Supreme Court: Interest Rates Amid High Inflation

Argentina has been experiencing chronic high inflation for several years, with annual rates consistently reaching double or even triple digits. This economic instability poses unique challenges for the judicial system, particularly when determining fair compensation in civil cases where there can be significant time gaps between an incident and its final resolution.

In "Barrientos c/ Ocorso s/ daños y perjuicios" (10/15/2024), the Argentine Supreme Court established a crucial precedent regarding how interest should be calculated on compensation awards in a context of high inflation. The case emerged from a 2008 traffic accident, but its implications extend far beyond the specific incident.

The case reached the Supreme Court through an appeal after Chamber C of the Court of Appeals in Civil Matters in the City of Buenos Aires affirmed a judgment favorable to the plaintiffs. The core issue addressed by the Supreme Court revolves around a common practice in Argentinian courts: judges setting compensation amounts at "current values" (i.e., adjusted for inflation up to the date of the judgment) while simultaneously applying high interest rates that already include an inflation component. This practice often results in excessive compensation amounts that could quadruple the original damages, as it occurred in this case.

In its analysis, the Supreme Court establishes a fundamental distinction between two types of obligations: monetary obligations—fixed amounts of currency that are subject to depreciation from their inception—, and value obligations —abstract values that remain theoretically immune to inflation until they are converted into specific monetary amounts—.

In value obligations —such as compensation for civil damages— when the compensation is set at the time of the award, only “pure” interest rate (i.e., excluding inflation components) should apply from the incident until the judgment. This prevents double-counting inflation, as the principal is already adjusted to current values. After the judgment, when the value obligation becomes a monetary one, regular interest rates may apply.

This ruling is particularly important because it addresses a systemic issue in Argentinian civil litigation, where high inflation rates are frequently being counted twice. It protects defendants, especially insurance companies, from paying disproportionate compensations, while ensuring plaintiffs receive fair compensation.

This precedent establishes guidelines for proper damage quantification, contributing to legal certainty in claims settlements. It is expected that lower courts will adapt their practices to the doctrine established by the Court in this important precedent, potentially leading to more standardized approaches to calculation of interest in civil cases.