Metlife Seguros De Retiro S.A. v JPMorgan Chase Bank, National Association

This appeal concerns the proper construction of the terms of structured Notes (“the Notes”) issued by the Respondent (“JPMorgan”) to the Appellant (“MetLife”) under a US$3 billion Structured Euro Medium Term Note Programme.

The dispute between the parties concerns the final redemption amount payable to MetLife on the maturity date of 6 February 2011.

JPMorgan contends that the sum payable is to be calculated by reference to the published CER (an Argentine inflation index) for the maturity date which means that the amount payable is US$176,541,651.36, which sum has been paid.

MetLife contends that because the CER at the maturity date was not a genuine attempt to calculate inflation, but rather was a fabricated figure procured by the Argentine government for its political purposes, a “CER Event” had occurred which meant that the redemption amount was to be determined by JPMorgan as Calculation Agent “in good faith and in a commercially reasonable manner”. As held by the judge (and not challenged on appeal), this would result in an additional sum of US$75,200,000 being payable.

The judge held JPMorgan’s construction of the contract to be correct and dismissed MetLife’s claim.

MetLife subscribed for the Notes on the terms set out in JPMorgan’s Final Terms dated 6 February 2006 which were specific to the Notes and were to be read in conjunction with its Base Prospectus for its Medium Term Note Programme dated 24 October 2005 (“the Terms”). The Terms provided for English law to apply.

The CER is defined in the Terms as:

“The Argentine Coeficiente de Estabilización de Referencia published in respect of such day by the Banco Central de la Republica Argentina (the “BCRA”) as reported at www.bcra.gov.ar on the BCRA’s website. The CER is calculated according to Resolution 47/2002 of the Argentine Ministry of Economy”.

Resolution 47/2002 contains a formula for calculating the CER which involves using monthly figures from the “Indice de Precios al Consumidor” (Argentina’s monthly Consumer Price Index (“CPI”) for Buenos Aires City and Greater Buenos Aires – “GBA”). The CPI was calculated by the “Instituto Nacional de Estadistica y Censos” (the Argentine Institute of National Statistics (“INDEC”)). INDEC announced the monthly CPI on its website by the 7^th day of the following month. That figure was then used by BCRA to announce the CER on its website, which it did on a daily basis.

For the 7^th day of the month until the end of the month the Resolution 47/2002 formula used the geometric average rate of the CPI for the previous month. For the 1^st to 6^th days of the month the formula used the geometric average rate calculated on the variation of the CPI between the second and third months previous to the current month.

The “Final Redemption Amount” (“FRA”) was a function of the difference between CER_INITIAL (the CER on 23 January 2006) and CER_FINAL (the CER on the ARS Valuation Date – 3 February 2011 – ARS stands for Argentine pesos). This was to be converted into US$ using the “ARS Rate” which was the ARS/US$ exchange rate on the ARS Valuation Date expressed as the number of ARS per one US$. This was agreed at 4.0110. The effect of this formula for calculating the FRA was that the greater the difference between the CER_INITIAL and the CER_FINAL the greater the sum payable under the Notes.

A different method of calculating the FRA was, however, to be used if a “CER Event” had occurred and was continuing on the ARS Valuation Date. This was addressed in clause 22 of the Terms, which is the clause central to the issues of construction raised on the appeal.

Clause 22 of the Terms defines a CER Event as follows:

“CER Event” means the occurrence of one or more of the following:

(a)

The CER is not announced in a timely manner by the BCRA; or

(b)

The CER is replaced by a successor index; or

(c)

The CER is no longer published and has not been replaced by a successor index; or

(d)

The Republic of Argentina, or any of its agencies, instrumentalities or entities (including, without limitation, the BCRA) by means of any law, regulation, ruling, directive or interpretation, whether or not having the force of law, takes any action which legally or de facto prevents or has the effect of restricting or limiting (i) the calculation or (ii) announcement of the CER or any of the values used to determine the CER.”

The numbering in bold has been added, as it was by the judge, for convenience of reference. This part of the clause was described by the judge as “the CER Event Provision”.

