4. The Red Mountain case (California)
10 .5 4 On 29 May 2 0 0 1 , in Red Mountain Financial Inc v Democratic Republic o f Congo and National
Bank ofCongo,73 the court was requested to enforce different provisions o f a credit agreement
between the plaintiff and defendants. Among the provisions was a pari passu clause from a
1980 credit agreement. The District Court expressly denied the performance o f the pari
passu clause but nonetheless enjoined Congo from making any payments in relation to its
external indebtedness without making a proportionate payment to Red Mountain.74 Finally,
the parties settled the case.
5. The Kensington International case (England)
10 .5 5 On 20 December 2 002, in Kensington International Ltd v Republic o f Congo,75 the pari passu
clause was again under scrutiny. This is an English case where the plaintiff claimed to recover
defaulted debt76 governed by a loan agreement subject to English law; and, to prevent Congo
from making payments to other creditors on— inter alia—a pari passu clause.77 The intervening
judge denied the plaintiff’s request78 on other grounds and his decision was upheld by
the Court o f Appeal.79 It has been stated that the views on the pari passu clause in this case
‘are o f persuasive authority only’.80
6. The Kensington InternationalIIcase (against BNP) (New York)
10 .5 6 The Kensington saga had a second part in New York. This case is very interesting because it
gave the pari passu clause a new twist, taking it to another level after the new lecture o f the
pari passu in the Elliott case..*' A claim was filed in a New York state court in 2003: Kensington
International Limited v BNP Paribas SA.i2 One o f the arguments o f this claim was that BNP
tortuously interfered with Kensington’s rights to collect the monies due from the Republic
o f Congo as per the pari passu clause included in the 19 8 4 loan agreement giving rise to the
plaintiffs credit against Congo. This resulted from the fact that under the plaintiff’s argumentative
line, BNP had received payments from new financings entered into between the
defendant and Congo after 1985. In other words, from the fact that BNP collected money
without distributing it on a pro-rata basis with Kensington, which should have occurred as
a result o f the broad or ‘payment’ interpretation o f the pari passu clause.
73 Red Mountain Financial, Inc v Democratic Republic ofCongo, No CV 00-0164 R (CD Cal, 29 May 2001).
74 Congo and its Central Bank were ‘enjoined from making any payments to be made on their behalves with
respect to any External Indebtedness . . . unless and until Congo and its [central bank] (or each one of them)
make or cause to made a proportionate payment to Red Mountain at the same time’. (See Red M ountain
Financial, In c v Democratic Republic o f Congo, NoCV 00-0164 R(CD Cal, 29 May 2001)).
75 16 April 2003, unreported. Approved by the Court of Appeals [2003] EWCA Civ 709.
76 The debt was acquired after Congo defaulted on the loan agreement.
77 The relevant part of the p a ri passu clause reads as follows: ‘the claims of all other parties under [the loan]
agreement will rank as general obligations of the People’s Republic of the Congo, at least pari passu in right and
priority of payment with the claims of all other creditors of the People’s Republic of the Congo’.
78 2002 No 1088 at 6:13-16 (Commercial Ct, 16 April 2003).
79 16 April 2003, unreported. Approved by the Court of Appeals [2003] EWCA Civ 709.
80 Financial Market Law Committee, Pari Passu Clauses, Issue 79, March 2005, p 12, available at
81 An example of a case of tortuous liability for breach of contractual provision prior to the Elliott interpretation
is Citibank NA v Export-lmport Bank o f the United States, No 76 Civ 3514 (CBM) (SDNY, 9 August 1976).
