Argentina: Indexation Of Peso Debts Due To Monetary Depreciation

Once again a ruling issued by the Argentine Supreme Court upheld the constitutional validity of the prohibition to adjust peso-denominated amounts through monetary update, indexation of prices, variation of costs or by other means of adjusting debts.

On November 8, 2016, the Argentine Supreme Court of Justice (hereinafter, the "Supreme Court"), adhering to the grounds of the opinion of the Deputy Prosecutor Attorney ("Opinion"), partially admitted the complaint and the extraordinary appeal filed by the defendant in the proceedings "De facto appeal filed by the respondent in the case of Puente Olivera, Mariano v. Tizado Patagonia Bienes Raíces del Sur SRL in re dismissal", revoking the appealed ruling.

The lower court judge had rejected the lawsuit, in which the plaintiff claimed compensation for a dismissal without cause and the payment owed for sale commissions.

Tribunal III of the Labor Court of Appeals ("Court of Appeals") overturned the decision and ordered the payment of AR$ 25,953 for dismissal without cause, plus US$ 73,687 for sale commissions, to be converted into Argentine pesos at the official exchange rate as of the payment date and applying the lending interest rate of the Banco de la Nación Argentina ("BNA"). In addition, the Court of Appeals declared the unconstitutionality of article 4 of Law No. 25,561, and resolved the monetary indexation according to the variation of values of the total basic food basket of the National Institute of Statistics and Censuses.

Article 4 of the Law on Public Emergency and Reform of the Exchange Regime No. 25,561 dated January 6, 2002 (hereinafter the "Emergency Law") amended articles 7 and 10 of the Law on Convertibility of Local Currency No. 23,928 dated March 27, 1991 (the "Convertibility Law"). After the amendment, the prohibition of monetary update, indexation of prices, variation of costs or any other form of means adjusting of debts, taxes, prices, or tariffs of the goods, works or services was maintained.

In view of the Court of Appeals' ruling, the defendant filed a federal extraordinary appeal which was denied. The defendant then filed a complaint that was partially admitted.

The Supreme Court admitted the argument of arbitrariness of the judgment of the Court of Appeals as to the determination of the right of the plaintiff to charge commissions for sales of real estate. It considered that such determination was contradictory and lacking of grounds, so the ruling was disqualified as to such item. Also, the Supreme Court admitted the complaint referred to the unconstitutionality of article 4 of the Emergency Law resolved by the Court of Appeals.

By grounding its decision on a precedent (in re "Chiara Díaz" of March 7, 2006, "Fallos" 329:385), the Supreme Court indicated that the implementation of clauses of monetary update "would mean betraying the anti-inflationary objective proposed by the federal laws (...) (Laws No. 23,928 and 25,561) by a generic prohibition of 'indexation', measure of economic policy which is not up to this Court (recital 10) to assess". It also based its ruling on its own doctrine of the "Massolo" case of April 20, 2010 ("Fallos" 333:447), stating that "the advantage, hit or miss of the legislative measure -maintenance of the prohibition of all kinds of monetary update- is beyond the control of constitutionality since the appropriateness of the criterion chosen by the legislator is not subject to judicial review" and added that the Supreme Court has held that articles 7 and 10 of the Convertibility Law "constitute a clear and strict decision of the National Congress to exercise the functions that article 67, subsection 10 (today article 75, subsection 11), of the National Constitution to 'seal the currency, set its value and that of the foreign currencies...'".

Before deciding on the invalidity of the decision of the Court of Appeals by application of the prohibition set forth by the Convertibility Law and the Emergency Law, the Opinion made certain considerations.

The first reference made to the magnitude of the impact on the right of property that would uphold the declaration of unconstitutionality of the questioned laws. The second referred to the application of the interest equivalent to the monthly average of the lending rate (tasa activa) applied by BNA. The third once again recalled  the "Massolo" case that held that "even when the right of property could have in the update by monetary depreciation an effective defense of the property rights in certain periods, their endurance sine die not only would postpone express constitutional provisions as those in article 67, subsection 10, of the National Constitution -today article 75, subsection 11-, but would cause a deep damage in the sphere of all the property rights, by feeding that serious pathology that so much affects them: the inflation ("Fallos" 333:447, considering 15)". Finally, the opinion dated May 31, 2007 in the case "Checmarev" (File S.C.C. 732, L. XLI) was considered, where it was held that "the mere reference to the variation of the index of prices or to the change of the economic-financial conditions is not a valid argument to set aside the law, since these are too generic expressions that lack enough entity to provide support to the alleged questioning".

These final considerations seem to indicate that the prohibition to adjust debts could not apply when: (i) the impact on the right of property is of enough magnitude; (ii) interest at the lending rate (tasa activa) of the BNA would not have been applied; (iii) the defense of the property rights is not used without a date limit; and (iv) the rationale for not applying the prohibition does not consist of overly generic expressions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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