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Opening Pandora’s Box: Sovereign Bonds in International Arbitration

Published online by Cambridge University Press:  27 February 2017

Michael Waibel
Affiliation:
Universität Wien (Austria), and LL.M. candidate, Harvard Law School.

Extract

In recent years, sovereign debt crises have received much attention from the perspective of international public policy, but an effective legal solution to sovereign defaults has yet to coalesce within international law. Over the last two decades, private creditors have increasingly resorted to litigation in national courts, though without great success, in an effort to obtain payment on defaulted sovereign debt. Another, emerging option is arbitration —in particular, before the International Centre for Settlement of Investment Disputes (ICSID). Will ICSID be the new venue of choice for recovering on sovereign bonds? The conclusion reached here is that attempts to take defaulting countries to ICSID arbitration are unlikely to succeed.

Type
Research Article
Copyright
Copyright © American Society of International Law 2007

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Footnotes

*

I gratefully acknowledge generous financial support by the Austrian Academy of Sciences under its DOC scholarship program. Thomas Laryea sparked my interest in this topic and provided invaluable advice from start to finish. Damien Eastman and August Reinisch, my thesis adviser, gave extensive comments on earlier drafts. I owe thanks to David Berry, Charles Blitzer, Juan Pablo Bohoslavsky, William Burke-White, Marcos Chamon, Mark Cymrot, Anna Gelpern, Christopher Greenwood, Darshini Manraj, Alexis Martinez, Michael McMahon, Paul Oberhammer, Christoph Paulus, Maurizio Ragazzi, Stephan Schill, Brad Setser, David Skeel, Edwin Truman, Guglielmo Verdirame, Gottfried Waibel, Yeon-Jue Yoo, and Jeromin Zettelmeyer. I further thank Eric Robert for assistance in locating sources. Earlier versions of this article were presented at Cambridge University, the International Monetary Fund, and the Universität Zurich. The London School of Economics and the Lauterpacht Centre for International Law were stimulating environments to complete this article.

References

1 The discussion is relevant not only for sovereign bonds, but also, more generally, for debt instruments and financial transactions. The recently registered “Italian Bondholder” arbitration, Beccara v. Argentine Republic, ICSID Case No. ARB/07/5 (registered Feb. 7, 2007), motivates the focus on ICSID. However, one should not discount that future bondholders could request arbitration under UNCITRAL rules if bonds incorporated such arbitration clauses. Many of the ICSID decisions and awards discussed in this article are available at <http://www.worldbank.org/icsid/cases/cases.htm>.

2 Earlier writers reached the contrary conclusion. See Peter, Griffin & Ania, Farren, How ICSID Can Protect Sovereign Bondholders, 24 Int’l Fin.L. Rev. 21 (2005)Google Scholar; Alexander, Szodruch, State Insolvency— Consequences and Obligations Underinvestment Treaties, in The International Convention for the Settlement of Investment Disputes (ICSID): Taking Stock After 40 years 141 (Rainer, Hofmann & Christian, Tarns eds., 2007)Google Scholar; Thomas, W. Walde, The Serbian Loans Case: A Precedent for Investment Treaty Protection of Foreign Debt? in International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law 383 (Todd, Weiler ed., 2005)Google Scholar [hereinafter Leading Cases].

3 The term “sovereign bond” is abbreviated as “bond” in this article when there is no risk of confusion. For a fascinating account of the long history of sovereign bonds, see Niall, Ferguson, The Cash Nexus: Money and Power in the Modern World, 17002000 (2001).Google Scholar

4 This figure excludes domestic debt (owed to nationals). In 2005, the stock of international debt securities amounted to more than U.S.$15.3 trillion, International Monetary Fund, Coordinated Portfolio Investment Survey 2005, tbl. 12.2, at <http://www.imf.org/external/np/sta/pi/05/Table12_2.pdf>..>Google Scholar Added to this amount is at least U.S.$14.19 trillion owed to commercial banks, Bis Q. Rev., June 2006, statistical annex, tbl. 9A. Derivatives are not included in these figures.

5 In 2006, U.S. GDP was $U.S. 13.19 trillion. U.S. Bureau of Economic Analysis, National Economic Accounts, at <http://www.bea.gov/national/xls/gdplev.xls>..>Google Scholar The U.S. share of world GDP is about 28 percent (in current U.S. dollars). The implied average external-debt/GDP ratio across countries is about 50 percent.

6 Estimates of the numbers of sovereign defaults vary, but without doubt their incidence is high. Andrew, G. Haldane, Fixing Financial Crises in the Twenty-First Century (2004)Google Scholar, documents about 200 defaults since 1830. Carmen, M. Reinhart & Kenneth, S. Rogoff, Serial Default and the “Paradox” of Rich-to-Poor Capital Flows, Am. Econ. Rev. (Papers & Proc), May 2004, at 53,Google Scholar finds 125 defaults for a sample of twenty-three countries over the last five centuries.

7 Andreas, F. Lowenfeld, International Economic Law 56 6616 (2002)Google Scholar, surveys sovereign debt crises in the 1980s and 1990s. Federico, Sturzenegger & Jeromin, Zettelmeyer, Debt Defaults and Lessons from a Decade of Crises (2006)Google Scholar, provides insight into the crises during 199 8–2005.

8 Initiated in 1996, the HIPC Initiative, modified as the Enhanced HIPC Initiative in 1999, has so far provided U.S .$19 billion in debt relief. World Bank and Independent Evaluation Group, Debt Relief for the Poorest: An Evaluation Update of the Hipc Initiative (2006), at <http://www.worldbank.org/ieg/hipc/>>Google Scholar, provides an excellent overview. Private creditors do not consistently provide debt relief on par with the official sector. Id. at 14. A recent example is an English judgment against Zambia. Donegal Int’l Ltd. v. Republic of Zambia, [2007] EWHC (Comm) 197.