If there was a CER Event, the Terms required the Calculation Agent to determine CER as at 3 February 2011. In this regard clause 22 provides that:

“If a CER Event has occurred and is continuing on the ARS Valuation Date then CER_FINAL shall be determined and the CER_INITIAL may be recalculated as for January 23, 2006 if determined to be necessary by the Calculation Agent, such determination and recalculation (if any) to be made by the Calculation Agent in good faith and in a commercially reasonable manner based on such available market information and other information as it deems necessary and relevant, including the new calculation method applicable to (i) the successor index or to (ii) the securities issued by the Republic of Argentina linked to CER or other obligations of the Central Bank linked to CER”.

This part of the clause was described by the judge as “the CER Calculation Provision”.

MetLife is a company incorporated in Argentina which carries on business as a provider of insurance and financial services.

JPMorgan provides banking and financial services worldwide, including through its branches in Buenos Aires, London and New York.

As part of a US$3 billion Structured Euro Medium Term Note Programme JPMorgan, acting through its London branch, issued ARS denominated “USD and CER Linked Notes” in the Aggregate Nominal Amount of ARS 482,048,909.

On or about 6 February 2006 MetLife subscribed for the entirety of the Notes and remained the holder of the Notes when they matured on 6 February 2011.

The evidence at trial concentrated on events after the conclusion of the contract and centred on whether there had been a CER Event. The statement and expert evidence at trial is summarised in the judgment at paragraphs 6 to 9. The only live evidence heard was from two experts on each side: Mr Sebastien Goldenberg and Dr Pablo Guidotti for MetLife and Mr Veeswanaden Patten and Dr Guido Sandleris for JPMorgan. Dr Guidotti and Dr Sandleris were economics experts who gave evidence relating to quantum issues. Mr Goldenberg and Mr Patten were banking experts whose evidence related primarily to the role of a Calculation Agent.

As recorded by the judge at paragraph 10 of the judgment, the following were matters of common ground:

In addition, the judge noted that it was not suggested that the Provisions are standard terms. This reflected the evidence recorded at paragraph 7 of the judgment that neither Mr Goldenberg nor Mr Patten “had seen before a clause such as the CER Calculation Provision (or indeed the CER Event Provision) in this case, although both accept that it is common to have market disruption clauses”.

The factual events established by the evidence at trial are set out in paragraphs 11 to 23 of the judgment. Neither party disputed these factual findings and I adopt them for the purpose of this judgment. It is not necessary to repeat the full factual history found by the judge, but the most salient findings are set out below.

In 2006 the process by which INDEC calculated the CPI was set out in a document entitled Methodology 13. This was an attempt to measure inflation based on international guidelines issued by the International Labour Organisation.

By early 2006 the rate of inflation in Argentina had become a cause of concern for the Argentine government. Ms Bevacqua, the Director for CPI at INDEC (who gave evidence by a read and unchallenged statement), and Mr Lelio Marmora, the Director of INDEC, were summoned to meetings with Mr Moreno, the Secretary of State for Domestic Trade in Argentina, who requested information about the calculation of CPI.

At a meeting with Mr Moreno of 29 May 2006, attended by Ms Bevacqua and her superior, Ms Trabuchi, Mr Moreno said that his department wanted to lower inflation, specifically because of the effect it had on CER-linked government bonds. Threats were made by him to manipulate the input data if the INDEC CPI was not lowered.

Further requests for “low prices” were made by Mr Moreno during 2006 but matters came to a head in January 2007 when INDEC produced an indicative CPI figure of 2.1% based on the first two weeks of that month. This caused Mr Moreno to install a Ms Paglieri at INDEC’s offices. She asked for a simulation to be run using lower figures than the true increases for various items. This was done and resulted in a lower CPI of 1.5%. She then asked for items to be removed from the basket of goods and for weightings to be lowered, with a view to lowering the CPI figure. Ms Bevacqua was not prepared to do so. She was then removed by an Executive Order issued by the President of Argentina and replaced by Ms Paglieri. The figure then announced for January was 1.1% when it would otherwise have been 1.9%.

On about 1 February 2007, at Ms Paglieri’s direction, a computer patch was installed on INDEC’s computers which enabled (i) artificial caps to be applied to price increases and (ii) the removal of individual products and categories of products that showed a substantial increase in price in a particular month. Mr Marmora and Ms Trabuchi were removed from office.

