In an opinion Friday, Judge Failla ruled that Venezuela’s state oil company was required to pay certain bonds, despite the Venezuela National Assembly having declared last year that the bonds violated the Venezuelan Constitution. The declaration occurred against the backdrop of a power struggle in the Venezuelan government. The National Assembly’s President Juan Guaidó has been recognized by the United States as the Interim President of Venezuela, over the competing claims of Nicolás Maduro (see our prior coverage here).
Under the doctrine of international comity, the Court could have deferred to the National Assembly’s declaration, particularly if the Executive Branch supported that view. But the Executive Branch was “non-committal” in this case, and so the Court was “left to determine for itself whether it should extend comity to the National Assembly’s actions.”
Judge Failla ultimately concluded that the bonds should be enforced because, accepting a rule to the contrary would invite other governments to shortchange legitimate creditors after-the-fact:
The Court is cognizant of the United States’ well-documented support both for Interim President Guaidó and for his efforts to restore democracy and financial health to Venezuela. Even more importantly, the Court is profoundly aware of, and deeply troubled by, the deprivations that the Maduro regime has visited upon the Venezuelan people. This Court has no wish to exacerbate the many hardships that Venezuelans are already suffering.
However, given the substantial interests that the United States has in stabilizing financial markets, protecting the expectations of creditors, and maintaining New York’s status as a preeminent global commercial center, and given the absence of any affirmative statement by the United States in favor of granting comity to the National Assembly’s actions, the Court does not believe that such a grant is warranted under the present circumstances. The Court is appropriately concerned that recognizing the National Assembly’s actions, and accepting them as a rule of decision here, would invite less honest foreign governments to invalidate and repudiate legitimate debts and leave innocent creditors in the lurch.