9 Sturzenegger & Zettelmeyer, supra note 7, at 3, defines debt restructurings as “changes in the originally envisaged debt service payments, either after a default or under the threat of default.”

10 A country experiencing payment difficulties offers new bonds in exchange for old debt instruments. Bank loans are typically rescheduled through the Bank Advisory Committee, or London Club, process—which unites a number of syndicate banks to conduct collective restructuring negotiations with the borrowing country. The Paris Club, an informal organization of major creditor governments, restructures official debt. Lex, Rieffel, Restructuring Sovereign Debt: The Case for Ad Hoc Machinery (2003)Google Scholar, has a detailed overview.

11 In 2001, the International Monetary Fund proposed a new sovereign debt restructurings mechanism (SDRM), Anne, O. Krueger, A New Approach to Sovereign Debt Restructuring (2002)Google Scholar, but the proposal failed to garner sufficient support. Sovereign bankruptcy proposals have had currency in the academic literature for over two hundred years. Giulio, Diena, Il fallimento degli stati e il diritto internazionale (1898)Google Scholar, is an early noteworthy contribution; Kenneth, Rogoff & Jeromin, Zettelmeyer, Bankruptcy Procedures for Sovereigns: A History of Ideas, 197 6–2001, 49 IMF Staff Papers 470 (2002)Google Scholar, surveys a wide range of proposals.

12 Creditors who take part in the restructuring are referred to as participating creditors, and the others as nonparticipating, or holdout, creditors.

13 In Republic of Argentina v. Weltover, Inc., 504 U.S. 607 (1992), the U.S. Supreme Court held that the issuance of sovereign bonds was “commercial activity” under the Foreign Sovereign Immunities Act of 1976. Even a suspension of payments for the purposes of stabilizing Argentina’s economy was “commercial activity,” as this governmental measure was connected to the issuance of the bonds. In Borri v. Argentina, the Italian Supreme Court recently reached the opposite conclusion. The Court found that a default amounted to a sovereign act and was thus covered by immunity. Cass., sez. un., 27 May 2005, n. 11225, 88 Rivista Di Diritto Internazionale 856 (2005); see Annamaria, Viterbo, Sull’immunità dalla giurisdizione della Repubblica Argentina nel caso dei cd. Tangobond—Nota a Cass. Sezioni Uniten. 11225 2005, in 2005 Responsabilità civile e previdenza 1025 (2005).Google Scholar

14 The International Monetary Fund originally favored the treaty-based SDRM to deal with unsustainable debt burdens, Krueger, supra note 11. For a good overview and examples of colletive action clauses, see International Monetary Fund, The Design and Effectiveness of Collective Action Clauses (2002), at <http://www.imf.org/external/np/psi/2002/eng/060602.htm>>Google Scholar. The original impetus came from an influential Group of Ten report, The Resolution of Sovereign Liquidity Crises: A Report to the Ministers and Governors Prepared Under the Auspices of the Deputies (1996), at <http://www.bis.org/publ/gten03.pdf>>Google Scholar, followed by the group’s recommendation for implementation in the Report of the G10 Working Group on Contractual Clauses (2002), at <http://europa.eu.int/comm/economy_finance/publications/efc/gten08en.pdf>.

15 On the collective action problem arising in sovereign debt crises, see Sean, Hagan, Designing a Legal Framework to Restructure Sovereign Debt, 36 Geo. J. Int’l L. 299 (2005).Google Scholar

16 The 2005 bond exchange was preceded by a voluntary “megaswap” in 2001, a domestic restructuring in November 2001, and the March 2002 conversion of all dollar liabilities into pesos. turzenegger & Zxettelmeyer, supra note 7, at 16 5–201, provides a detailed overview of Argentina’s default and its aftermath. For details, see Prospectus Supplement (of Jan. 10, 2005, to Prospectus [of the Republic of Argentina] dated Dec. 27, 2004), Reg. No. 33 3–117–111, at <http://www.sec.gov>.

17 Incentives for participation included a GDP warrant that promised additional payment if Argentina’s GDP grew above 3%; a buyback plan for performing debt (that is, debt instruments held by nonparticipating creditors); and a most-favored-creditor clause to protect those creditors who tendered against subsequent better treatment of holdout creditors. Sturzenegger & Zettelmeyer, supra note 7, at 18 8–96.

18 Law No. 26017, Feb. 10, 2005, at <http://www.infoIeg.gov.ar/infolegInternet/verNorma.do?id=103619>. The law was designed to reduce the incentives for holding out. Article 2 provides that the Argentine executive cannot reopen its exchange offer. Article 3 prohibits judicial or out-of-court settlement on the bonds. Article 4 calls upon the executive to delist the bonds in Argentina and abroad.

19 In Argentina’s restructuring, participation was unusually low. Participation usually exceeds 90 percent.

20 Federico, Sturzenegger & Jeromin, Zettelmeyer, Haircuts: Estimating Investor Losses in Sovereign Debt Restructurings, 199 8–2005 (IMF Working Paper No. 05/137, 2005)Google Scholar (presenting detailed estimates of haircuts of different bonds).

21 Nonparticipating bondholders initiated dozens of lawsuits in New York, and in excess of a hundred in Germany and Italian courts. Sturzenegger & Zettelmeyer, supra note 7, at 201.

