VenEconomy: The lack of consistency in the interpretation and application of the law depending on who is involved is already commonplace in Venezuela.

On October 29, the Civil Cassation Chamber of the Supreme Tribunal of Justice (TSJ) issued a ruling according to which a dollar-denominated promissory note must be paid in dollars. This decision by the Civil Cassation Chamber aims to solve a claim filed by Banco de Venezuela against Motores de Venezuela, owing to the fact that, in 2005, the latter started to honor a dollar-denominated promissory note that had been negotiated prior to the imposition of exchange controls.

Motores de Venezuela resorted to Article 116 of the Central Bank of Venezuela Law, which establishes that "payments stipulated in a foreign currency shall be paid, unless a special arrangement exists, by handing over the equivalent in local currency at the current exchange rate on the date of payment."

The Central Bank disagreed with this decision and filed a claim with the TSJ. Four long years later, the TSJ decided that the contract was drawn up in dollars and that, therefore, it should be paid in dollars, and that, moreover, there is nothing to impede this. The decision was not supported by Justice Luis Antonio Ortiz Hernandez, who argued that the decision undermines the spheres of competence of the Central Bank and imposes a judgment as though the dollar were "legal tender" in Venezuela.

In the opinion of VenEconomy, this decision by the TSJ, while unfortunately taken late, is in accordance with the law: a debt incurred in dollars should be paid in dollars. What has always been unreasonable is the mandate contained in Article 116 of the Central Bank of Venezuela Law, which is unconstitutional in that it violates the economic rights of the lender and ignores agreements reached in a contract between private individuals.

Probably neither Justice Ortiz Hernandez' argument nor VenEconomy's opinion will prompt the Constitutional Chamber of the TSJ, the court of appeal in this case, to revise this decision. But what will force a reversal of this decision by the Civil Cassation Chamber is the large number of contracts that have already accepted the rule of paying in bolivars and whose debtors will now be seriously affected. It should be remembered that there are transactions of all types that have availed themselves of this rule, including a large number mortgages and rent agreements that were entered into prior to the implementation of the current exchange controls.

When previous exchange controls were implemented, there was recognition of private foreign debt, which guaranteed the payment of liabilities incurred in foreign currency at the official exchange rate of the day. If this decision is made final, the Central Bank could also be forced to hand over foreign currency to borrowers who have been paying back their loans in bolivars at the official exchange rate. As it is highly unlikely that the Central Bank will assume this liability, if they insist on the rule of payment of liabilities in dollars at the swap rate, borrowers could be adversely affected, as lenders have been until now.

In short, even though, in the opinion of legal experts, the decision is in keeping with the law, it is late in coming and will put a large number of borrowers in a difficult situation as, four long years after the event, they are unlikely to be in a position to pay back a debt at the current swap rate. Moreover, despite opinions to the contrary, payment in bolivars of debts incurred in a foreign currency was already generally accepted and no major claims had been made on those grounds. Undoubtedly, that will now change.

Once again, the ambivalence of the law and its interpretation at whim, depending on who will benefit, calls into question the legal certainty of any contracts entered into in Venezuela.

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