Section A of this chapter examines arbitral awards on sovereign debt that arose in the context of two important cases of state successions – the dismemberments of the Ottoman and the Austro-Hungarian empires after World War I. Section B considers cases where debtor governments have sought to be exempted from repayment on the grounds that previous governments incurred the debts for their own personal gain (‘odious debt’). Section C examines how international courts and tribunals have dealt with the defence of debtor states that their limited financial resources prevented them from repaying their debts in full.

Arbitrations on succession into sovereign debt

The Ottoman Public Debt Arbitration

The Ottoman Public Debt Arbitration concerned burden-sharing in sovereign debt of the former Ottoman Empire. The Ottoman Empire suspended debt payments in London soon after the outbreak of World War I on 14 September 1914. In 1923, Turkey also defaulted on most of its debts.

After the break-up of the Ottoman Empire following World War I, Article 51 of the Lausanne Peace Treaty held each former territory of the Ottoman Empire responsible for that part of the annual debt service that corresponded to its share of the Ottoman Empire's average total revenues over the financial years 1910–12. But Turkey was responsible for all the Ottoman debt, with the exception of wartime debts to the Axis powers that were cancelled. The Council of the Ottoman Debt was charged with apportioning the debt.