The pari passu clause in sovereign debt instruments: developments in recent litigation Rodrigo Olivares-Caminal1

The pari passu clause in sovereign debt instruments: 
developments in recent litigation 

Rodrigo Olivares-Caminal1

1. Introduction
The pari passu clause is a standard clause in public or private international
unsecured debt obligations (syndicated loan agreements and bond issuances). To
understand the pari passu clause, it is first necessary to understand the meaning of
the short Latin phrase “pari passu”. Literally, this means “with equal step”, from pari,
ablative of par, “equal” and passu, ablative of passus, “step”. That is to say, pari
passu refers to things that are in same situation, things that rank equally. This
notwithstanding, the pari passu clause, as brilliantly noted by Buchheit (2000), “is
short, obscure and sports a bit of Latin; all characteristics that lawyers find
endearing”.
In 1900, an opinion was given that “[t]here is no special virtue in the words ‘pari
passu’, ‘equally’ would have the same effect or any other words showing that the
[bonds] were intended to stand on the same level footing without preference or
priority among themselves…” (Palmer (1900)). However, more recently, the pari
passu clause has been described as a harmless relic of historical evolution (Gulati
and Scott (2012)).
The reason why the pari passu clause returned to the limelight is a lawsuit that
is currently taking place in New York against Argentina (NML Ltd. v Republic of
Argentina) which is basically the background of this paper on the interpretation of
the pari passu clause.
This lawsuit has resulted in some important developments that are worth
analysing, namely: (i) the real meaning and the novel interpretation of the pari passu
clause; and (ii) the remedies recently proposed by the New York District Court for
the enforcement of the clause, which pose a real threat to the future of sovereign
debt restructuring – and especially to New York’s future as an international financial
centre. This paper will focus only on substantial aspects of the interpretation of the
clause and will not address the details of the judicial processes.

1
 Professor in Banking and Finance law, Centre for Commercial Law Studies, Queen Mary, University
of London. I would like to thank Robert McCauley (Monetary and Economic Department) and Diego
Devos (Legal Service) for inviting me to present and write the paper, and conference participants
for helpful comments and suggestions. As the paper addresses an issue which is ongoing, all
opinions expressed here are based on the facts and the state of affairs as of 20 February 2013. All
opinions are personal and the views expressed in the paper should not be attributed to any
institution to which I am or have been affiliated.

https://www.bis.org/publ/bppdf/bispap72u.pdf