Ms Paglieri required that INDEC employees highlight on the survey forms those items which had increased in price with respect to the previous month and, after consideration by Ms Paglieri and Mr Moreno’s department, Ms Paglieri then decided which caps were to be entered into INDEC’s computer system through the patch. By March 2007 more than half the products in the CPI basket were subject to caps, and Ms Paglieri instructed INDEC employees to delete from the database prices which she did not like, and in some cases to exclude goods and services from the basket entirely.

The intervention by Ms Paglieri became to an extent publicly known and was the subject of comment in JPMorgan internal memos and documents in 2007. It was also the subject of reports (which were before the court) by a Mr Manuel Garrido dated 15 May 2007 of the Office of the Argentine Attorney General and by a Dr Carlos Stornelli of the Argentine Federal Criminal and Correctional Prosecutor's Office also prepared in 2007. These confirmed the inappropriate use of “IT patches”.

In January 2008, in a protest against governmental intervention, INDEC’s staff published the true year on year rate of CPI for 2007. This was between 22.3 to 26.2% compared to the 8.5% that had been published by INDEC.

In February 2008 the Argentine Government formally announced that it would introduce a new methodology for CPI before mid-2008. The Update of Methodological Changes (“the Update”) was published in October 2008, some 6 months after it in fact had already been put in place, and this recorded that there were changes to Methodology 13, implemented in April 2008, including a reduction from 818 to 440 of the number of goods and services included in the consumption basket used in the calculation of the CPI, and from 90,000 prices to approximately 30,000, changes to the contents of the so-called seasonal baskets and alteration of the locations used for the collection of prices.

There was public criticism of the new Methodology and its effect. This included the Assessment and Follow-up Academic Committee (CAES) Report on the operation of the Argentine Statistics and Census Bureau dated September 2010, produced by experts from Argentina's leading universities (“the CAES Report” – which was before the court). This confirmed that the Update did not correct the way in which CPI was being calculated and showed that computer patches were still in use. CAES reported the use of hundreds of zero prices, large amounts of data being excluded under the guise of being “outliers” and a “magnitude of … inconsistencies … between the official statistics, mainly on prices, and other estimates and indicators, both public and private”. The CAES Report recorded that “INDEC's loss of credibility is an undeniable fact”.

As a result of the CAES Report in November 2010 the Argentine Government invited the IMF to advise. On 1 February 2012 the IMF issued a statement which “regretted the absence of progress in aligning the CPI-GBA with international statistical guidelines”calling on Argentina to implement specific remedial measures. Notwithstanding a second statement issued by the IMF on 18 September 2012, the IMF Board concluded on 1 February 2013 that remedial measures to address the concerns had not been sufficient.

Meanwhile, on 6 February 2011 the Calculation Agent had calculated the FRA on the basis of the published CER. On 7 February 2011 JPMorgan paid out the FRA, as so calculated. By solicitor's letter dated 8 February 2011 MetLife asserted that a CER Event had occurred and was continuing at the ARS Valuation Date. At that stage the matters relied upon arose from the Update and were:

“▪ Reducing the number of items considered by INDEC in the Consumer Price Index upon which the CER is based from 818 to 440.

▪ Altering the weighting of the items used to determine the Consumer Price Index upon which the CER is based;

▪ Restricting the geographic area from which prices are taken to compile the Consumer Price Index upon which the CER is based.”

At trial MetLife relied upon a number of “Primary Actions” and “Secondary Actions” as constituting CER Events and as showing how the CER became unreliable. The judge found that all these actions occurred and were continuing until at least February 2011. Those actions were as follows, as set out in paragraph 26 of the judgment:

“(a)

INDEC changed from surveying prices paid by consumers to using “estimated prices” provided by Ministries and State Secretaries of the Argentine Republic, such as the Tourism Secretariat and the Ministry of Health.

(b)

The amount of “imputed data” (being data which was not based on actual prices paid by consumers but instead based on figures chosen by INDEC) increased from approximately 10% to 30%.

(c)

INDEC changed the way in which it classified and identified “outliers” (i.e. atypical prices to be excluded from the calculation of the CPI), thereby excluding significantly more prices than had previously been the case by removing high outliers while low outliers were left in.