22 Allied Bank Int’l v. Banco Credito Agricola de Cartago, 757 F.2d 516 (2d Cir. 1985) (finding in favor of a holdout bank after a rehearing where the U.S. government intervened as amicus curiae); see Pravin Bankers Assocs., Ltd. v. Banco Popular del Peru, 109 F.3d 850, 854 (2d Cir. 1997); Elliott Associates, L.P. v. Banco de la Nacion, 12 F.Supp.2d 328 (S.D.N.Y. 1998). For Germany, see, for example, Amtsgericht Frankfurt am Main, 32 C 1511/02, May 6, 2003, at <http://web2.justiz.hessen.de/migration/rechtsp.nsf/suche?Openform> (see comment by August, Reinisch, Wirksamkeit eines Arrestbefehls gegen den Stoat Argentinien, 58 Juristenzeitung 1013 (2003)Google Scholar).

23 For a brief introduction to ICSID arbitration, see Lucy, Reed, Jan, Paulsson, & Nigel, Blackaby, Guide to ICSID Arbitration 10 709 (2004).Google Scholar

24 See supra note 1; Task Force Argentina Press Release, Bond argentini: Tfa, depositato all’Icsid il ricorso per oltre 170.000 risparmiatori (Sept. 18, 2006), at <http://www.tfargentina.it/download/TFA-Comunicatostampa180906.pdf>; Bonistas italianos recurren ante el Ciadi, La Nación (Arg.), Sept. 18, 2006, available at <http://www.lanacion.com.ar/economia/nota.asp?nota_id=841564>; Benedict, Mander, New Tack on Argentina Debt: Italian Retail Investors Are Making a Compensation Case to the World Bank, Fin. Times, Sept. 29, 2006, at 43.Google Scholar In March 2007, a second group of Italian bondholders requested ICSID arbitration. See Alemanni v. Argentine Republic, ICSID Case No. ARB/07/8 (registered Mar. 27, 2007). U.S. bondholders might follow suit. The American Task Force Argentina is one vocal creditor group. See Hal, S. Scott, Sovereign Debt Default: Cry for the United States, Not Argentina (Washington Legal Foundation, Working Paper Series No. 140, 2006), at <http://atfa.org/resources/scott_wp.pdf>CrossRefGoogle Scholar. After Russia’s 1998 default, a bondholder committee initiated ICSID arbitration. The case was reportedly settled. See Walde, supra note 2, at 402 n.44. Booker v. Guyana is a settled ICSID arbitration that involved a holdout creditor. Guyana had defaulted on promissory notes held by Booker, a British company with stakes in the Guyana sugar industry, in 1989 and attempted several times to settle the debt under the Paris Club. Booker argued that nationalization debts were covered neither by the Paris Club nor the HIPC Initiative. The case was settled in 2002, prior to a decision on jurisdiction. This settlement agreement is not public. Booker PLC v. Co-operative Republic of Guyana, ICSID Case No. ARB/01/9) (discontinuance of proceeding pursuant to Arbitration Rule 43(1) on October 11, 2003).

25 Such private organizations for coordinating bondholders have a long history. Paolo, Mauro, Nathan, Sussman, & Yishay, Yafeh, Emerging Markets and Financial Globalization: Sovereign Bond Spreads in 187 0–1913 and Today 13 4174 (2006)Google Scholar, provides an excellent introduction.

26 Memorandum from Owen Pell to the Global Committee of Argentina Bondholders (Feb. 15, 2005) (“Recent Argentine Legislation and Bondholder Remedies”), at <http://www.gcab.org/images/GCAB_-_ICSID_Position_Paper_2–15–05.pdf> [hereinafter GCAB memorandum].

27 So far, every ICSID award has been paid. “At ICSID, there’s never been a case in which a sovereign has failed to pay an award.” Carolyn, Kolker, When Nations Go Bust, 25 Am. Law. 90, 92 (2003)Google Scholar (quoting Ko-Yung Tung, ICSID’s secretary-general from 2000 to 2005). However, future willingness to pay could suffer insofar as ICSID awards are based on tenuous grounds.

28 See Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, Mar. 18, 1965, Art. 54, 17 UST 1270, 575 UNTS 159 [hereinafter ICSID Convention].

29 Id., Art. 55.

30 John Bassett, Moore, History and Digest of the International Arbitrations to Which the United States Has Been a Party 3616 (1898)Google Scholar (quoting Du Pont de Nemours & Co. v. Mexico (1868)).

31 The term “debt instruments” refers to various borrowing transactions, including syndicated loans, sovereign bonds, treasury notes, promissory notes, and credit facilities.

32 The obstacles to such bundling—in particular, across nationalities—seem formidable. Bundling of bondholder claims is examined in more detail in part III, below.

33 One way in which this effect could operate is through reduced costs of enforcement.

34 Mar. 18, 1965, 17 UST 1270, 575 UNTS 159. For an excellent introduction, see Reed et al., supra note 23, at 1–9.

35 See the ICSID Web site at <http://www.worldbank.org/icsid/>. In the past, the World Bank had at times exercised good offices over investment disputes. Lowenfeld, supra note 7, at 45 6–61, provides a brief historical sketch of the Convention.

36 The Convention is “designed to facilitate the settlement of disputes between States and foreign investors,” with a view to “stimulating a larger flow of private international capital into those countries which wish to attract it.” Executive Directors of the International Bank for Reconstruction and Development, Report of the Executive Directors on the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, para. 9 (Mar. 18, 1965), at <http://worldbank.int/icsid/basicdoc/basicdoc.htm> [hereinafter ICSID Report].

37 The investor and the host country select one each. The president is appointed jointly by the parties or, if they fail to agree, by the chairman of ICSID’s Administrative Council.

