Pari passu clauses: English law after NML v Argentina

Abstract

The long-running litigation in the USA involving the meaning of a pari passu provision in the Republic of Argentina’s bonds has resulted in interpretations that many find surprising. The bonds in question were governed by New York law. But, as sovereign bonds are also issued under English law and many contain similar provisions, it is worth considering how an English court might approach the subject. The starting point is to look at the rules of interpretation that would be applied by an English court. These have changed considerably over the years, moving (broadly speaking) from a strict dictionary and syntactical interpretation of the words used in the contract alone, to a more flexible approach aimed at understanding what the parties to the contract must have intended, recognizing that human beings sometimes misuse words and fail to express themselves precisely. Having established these rules, the next stage is to apply them to the facts. As will be seen, this process involves looking not just at the words in isolation, but at whether a reasonable person would, knowing the consequences of an interpretation, have intended that interpretation.