(d)

INDEC made changes to its computer systems and/or programmes so as to monitor the variation in prices of goods and services from the previous month and place a cap on the price increase and such capped prices were then used in the calculation of the CPI.

(e)

INDEC removed some categories or products and items and allocated a zero price to some items, which had not been done previously.

(“The Primary Actions”)

(f)

Whereas INDEC used to survey over 800 items each month, this was reduced to 440 items by, inter alia, removing higher value goods which had higher value inflation.

(g)

Whereas INDEC used to obtain approximately 90,000 prices, this was reduced to fewer than 30,000.

(h)

The weightings applied to the basket of goods were changed with greater weight being attributed to lower value items with low inflation.

(i)

INDEC introduced new “seasonal baskets” and a new method for calculating the index for such baskets each month by using a moving average of the past 12 months. Different fruit and vegetable baskets for each month were chosen on the basis that they had the same calorific content, whereas INDEC had previously selected baskets based on consumption.

(“The Secondary Actions”)”

On appeal Mr Marshall QC, who did not appear at trial, has put MetLife’s case in a more straightforward manner. He submits that what the evidence and the judge’s findings demonstrate is that the Argentine government “continued at all times after January 2007 until the maturity of the Notes to take actions which resulted in a fabricated figure for CPI and thereby CER.” He concentrates on the fabricated nature of the CER figure rather than its unreliability. Although the judge made no clearly stated finding of fabrication, he did make findings of manipulation which I accept are equivalent to fabrication (and JPMorgan did not contend otherwise).

The essence of MetLife’s case on construction is that it is evident that the term “CER”, as used in the Terms, refers to a figure published by the central bank of Argentina that represented a genuine measurement of inflation as opposed to a fabricated number.

No CER within the meaning of the Terms was available nor was there any calculation of CER because the only number that had been published was fabricated.

In those circumstances MetLife contends that there was a CER Event continuing on the ARS Valuation Date with the consequence that the CER Calculation provision was triggered.

JPMorgan contends that, as made clear by the Terms, the Notes were linked to the CER index and provided exposure to that index. The only circumstances in which the CER Calculation Provision would be triggered would be where the CER index was no longer available on the ARS Valuation Date, which was not the case.

JPMorgan submits that there is nothing either in the Notes themselves, or in the context in which they were issued, to support the contention that the Notes were linked to the CER index only for so long as that index remained a genuine measurement of inflation.

As MetLife points out, the Supreme Court in Arnold v Britton [2015] UKSC 36, [2015] AC 1619 have stressed the importance to contractual interpretation of the language used. As Lord Neuberger said at [17], the meaning of a provision “is most obviously to be gleaned from the language”, observing that “unlike commercial common sense and the surrounding circumstances, the parties have control over the language they use in a contract”.

As MetLife also points out, the Notes were negotiable and the surrounding circumstances have a more limited part to play in the contractual interpretation of a negotiable contract. The relevant authorities are helpfully set out and discussed in Lewison on The Interpretation of Contracts (5^th edition) at 3.18.

The proper approach is summarised by Lord Bingham in Dairy Containers Ltd v Tasman Orient CV [2005] 1 WLR 215 at [12]:

“The contract should be given the meaning it would convey to a reasonable person having all the background knowledge which is reasonably available to the person or class of persons to whom the document is addressed”.

JPMorgan submits that this means or at least includes MetLife and relies on the following passage from the judgment of Lord Collins in Re Sigma Finance Corp [2009] UKSC 2, [2010] 1 All ER 571 at [37]:

“Where a security document secures a number of creditors who have advanced funds over a long period it would be quite wrong to take account of circumstances which are not known to all of them. In this type of case it is the wording of the instrument which is paramount. The instrument must be interpreted as a whole in the light of the commercial intention which may be inferred from the face of the instrument and from the nature of the debtor's business.”

It is submitted that the reference to “the nature of the debtor’s business” permits reliance in this case on the nature of MetLife’s business. The debtor in that case was Sigma which was party to a finance deed which secured a variety of creditors. As such, it was in the equivalent position to JPMorgan, as the Issuer of the Notes, rather than MetLife.