38 The ICSID Convention provides only for an annulment procedure. Divergent interpretations by ICSID tribunals of factually similiar cases have stoked a debate whether to establish an ICSID appellate body along the lines of the World Trade Organization. ICSID Secretariat, Possible Improvements of the Framework for ICSID Arbitration, paras. 2 0–23 (Oct. 26, 2004), at <http://www.worldbank.org/icsid/highlights/improve-arb.pdf>>Google Scholar; Christian, J. Tams, An Appealing Option? The Debate About an ICSID Appellate Structure (2006)Google Scholar (both envisaging a single mechanism for appeal). A good, recent example of how awards may diverge can be found in LG & E Energy Corp. v. Argentine Republic, ICSID Case No. ARB/02/1, Liability (Oct. 3, 2006), 46 ILM 40 (2007) (including an introductory note by August Reinisch), versus CMS Gas Transmission Co. v. Argentine Republic, Award, ICSID Case No. ARB/01/08, Award (May 12, 2005), 44 ILM 1205 (2005) [hereinafter CMS Award]. On the divergent approach to necessity in the two cases, see Stephan, Schill, International Investment Law and the Host State’s Power to Handle Economic Crises, 24 J. Int’l Arb. 211 (2007)Google Scholar, and Michael, Waibel, Two Worlds of Necessity in ICSID Arbitration: CMS vs. LG & E, 20 Leiden J. Int’l L. 637 (2007).Google Scholar

39 Over the last decades, the number of BITs exploded. Today, more than 2500 BITs are in force. For a detailed study, see Rudolf, Dolzer & Margrete, Stevens, Bilateral Investment Treaties (1995).Google Scholar Reed et al., supra note 23, at 3 8–62, provides a good introduction to BITs.

40 These behavioral standards in BITs may or may not be higher than what customary international investment law requires. Lowenfeld, supra note 7, at 47 3–88, sets out typical substantive rules contained in BITs.

41 The host country is the country in whose territory an investment is made.

42 This type of arrangement is known as arbitration without privity, a term coined by Jan, Paulsson, Arbitration Without Privity, 10 ICSID Rev. 23 256 (1995)Google Scholar; see also Dolzer & Stevens, supra note 39, at 13 1–36; Walid Ben, Hamida, L’arbitrage transnational unilateral (2003)Google Scholar (unpublished Ph.D. dissertation, Universite Pantheon-Assas, Paris II) (on file with author).

43 Under the new investment treaty regime of the ICSID Convention, the investor-claimant may take the host country directly to arbitration, without the exercise of diplomatic protection.

44 These two sets of rules are among the most common in international commercial arbitration. The Uncitral Arbitration Rules were adopted April 28, 1976. The ICC Rules on Arbitration (last updated in 1998) allow for arbitration before the International Court of Arbitration in Paris and for ad hoc arbitration.

45 U.S., German, and Italian nationals are the largest groups of nonparticipating bondholders. These three BITs are consequently the most relevant for holdout arbitration against Argentina.

46 Christoph, Schreuer, International and Domestic Law in Investment Disputes, 1 Austrian Rev. Int’l & Eur. L. 89 (1996).Google Scholar

47 “[T] he widely accepted principle. . . under general international law, [is that] a violation of a contract entered into by a State with an investor of another State, is not, by itself, a violation of international law.” Societe Generale de Surveillance S.A. v. Pakistan, ICSID Case No. ARB/01/13, Objections to Jurisdiction, para. 167 (Aug. 6, 2003) [hereinafter SGS-Pakistan Jurisdiction Decision], 18 ICSID Rev. 301 (2003), 8 ICSID Rep. 406 (2005), 42 ILM 1290 (2003).

48 See GCAB memorandum, supra note 26, at 3 -4 (highlighting expropriation as a promising treatment standard). Countries in default often treat national and foreign creditors differently, which could give rise to claims based on national and most-favored-nation (MFN) treatment. See infra text accompanying notes 15 8–75.

49 Prior to the proliferation of BITs, in cases where the underlying contract itself gave consent to ICSID arbitration, the Convention’s definition of investment was a less salient concern.

50 Christoph, H. Schreuer, The ICSID Convention: A Commentary, paras. 80, 89 (2001)Google Scholar. Since this conceptual decomposition is relevant only on the margin of subject matter jurisdiction, decisions on jurisdiction tend to gloss over these two steps. Joy Mining Machinery Ltd. v. Arab Republic of Egypt, Jurisdiction, ICSID Case No. ARB/03/11, paras. 43, 48, (Aug. 6, 2004) [hereinafter Joy Mining Jurisdiction Award], has an explicit decomposition into two steps. SGS Société Générale de Surveillance S.A. v. Republic of the Philippines, ICSID Case No. ARB/02/6, Objections to Jurisdiction, para. 154 (Jan. 29, 2004) [hereinafter SGS-Philippines Jurisdiction Award], further supports this position: “The jurisdiction of the Tribunal is determined by the combination of the BIT and the ICSID Convention.” See also Mitchell v. Democratic Republic of Congo, ICSID Case No. ARB/99/7, Application for Annulment (Nov. 1, 2006), at <http://www.iisd.org/pdf/2006/itn_icsid_v_drc.pdf> [hereinafter Mitchell Annulment Application] (“the special and privileged arrangements established by the Washington Convention can be applied only to the type of investment which the Contracting States to that Convention envisaged” (para. 31), and “the Washington Convention has supremacy over an agreement between the parties or a BIT” (para. 25)); Malaysian Historical Salvors SDN, BHD v. Government of Malaysia, ICSID Case No. ARB/05/10, Jurisdiction, paras. 43, 5 4–55 (May 17, 2007) [hereinafter Historical Salvors Jurisdiction Award] (referring to the “double-barrelled test” for jurisdiction, the first leg of which is “the objective criterion of an ‘investment’”).

51 Aron, Broches, The Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, 132 Recueil des cours 330, 330 (1972 II)Google Scholar uses this term. 52 Id. at 35 1–52.

53 Antonio, Parra, The Institutions of ICSID Arbitration Proceedings, 20 News from ICSID 13 (2003), available at <http://worldbank.com/icsid/news/news_20–2.pdf>Google Scholar. Parra was deputy secretary-general of ICSID from 1999 to 2005 and on ICSID’s staff for seventeen years.

