carmen s/Ejecutivo”, dated 16/06/23.

[2] CNCiv, Sala A, “Jáuregui, Diana Georgina c. Zurzolo, María Ester s/ Cobro de sumas de dinero”, dated 20/04/2021.

[3] SCPBA “Voliakovsky, Reinaldo César u otro c/ Sancibieri, Susana Luisa s/ Ejecución Hipotecaria” dated 21/09/21.