Although MetLife was in fact the sole purchaser of the Notes and in the event remained the holder of the Notes until maturity it could have traded some or all of the Notes. In those circumstances it is the knowledge reasonably available to the class of potential purchasers rather than just MetLife which has to be considered. I would accept, however, JPMorgan’s fallback argument that the most likely purchasers of ARS denominated CER Linked Notes are Argentine institutional investors, such as MetLife.

MetLife relies on the fact that the CPI/CER was recognised as being a reliable measure of inflation in the GBA as reflected in the common ground finding set out at paragraph 19(1) above. It submits that this supports its argument that since CER_INITIAL was a genuine measurement of inflation the parties intended CER to remain so.

For its part JPMorgan relies on the long and reliable history of CPI/CER as explaining why the parties would not have contemplated the risk of government manipulation of the CPI/CER at the time of contracting, manipulation which the judge found to be “unprecedented”.

It was common ground that there was no evidence that the purpose of acquiring the Notes was discussed between or known to both parties.

The Terms included “Risk Factors” from which the judge cited the following provisions, adding his own underlining:

“(i)

Argentine Pesos Exchange Rate Risk

The amount of any payment on the Notes of principal in U.S. Dollars will be affected by the exchange rate of Argentine Pesos to U.S. Dollars, since the underlying amounts by reference to which U.S. Dollar amounts are determined are in Argentine Pesos. The USD equivalent of the ARS Nominal Amount adjusted by the CER rate and any payments due under the Notes will be based on the exchange rate of Argentine Pesos to U.S. Dollars and that of the CER rate. Currency exchange rates and inflation rates may be volatile and will affect the USD equivalent return to the holder of the Notes. The movement of the currency exchange rates and of the CER rate could result in any amount due under the Notes being less than the initial USD paid for the Notes. As a result, a holder could lose a substantial amount of its investment in these Notes.

In relation to the Risk Factors MetLife stresses that although it was stated that “currency exchange rates and inflation rates may be volatile” there was no risk warning as to the possible manipulation of the CPI/CER.

JPMorgan submits that the fact that there was no such warning bears out their submission that this was not a contemplated risk. It also points out that the Risk Factors do refer to the volatility of the CER rate. It also relies on the fact that in Part B of the Notes “Reasons for the Offer” are recited as “including hedging arrangements”.

In relation to the proper construction of clause 22 MetLife contends in summary that:

In summary JPMorgan contends that:

In my judgment the construction of JPMorgan is to be preferred, largely for the reasons identified by it. In support of that conclusion I rely in particular upon the following matters.

First, MetLife’s main case on construction is that CER, as used in the Terms, means a figure which represented a “genuine measurement of inflation” and was the result of “a bona fide attempt to calculate inflation”. If, due to the actions of the Argentine government, it was not such a figure then the calculation of CER was thereby prevented, or at least restricted or limited, under clause 22(d).

This case is put as a matter of construction, not implication. The obvious difficulty which it faces is that there are no words in the Terms in general or clause 22 in particular which support this meaning of CER. As JPMorgan submits, it involves rewriting the Terms.

This is highlighted by the fact that MetLife’s case as to what CER means has continually changed. Its pleaded case was that it meant a “reliable measure of actual inflation”. This focused on the effect of CER and begged obvious questions as to how one distinguishes between a reliable and an unreliable measure and what is meant by “actual” inflation. Reliability was the key feature stressed at trial, although references were made at times to the intention behind changes to the index, rather than merely to their effect. On appeal the focus has been on the genuineness rather than the reliability of CER. Whilst the term used in the appeal skeleton of “genuine measurement of inflation” may be ambiguous as to whether it concerns intention or effect, in the supplemental skeleton it is made clear that it relates to intention and whether there was a “bona fide attempt to calculate inflation”. These variations arise because the case is not rooted in contractual wording and illustrate that rewriting is involved.

Secondly, I consider there is force in JPMorgan’s case that the wording of clause 22 as a whole suggests that it is addressing availability of the CER index. That is what is being addressed in clause 22(a)(b)(c) and (d)(ii). It is also what is being addressed in at least part of (d)(i), namely prevention of the calculation. In those circumstances it is entirely plausible that that is what all of the clause is addressing. Conversely, it is implausible that part of sub-clause (d)(i) is addressing the entirely different matter of “genuineness” or “good faith”, and, moreover, in a manner which fundamentally informs the nature of the parties’ contractual bargain.