54 Broches, A., The Convention on the Settlement of Investment Disputes: Some Observations on Jurisdiction, 5 Colum. J. Transnat’l L. 263, 268 (1966)Google Scholar (presenting the contrary view “that the requirement that the dispute must have arisen out of an ‘investment’ may be merged into the requirement of consent to jurisdiction”).

55 Debentures, promissory notes, and certificates of indebtedness display similar features. Historically, a bond is a “document written and sealed containing a confession of a debt.” Frederick, Pollock & Frederic, William Maitland, The History of English Law Before the Time of Edward I, at 207 (1899).Google Scholar Borchard defines sovereign bonds as the “principal document containing the terms of the contractual relationship between the debtor government and the individual lender . . . issued by the bank in accordance with the loan agreement or directly by the government pursuant to the loan prospectus. It evidences the promise by the borrower to pay the agreed interest on the loan, the principal at maturity, and to amortize the issue in a specified manner.” Edwin, Borchard & William, H. Wynne, State Insolvency and Foreign Bondholders 23 (1951).Google Scholar

56 2 Convention on the Settlement of Investment Disputes Between States and Nationals of Other States: Documents Concerning the Origin and the Formulation of the convention 59 (1968) [hereinafter ICSID History]. Delaume was an influential legal adviser at the World Bank and later ICSID. See also the justification for this definitional lacuna in ICSID Report, supra note 37, para. 27: “No attempt was made to define the term ‘investment’ given the essential requirements of consent by the parties . . . .” In discussing the legislative history, Schreuer notes that the preceding assertion is historically incorrect: “There were a number of attempts but they all failed.” Schreuer, supra note 50, para. 86. See generally id., paras. 8 1–88.

57 See Vienna Convention on the Law of Treaties, May 23, 1969, Art. 31, 1155 UNTS 331. The Oxford English Dictionary defines “investment” as “conversion of money or circulating capital into some species of property from which an income or profit is expected to be derived in the ordinary course of trade or business.”

58 Schreuer, supra note 50, para 85.

59 The evolution of, and disagreements concerning, the term “investment” in international law are surveyed by Sornarajah, M., The International Law on Foreign Investment 918 (2004)Google Scholar; see also id. at 30 4–305.

60 The BIT definitions serve merely as illustrations. The meaning of “investment” under the multilateral ICSID Convention cannot be inferred from BITs.

61 Burundi emphasized that money lent by a foreign company to a state could not be regarded as an investment. 2 ICSID History, supra note 56, at 261. Austria submitted that “public loans or bonds should not be included.” Id. at 709. The Australian delegate, by contrast, highlighted that the draft convention seemed to include not only cases where the investor acquired “tangible assets in the host country,” but also “the borrowing of cash . . . from foreign private investors.” Id. at 474.

62 It is beyond the scope of this article to survey the numerous decisions by international courts and by mixed commissions on sovereign bonds. In an unpublished Ph.D. dissertation (Université de Geneve, 2005), The Legal Practice of the Recovery of State External Debts, at 10 4–38 (on file with author), Gustavo Adolfo Olivares Marcos provides a representative survey of international awards and judgments on sovereign external debt. Germain Watrin, Essai de construction d’un contentieux international des dettes publiques (1929) covers older case law. These decisions provide valuable insight into legal and policy considerations at stake in arbitrating sovereign bonds.

63 Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Objections to Jurisdiction, para. 29 (July 11, 1997), 5 ICSID Rep. 186 (2002), 37 ILM 1378 (1998) [hereinafter Fedax Jurisdiction Decision].

64 Id., para 43. These are Schreuer’s typical requirements of jurisdiction turned normative. See infra note 80 and accompanying text.

65 Fedax Jurisdiction Decision, supra note 63, para. 42.

66 Ceskoslovenska Obchodni Banka, A.S. v. Slovak Republic, Objections to Jurisdiction, ICSID Case No. ARB 97/4 (May 24, 1999), 14 ICSID Rev., 251 (1999) [hereinafter CSOB Jurisdiction Decision]. See also CDC Group PLC v. Republic of the Seychelles, Award, ICSID Case No. ARB/02/14 (Dec. 17, 2003), where the Seychelles had guaranteed loans to a public utility corporation. The case was not based on a BIT, but on a specific arbitration agreement. The Seychelles accepted that the loan and the guarantee constituted an investment under Article 25.

67 OKO Pankki Oyj v. Republic of Estonia, ICSID Case No. ARB/04/6 (registered Feb. 20, 2004), and I & I Beheer B. V. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB/05/4 (registered Apr. 6, 2005), are two pending ICSID cases on debt instruments. For a brief description of the former, which concerns a private loan, see Estonia Facing Foreign Banks’ Euro 27.5 Million Claim, baltic bus. Daily, Jan. 4, 2006. For a description of the latter, which revolves around promissory notes issued by a Venezuelan agricultural development bank, see Daphne, Eviatar, Oye Como Va: As Venezuelan President Hugo Chavez Takes on Multinationals, the Arbitration Lawyers Are Circling In, Am. Lawyer, Dec. 1, 2005, at 28.Google ScholarI & I Beheer concerns international debt instruments issued in Zurich under Swiss law.