82 See Kensington International Limited v BNP Paribas SA, No 03602569 (NY Sup Ct, 13 August 2003).
7. The LNCcase (Belgium)
In 1999, the New York courts rendered LNC Investments, Inc a decision by which Nicaragua
was obligated to pay $87 million resulting from defaulted commercial loans granted in the
1980s.83 LNC Investments preferred to file a claim rather than participate in the successful
sovereign debt restructuring procedure.84 LNC Investments enforced the US decision in a
Brussels Court, following the precedent o f Elliott,85
As in Elliott, LNC Investments obtained a judicial order that prohibited interest payments
o f restructured bonds.86 The order was directed to both Deustche Bank AG, as fiscal agent,
and Euroclear.87
The decision was appealed by Nicaragua, and the Brussels Court o f Appeal reversed the
decision.88 Even though it seems that the Brussels courts reversed the criteria set forth in the
Elliott case, it is premature to determine so because the Brussels court did not directly consider
the pari passu clause as it did in Elliott. The case was resolved on procedural grounds—
the Court o f Appeals reversed the decision because Euroclear was not a proper party to the
litigation.89
8. Applestein, Macrotecnic International Corporation and EM Ltd v Argentina
On 15 January 2004, upon the memorandum o f law o f Argentina and the plaintiffs, the US
Statement o f Interest90 and the amicus curiae briefs filed by the Federal Reserve Bank o f New
York9' and the New York Clearing House,92 a New York court was asked to consider whether
the pari passu covenant in Argentina’s bonds could not be used by judgment creditors as a
legal basis to interfere with Argentina’s payment o f its other indebtedness (should the
Argentine Government continue paying international organizations such as the IMF or
other non-defaulted unsecured creditors as the holders o f domestic bonds?). Although the
83 LNC Investments, Inc v Ihe Republic o f Nicaragua, No 96 Civ 6360, 2000 US Dist LEXIS 7738, at 1
(SDNY, 6 June 2000).court did not resolve the pari passu issue, the plaintiffs had to sign an agreement giving the
court 30 days’ notice before filing papers intended to stop such payments under the pari passu
clause.93 Although the core issue was not resolved, an order was issued by the court ordering
Argentina to divulge information about government property outside the country that is used
for commercial purposes: a discovery measure.
84 Ibid, at 13. v
85 RepubliqueDu Nicaragua vLNCInvsLLC, No 2003/KR/334, at 2 (Cour D’Appeal de Bruselas, Neuvieme
Chambre (Ct App Brussels, 9th Chamber) 2004) (on file with author).
86 Ibid, at 7.
87 Ibid.
88 Ibid, at 19.
89 See William W Bratton, ‘Pari Passu and A Distressed Sovereigns Rational Choices’, 53 Emory Law Journal
823, footnote 10.
90 In the US statement of interests, it was stressed that ‘[a] novel reading of the pari passu clause, however,
that would prohibit sovereign debtors from making payments to third party creditors or require sovereign debtors
to make simultaneous, ratable payments to all creditors would undermine [a] well understood established framework
. . . ’ (see Statement of Interest of the United States at 14, Macrotecnic Int'l Corp v Republic o f Argentina an d
EM Ltd v Republic o f Argentina (SDNY, 12 Jan 2004) (No 02 CV 5932 (TPG), No 03 CV 2507 (TPG)).
91 The Federal Reserve Bank of New York urged the court to interpret the p a ri passu clause narrowly 'so as to
discourage the terrorism of payments and settlement systems, and to encourage parties to compromise in sovereign
debt restructurings’ (see Memorandum of Law of Amicus Curiae Federal Reserve Bank of New York in
Support of Defendant’s Motion for an Order Pursuant to CPLR § 5240 Denying Plaintiffs the Use of Injunctive
Relief to Prevent Payments to Other Creditors at 13, Macrotecnic Int'l Corp v Republic o f Argentina a n d EM Ltd
V Republic o f Argentina (SDNY, 12 Jan 2004) (No 02 CV 5932 (TPG), No 03 CV 2507 (TPG)).
92 The New York Clearing House Association LLC stated that its members ‘have long understood [the pari
passu j clause . . . to prohibit a debtor from creating unsecured debt that ranks senior in legal rights of payment
to the payment obligations the debtor has’. See Memorandum of Amicus Curiae the New York Clearing House
Association LLC in Support of Motion Pursuant to CPLR § 5240 to Preclude Plaintiff Judgment Creditors
from Interfering with Payments to Other Creditors at p 2, Macrotecnic International Corp v Republic o f Argentina
a n d EM Ltd v Republic o f Argentina (SDNY, 12 Jan 2004) (No 02 CV 5932 (TPG), No 03 CV 2507 (TPG)).
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