Thirdly, JPMorgan’s case is further supported by the scheme of the contract as a whole and the role of the Calculation Agent in particular. The Calculation Agent is obliged to determine CER_FINAL within 48 hours where there is a CER Event at the ARS Valuation Date. That is consistent with his role being limited and essentially mechanical. To be able to perform that role requires it to be relatively easy both to identify whether there has been a CER Event and to carry out the required substitute calculation.

On JPMorgan’s case there is no difficulty about identifying whether there has been a CER Event. Either the CER index is available on the ARS Valuation date or it is not. By contrast, on MetLife’s case there are serious difficulties in identifying a CER Event in a timely or easy manner and indeed its case as to what constitutes a CER Event has fluctuated and changed. The latest iteration of its case involves establishing a lack of good faith. That is likely to require extensive evidence and, moreover, evidence which is not readily available. That indeed is illustrated by this case. The evidence which was available at the time was public information such as that reflected in the Secondary Actions. These, however, do not go to good faith. The evidence relating to good faith is that reflected in the Primary Actions, which did not emerge until considerably later and in particular once witness evidence had been obtained from Ms Bevacqua.

On JPMorgan’s case there is equally no difficulty about the determination of CER_FINAL. In virtually all cases that is likely to be largely if not entirely based on “the successor index” or “the securities issued by the Republic of Argentina linked to CER or other obligations of the Central Bank linked to CER” in accordance with the guidance provided in “the last five lines”. By contrast, on MetLife’s case this guidance will not apply since there would still be a CER index and obligations linked to CER could not be relied upon if CER itself cannot be. The matter will therefore be entirely at large and involve a potentially wide ranging, difficult and contentious exercise, as illustrated by the quantum dispute in this case. This involved a difference in quantum evaluation between the experts of about US$50 million and various complex issues, such as (once they had been narrowed down) whether to adopt a Linear Prediction Methodology, whether to adopt a single or a weighted average and which Provinces to include and to exclude. Further, much of the data relied upon was not easily available and had to be specifically requested.

That the contract did not contemplate the Calculation Agent to have such a wide discretion in relation to the calculation of CER_FINAL is further borne out by the fact that, in contrast to the determination of the exchange rate, this is not identified as a Risk Factor and no detailed instructions for determination are given (as they are for the determination of the exchange rate in Annex 1 to the Terms).

“The last five lines” also support JPMorgan’s construction. On its case it applies to all the CER Events covered by clause 22 and is therefore internally consistent. On MetLife’s case it applies to all such Events except those covered by part of (d)(i), despite that being the scenario in which guidance is most clearly required. Further, the reference to CER linked Government Bonds and Central Bank securities provides some support for JPMorgan’s case that the purpose of the Notes is to provide a return linked to CER. The Notes provide a similar derivative instrument to Government Bonds, but without the sovereign risk.

Fourthly, JPMorgan’s construction makes commercial sense. On its case the Notes provide an investment linked to the CER index and a pay-out linked to that index.

The class of persons to whom the Notes were addressed was essentially Argentine institutional investors, such as MetLife. As made clear from the evidence at trial, such investors would be likely to have liabilities linked to the CER index, not least because US$ denominated liabilities became linked to CER following their compulsory “pesification” in 2002. As was common ground between the banking experts, inflation linked financial instruments are often used as a hedge for inflation linked liabilities and investors similar to MetLife tend to invest in inflation linked instruments as part of a liability driven investment strategy. In those circumstances the consequences for the holders of the Notes of downwards manipulation or fabrication of the CER index is unlikely to have been a matter of particular concern since it would be to their benefit in relation to their CER linked liabilities. This was borne out by the evidence at trial that MetLife itself had such liabilities and indeed that it had a preference for CER linked investments even after government manipulation of the index became public knowledge.

On the other hand, the commercial consequences of MetLife’s construction is that it results in an unusual if not unique financial instrument. On MetLife’s case the Notes are linked to a “genuine measurement of inflation” rather than an index. The unchallenged evidence of JPMorgan’s banking expert, Mr Patten, was that inflation-linked notes are always linked to inflation indices and not to concepts such as “genuine” or “true”inflation: “…you don’t price instruments based on true inflation, you don’t trade them based on true inflation, you certainly don’t buy them based on true inflation”. Similarly, MetLife’s banking expert, Mr Goldenberg, conceded at trial that he had never seen a financial instrument linked to “actual” inflation.