68 The Joy Mining Jurisdiction Award, supra note 50, para. 54, declined to qualify a bank guarantee tied to a contract for the provision of mining equipment as “investment.” Likewise, the Historical Salvors Jurisdiction Award, supra note 50, paras. 10 7–46, reached the same conclusion regarding a salvage operation for Chinese porcelain off the Malaysian coast. In Mihaly Int’l Corp. v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/00/2, Award (Mar. 15, 2002), 41 ILM 867 (2002), the tribunal found that preparatory expenses in the absence of a binding investment contract did not amount to an investment. The ad hoc committee’s decision in the Michell Annulment Application, supra note 50, was the first time that an ICSID award was set aside for (among other reasons) want of an investment. In 1985, the ICSID secretariat declined registration of a claim arising out of a contract for the sale of goods in the Asian Express v. Greater Colombo Economic Commission case. See Ibrahim, F. I. Shihata & Antonio, R. Parra, The Experience ofthe International Centre for Settlement of Investment Disputes, 14 ICSID Rev. 299, 308 (1999).Google Scholar

69 This restriction is perhaps implicit in the Fedax Jurisdiction Decision, supra note 63, para. 29, when the tribunal noted that sovereign bonds would qualify as “investment,” but only in “given circumstances.”

70 The nature of the transaction does not change simply because enforcing municipal judgments against a state might prove more difficult than against a private party.

71 In the secondary market for sovereign debt, loans and bonds are exchanged between buyer and seller, often at substantial discounts from their face value. These discounts reflect the likelihood of eventual repayment. The rise of secondary markets since 1980 has provided incentives to buy below par and pursue litigation for full principal and interest. For an overview of secondary markets and their development, see Philip, J. Power, Sovereign Debt: The Rise of the Secondary Market and Its Implications for Future Restructuring, 64 Fordham L. Rev. 2701, 271519 (1996).Google Scholar

72 The Fedax Jurisdiction Decision, supra note 63, para. 40, acknowledges as much: “ [T]he identity of the investor will change with every endorsement.”

73 Georges, R. Delaume, ICSID and the Transnational Financial Community, 1 ICSID Rev. 237, 242 (1986)Google Scholar (footnote omitted). The first draft defined “investment” as “any contribution of money or other asset of economic value for an indefinite period or, if the period is defined, for not less than five years.”

74 Christoph, Schreuer, Commentary on the ICSID Convention: Article 25, 11 ICSID Rev. 318, 372 (1996).Google Scholar Schreuer is widely regarded as one of the world’s foremost authorities on international investment law. His 2001 commentary on the ICSID Convention, supra note 50, is the standard reference work on ICSID.

75 It is unclear whether Schreuer thereby merely noted the evolution of ICSID case law or approves of ICSID jurisdiction over debt instruments.

76 To what extent portfolio investment is included in Article 25 ‘s notion of investment is controversial. Sacerdoti notes that “[p]ortfolio investment[s] . . . are . . . not excluded as a rule.” Giorgio, Sacerdoti, Bilateral Treaties and Multilateral Instruments on Investment Protection, 269 Recueil des Cours 251, 307 (1997).Google Scholar

77 In this sense, “the term ‘investment’ has an objective meaning independent of the parties’ disposition.” Schreuer, supra note 50, para. 90. The most comprehensive discussion of the investment requirement as an objective condition is found in the Historical Salvors Jurisdiction Award, supra note 50, paras. 4 2–146.

78 Typical elements aim to increase legal certainty. See Consorzio Groupement L.E.S.I.—DIPENTA v. People’s Democratic Republic of Algersia, ICSID Case No. ARB/03/8, Award, para. 72 (Jan. 10, 2005) [hereinafter L.E.S.I.—DIPENTA Award].

79 The Historical Salvors Jurisdiction Award, supra note 50, referred to the “typical characteristics,” versus “jurisdictional,” approach, paras. 6 9–72, while questioning whether the two approaches differ significantly in practice, paras. 10 5–06. One qualification applies. There are no general limits on how treaties may define “investment.” In bilateral relationships, parties are free to define terms as they see fit. UNCITRAL tribunals, for instance, derive their jurisdiction solely from the agreement to arbitrate. ICSID’s Additional Facility also does not require an investment dispute. See Schreuer, supra note 50, paras. 1 0–14.

80 Id., para. 122. The leading case is Salini Costruttori S.p.A. v. Kingdom of Morocco, ICSID Case No. ARB/00/4, Jurisdiction (Juy 23, 2001), 6 ICSID Rep. 400 (2004), 42 ILM 609 (2003). The Joy Mining Jurisdiction Award, supra note 50, para. 50, also mentions Article 25’s objective requirements. The award in Consortium Groupement L.E.S.I.DIPENTA, para. 72, dispenses with elements regulatory of profit and return and positive impact on development, and alters the feature of substantial contribution in a key respect. See infra text accompanying note 88.

31 Of Schreuer’s five typical elements, only duration, significance for the host state’s development, and risk sharing are discussed. Regularity of profit and return is unlikely to be contentious for sovereign bonds. The requirement of a substantial contribution might be material for retail bondholders.

82 Schreuer, supra note 50, para. 122. See the Historical Salvors Jurisdiction Award, supra note 50, where the tribunal found that the salvage operation lacked the necessary developmental impact, paras. 11 3–43, and referred to this typical element as the “litmus test,” para. 135.

83 The general rules of treaty interpretation can be found in Article 31 of the Vienna Convention, supra note 57. See Camuzzi International S.A. v. Argentine Republic, ICSID Case No. ARB/03/2, Objections to Jurisdiction, para. 133 (May 11, 2005). A teleological approach to interpreting “investment” can be found in the Historical Salvors Jurisdiction Award, supra note 50, paras. 6 5–68.

84 CSOB Jurisdiction Decision, supra note 66, para. 88. See Salini Costruttori, where the tribunal emphasized that the construction of a highway was clearly of public interest and therefore had a positive impact on Morocco’s development.

85 Fedax Jurisdiction Decision, supra note 63, para. 42.

86 To avoid asymmetrical treatment of host state and investor, the actual, present impact in the host country arguably needs to be given equal weight, reflecting the twofold objective of the ICSID Convention: first, to increase investor protection, and second, to ensure that investments perform an essential economic and social service in developing countries.

87 This emphasis would mirror what Dolzer calls a “remarkable tendency to shift the focus of the analysis away from the context and the purpose and focus more heavily on the effects on the owner.” Rudolf, Dolzer, Indirect Expropriations: New Developments? 11 N.Y.U. Envtl L.J. 64, 91.Google Scholar The ad hoc committee in the Michell Annulment Application, supra note 50, relied heavily on the positive-impact criterion to deny the presence of an investment. The tribunal’s reasoning is ultimately unsatisfactory, however, in that it defeats the very purpose of providing legal certainty (see, in particular, the ambiguous reasoning in paragraph 33).

88 L.E.S.I.—DIPENTA Award, supra note 78, para. 72(iv).

89 The Convention’s first draft, albeit inconclusive, might offer a starting point “for not less than five years.” See Delaume, supra note 73, at 242.

90 Fedax Jurisdiction Decision, supra note 63, paras. 4 2–43.

91 Joy Mining Jurisdiction Award, supra note 50, para. 57.

92 The counterargument may be advanced that despite the purchase on the secondary market, the country did receive the original financing. The sovereign bond issuance as a whole could satisfy the typical feature of a long-term commitment.

93 Many governments today issue dematerialized global bonds that involve a single debt instrument issued to a financial intermediary (depository), which records bondholder interests in a book-entry system.

94 A separate question concerns that of standing before ICSID. So far, no ICSID award has clarified whether only “investors” enjoy standing. Under the Convention, the term “investor” has no specific meaning. Article 25 contains only a reference to “national of a Contracting State.” BITs, by contrast, often limit consent to “investors.”

95 The Fedax Jurisdiction Decision, supra note 63, appears to lean in the direction that separate qualification of secondary market transactions as “investments” is not necessary.

96 Olguín v. Republic of Paraguay, ICSID Case No. ARB/98/5, Award, para. 65 (July 26, 2001), 18 ICSID Rev. 160 (2003) [hereinafter Olguin Award].

97 Fedax Jurisdiction Decision, supra note 63, paras. 38, 40 (noting “the investment itself will remain constant, while the issuer will enjoy a continuous credit benefit until the time the notes become due”).

98 Saluka Investments B.V. v. Czech Republic, Partial Award (UNCITRAL Arb. Trib. Mar. 17, 2006), at <http://www.pca-cpa.org> [hereinafter Saluka Partial Award].

99 Id., para. 209.

100 A thirty-year government bond held from issuance to maturity will fufill the long-term transfer criterion.

101 For discussion see infra part IV.

102 Fedax Jurisdiction Decision, supra note 63, para. 40. Against such a broad conception of risk, see Historical Salvors Jurisdiction Award, supra note 50, para. 112, in which the tribunal noted that the “quality of the assumed risk” mattered.

103 Joy Mining Jurisdiction Award, supra note 50, para. 57.

104 There is a distinction between the territorial link in Article 25 and in BITs—another emanation of the double review. Whether a BIT requires a territorial link to the host country is separate from whether investments under Article 25 are typically limited to those investments “in the territory of the host state.” The territorial requirement of BITs is examined below in the text accompanying notes 12 3–28.

105 The ICSID Report, supra note 36, paras. 9, 12 (emphasis added), explains that the creation of ICSID was “designed to facilitate the settlement of disputes between States and foreign investors” with a view to “stimulating a larger flow of private international capital into those countries which wish to attract it” and to “stimulate a larger flow of private international investment into territories.”

106 CSOB Jurisdiction Decision, supra note 66, para. 88 (emphasis added).

107 L.E.S.I.—DIPENTA Award, supra note 78, pt. II.2, para. 13(iv)(a): “[Q]ue le contractant ait effectué un apport dans le pays concerné” ([that] the contracting party has made contributions in the host country) (ICSID’s unofficial English translation). A positive impact on development will often be implicit in substantial contribution, duration, and risk sharing, see supra text accompanying note 88.

108 L.E.S.I.—DIPENTA Award, supra note 78, para. 14(i) (unofficial ICSID translation). The original French reads:

De même est-il fréquent que ces investissements soient effectués dans le pays concerné, mais il ne s’agit pas non plus d’une condition absolue. Rien n’empêche en effet que des investissements soient en partie du moins engagés depuis le pays de résidence du contractant mais en vue et dans le cadre du projet à réaliser à l’étranger.

109 If the the seller of the bonds held a bank account in the issuing country, this statement would need to be qualified.

110 So far, no ICSID tribunal has explicitly recognized this feature. I submit that recognition is appropriate. Christoph, Schreuer, The Concept of Expropriation Under the ETC and Other Investment Protection Treaties, in Investment Arbitration and the Energy Charter Treaty 108, 139 (Clarisse, Ribeiro ed., 2006)Google Scholar, mentions a “broad concept of economic rights that are necessary for the investor to pursue its business successfully” (emphasis added); Thomas, Waelde & Abba, Kolo, Environmental Regulation, Investment Protection and “Regulatory Taking” in International Law, 50 Int’l & Comp. L.Q. 811, 835 (2001)Google Scholar (emphasis added), speaks of “a combination of rights in a commercial, corporate setting and under a regulatory regime.” In the Fedax Jurisdiction Decision, supra note 63, para. 19, Venezuela’s submitted investment meant “the laying out of money or property in business ventures, so that it may produce a revenue or income.” See infra notes 11 3–14 for examples of other BITs.

111 ICSID has jurisdiction as long as the dispute “arises directly out of an investment.” In the Fedax Jurisdiction Decision, supra note 63, para. 24, the tribunal put it thus:

It is apparent that the term “directly” relates in this Article to the “dispute” and not to the “investment.” It follows that jurisdiction can exist even in respect of investments that are not direct, so long as the dispute arises directly from such transaction. This interpretation is also consistent with the broad reach that the term “investment” must be given in light of the negotiating history of the Convention.