It also results in an uncommercial instrument in that it would be very difficult to price and therefore to hedge. The risk being undertaken would involve an estimation in advance of how large the gap might be between the CER index figure and the “genuine measurement of inflation”. It is difficult to see how such a risk could be quantified and Mr Goldenberg accepted in cross examination that “scientifically you cannot put a price on this”. It was suggested in argument that this is a risk which could be covered by political risk insurance, but there was no evidence to that effect and it too would raise fundamental difficulties of risk evaluation.

Fifthly, JPMorgan’s construction is consistent with what it states is the commercial purpose of the Notes, namely to provide a return linked to the CER index. If so, it is only when the CER index is unavailable that a substitute calculation of the return is required. Although MetLife disputes that this is the commercial purpose of the Notes, on its own case availability is nevertheless what almost the entirety of clause 22 addresses. Further, MetLife’s case on commercial purpose has not only fluctuated between reliability and genuineness, but it also involves inconsistency as a measurement of inflation which is not “genuine” may still result in a reliable figure.

In relation to the main arguments put forward by MetLife, as summarised in paragraph 53 above, in so far as they have not already been addressed I would make the following comments.

As to (1), this is addressed in particular at paragraphs 56-58 above.

As to (2), it is to be expected that the Calculation Agent, when called upon to act, has to do so reasonably and in good faith but that tells one nothing about what is to happen when he is not required to act or about what a CER Event is. Indeed it might be observed that it shows that the draftsman knew how to require that a calculation of inflation be carried out in good faith, but nevertheless said nothing about that in relation to the CER itself.

As to (3) and (4), this assumes what has to be established, namely that the parties were concerned about and were addressing the genuineness of the CER figure. As a matter of fact at the time of the contract it was a “genuine measurement of inflation”. That does, not, however mean that it is to be inferred that there was an intention that it remain so for the purposes of the contract. The long and reliable history of CPI/CER would suggest that this would not have been a concern to the parties, as is further borne out by the fact that it was not an identified Risk Factor.

As to (5), using manipulated or fabricated figures for a calculation is not the same as publishing a random number and does not mean that there was no calculation. At all times there was a calculation of CER and, moreover, a calculation carried out in accordance with Resolution 47/2002. There was also a calculation of the CPI carried out and published on a monthly basis.

As to (6), it was common ground that “values” meant the CPI. The monthly calculation of the CPI continued throughout. Changes were made to the input data for the calculation but the calculation itself was not restricted or limited. There was no contractual requirement relating to the methodology of calculating CPI or that there be no government directed changes to that methodology. Nor could it have been sensibly intended that the mere fact of such a change would be a CPR Event. The precise methodology of calculating inflation may frequently be changed and for good reason. Many of such changes may be minor and not publicly known. Still less is it likely to have been intended that it would be necessary to inquire into whether such micro-decisions, known and unknown, were made in good faith, as MetLife’s case requires. In any event, for the reasons set out above, the better construction of clause 22 as a whole is that it is addressing availability.

As to (7), on JPMorgan’s case clause 22(d) does potentially cover a different case of availability, namely a less frequent calculation or announcement of CER/CPI. As is pointed out by way of example, if the law were changed such that the CER was only announced monthly, one could still consider that it was being announced “timely” (because monthly publication would now be “timely”), but the Calculation Agent would be without a CER figure on the ARS Valuation Date.

In any event, clause 22 recognises that there may be overlap between (a) to (d) as it refers to “the occurrence of one or more of the following”. By way of example, if the CER index is “no longer published and has not been replaced” under (c) it is also not “timely announced” under (a). In addition, even on MetLife’s case much of clause 22 is duplicative.

Further, as JPMorgan submits, duplication is a feature of “belt and braces” drafting, as is commonly found in financial contracts, bespoke or otherwise. As stated by Hoffmann LJ in Arbuthnott v Fagan [1995] CLC 1396 at 1404D-E: “little weight should be given to an argument based on redundancy” which is “a common consequence of a determination to make sure that one has obliterated the conceptual target” – see also Bingham LJ in Arbuthnott at 1399F-G and Lord Hoffmann in Beaufort Developments (NI) Ltd v Gilbert Ash (NI) Ltd [1999] AC 266 at 274B-D.

In summary, JPMorgan’s construction reflects the contractual wording used; gives a consistent meaning to clause 22; is workable; fits the scheme of the contract; makes commercial sense and reflects a plausible case on commercial purpose. MetLife’s case does not satisfactorily meet any of these criteria.

For all these reasons I consider that JPMorgan’s construction of the contract is to be preferred and that the judge’s decision should be upheld. Many of the reasons I have identified are similar to those relied upon by the judge, but expressed in different terms given the development of MetLife’s case since the trial.

For the reasons outlined above, I conclude that the appeal should be dismissed.

I have found this a more difficult case than Hamblen LJ. There are, of course, many ways in which inflation can be measured. Which items should be included in the basket, how many of them, whether average increases should be calculated by means of an arithmetic or geometric mean are just some of the questions that arise. Thus the argument that CPI ceased to be a reliable measure of inflation and hence triggered a CER Event was always an ambitious argument.

What is in issue here, however, on the basis of the judge’s findings of fact is not unreliability: it is dishonesty.

In the course of his oral address Mr Marshall stressed the fact that the contractual description of CER required a calculation in accordance with Resolution 47/2002. The difficulty with this argument was that CER was always calculated in accordance with that resolution, which said nothing about the calculation of CPI. The problem lay in CPI, not CER although the former fed directly into the latter.

Clause 22 (d) encompassed a situation where “The Republic of Argentina … takes any action which … de facto … has the effect of restricting or limiting the calculation … of … any of the values used to determine the CER.” It was common ground that the CPI was a “value” used to determine the CER. There was clearly an attraction in saying that the actions of the Argentinian government, and particularly its actions in (a) introducing the computer patch which capped prices and (b) introducing zero values into the calculation of a geometric mean (which would inevitably cause the product to be zero) were actions taken to limit the calculation of a value used to determine the CER. However, as Hamblen LJ points out there may be all sorts of perfectly proper methodological reasons for limiting or restricting values used in calculating CPI; and as he also points out the case is put on the basis of interpretation rather than implication.

I was also troubled by the question whether, on the interpretation advanced by Mr Wolfson QC, it was possible to give any content to clause 22 (d). I accept, of course, that in a complex instrument of this kind there may be, and often is, overlap between one provision and another. The value of CER is, as I understand it, relevant only to the question of calculation of CER _FINAL at the redemption date. What it is at intermediate times has no contractual significance. So Mr Wolfson’s examples of late publication of CER, or a switch in CPI from monthly to biannual figures seems to me to be covered by clause 22 (a).

The authoritative approach to the interpretation of financial instruments of this kind is laid down by the decision of the Supreme Court in Re Sigma Finance Corp [2009] UKSC2, [2010] 1 All ER 571. In that case Lord Mance, reversing the decision of the Court of Appeal said at [12]:

“… the conclusion reached below attaches too much weight to what the courts perceived as the natural meaning of the words of the third sentence of cl 7.6, and too little weight to the context in which that sentence appears and to the scheme of the STD as a whole.”

In the same case at [35] Lord Collins said:

“In complex documents of the kind in issue there are bound to be ambiguities, infelicities and inconsistencies. An over-literal interpretation of one provision without regard to the whole may distort or frustrate the commercial purpose. This is one of those too frequent cases where a document has been subjected to the type of textual analysis more appropriate to the interpretation of tax legislation which has been the subject of detailed scrutiny at all committee stages than to an instrument securing commercial obligations.”

I do not consider that these principles have been overtaken by Arnold v Britton in which Lord Neuberger said at [15] that one must focus on “the meaning of the relevant words… in their documentary, factual and commercial context.” The documentary context in this case is of critical importance.

In the overall landscape of the Notes, I have been persuaded that Mr Wolfson’s interpretation produces a more coherent and workable scheme than Mr Marshall’s. Accordingly, despite my initial doubts, I agree that the appeal should be dismissed for the reasons given by Hamblen LJ.

I too agree that the appeal should be dismissed for the reasons given by Hamblen LJ.