The CSOB Jurisdiction Decision, supra note 66, para. 32, followed the Fedax Jurisdiction Decision in this respect, noting that

a dispute. . . must be deemed to arise directly out of an investment even when it is based on a transaction which, standing alone, would not qualify as an investment under the Convention, provided that the particular transaction forms an integral part of an overall operation that qualifies as an investment.

112 In the Compagnie Generate des Eaux case, a mixed commission considered such a bond. Compagnie Générale des Eaux de Caracas [Belgian Waterworks] v. Venezuela (1903), in The Law and Procedure of International Tribunals 78 (Jackson, H. Ralston ed., 1926).Google Scholar While the case has no direct bearing on the interpretation of ICSID’s Article 25, it might still possess some persuasive force.

113 The Bahrain-U.S. BIT limits investments to bonds and debt interests in a company: “Shares, stock, and other forms of equity participation, and bonds, debentures, and other forms of debt interests, in a company.” Treaty Between the United States of America and Bahrain Concerning the Encouragement and Reciprocal Protection of Investment, with Annex, Art. 1(d)(2), Sept. 29, 1999, S. Treaty Doc. No. 10 6–25 (2000). The North American Free Trade Agreement includes debt securities and loans of enterprises. Public issuers are explicitly excluded. North American Free Trade Agreement, Dec. 17, 1992, Can.-Mex.-U.S., Art. 11.39, 32 ILM 289 & 605 (1993). The Canadian Model BIT, at <http://ita.law.uvic.ca/documents/Canadian2004-FIPA-model-en.pdf>, also excludes debt instruments issued by public entities.

114 The 2004 U.S. Model BIT, at <http://www.ustr.gov/assets/Trade_Sectors/Investment/Model_BIT/asset_upload_file847_6897.pdf>, covers, among others, “bonds, debentures, other debt instruments, and loans.” A similar, wide definition is found in the Japan-South Korea BIT: “[E]very kind of asset . . . including . . . bonds, debentures, loans, and other forms of debt [as well as] rights under contracts.” Agreement Between the Republic of Korea and Japan for the Liberalisation, Promotion and Protection of Investment, Mar. 22, 2002, Art. 1(2), Treaty No. 17, Ministry of Foreign Affairs Notification No. 430 (Japan).

115 Sacerdoti, supra note 76, at 307 (emphasis added).

116 Annex 10-B of the Chile-U.S. Free Trade Agreement, June 6, 2003, limits obligations relative to public debt to national and MFN treatment: “The rescheduling of the debts of Chile . . . owed to the United States and the rescheduling of its debts owed to creditors in general are [subject only to] article 10.2 [MFN treatment] and 10.3 [national treatment].” See U.S.-Australia Free Trade Agreement, May 18, 2004, Arr. 11.17(4)(c); U.S.-Morocco Free Trade Agreement, June 14, 2004, Art. 10.27(c); U.S.-Central America-Dominican Republic Free Trade Agreement, Aug. 2, 2005, Art. 10.28(c). Similar policy considerations are apparent in the U.S.-Uruguay BIT, Nov. 4, 2005. Its Annex G qualifies treatment standards with respect to sovereign debt: “No claim that a restructuring of a debt instrument issued by Uruguay breaches an obligation under Articles 5 through 10 [fair and equitable treatment, full protection and securiry, expropriation] may be submitted to . . . arbitration . . . if the restructuring is a negotiated restructuring . . . .” U.S. free trade agreements and bilateral investment treaties are available at the Office of the U.S. Trade Representative Web site, <http://www.ustr.gov>. “Negotiated restructuring” is defined as restructuring to which a specified majority (usually two-thirds) of creditors has consented.

117 Article 1.1(c) of the Argentina-Germany BIT, Apr. 9, 1991, at <http://www.unctad.org/sections/dite/iia/docs/bits/germany_argentina_sp.pdf>, includes “los derechos a fondos empleadós para crear un valor economico o a prestaciones que tengan un valor económico.”

118 Article 1(c) of the Argentina-Italy BIT, May 22, 1990, at <http://www.unctad.org/sections/dite/iia/docs/bits/italy_argentina_it.pdf>, includes “obbligazioni, titoli pubblici o privati o qualsiasi altro diritto per prestazioni o servizi che abbiano un valore economico, come altresi redditì capitalizzati.”

119 Treaty with Argentina Concerning the Reciprocal Encouragement and Protection of Investment, Nov. 14, 1991, Art. 1(a)(iii), S. Treaty Doc. 10 3–2 (1993).

120 See Article 1.4 (h) of the Morocco-U.S. BIT, limiting coverage to “a claim to money or a claim to performance having economic value, and associated with an investment.” Treaty Between the U.S and Morocco Concerning the Encouragement and Reciprocal Protection of Investments, July 22 , 1985, S. Treaty Doc. 9 9–18 (1986).

121 For a spirited defense of this view, see Prosper Weil, dissenting in Tokios Tokelés v. Ukraine, who lucidly lays out the philosophical case for separating consent from the requirements of Article 25 (see, in particular, paragraphs 2 8–30). Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Jurisdiction (Apr. 29, 2004) (“the silence of the Convention . . . does not leave the matter to the discretion of the parties” (para. 19)). In that case, the core question was whether jurisdiction under Article 25 existed for a dispute between the Ukraine and a Ukrainian national. See Markus, Burgstaller, Nationality of Corporate Investors and International Claims Against the Investor’s Own State, 7 J. World Investment & Trade 857 (2006).Google Scholar

122 Joy Mining Jurisdiction Award, supra note 50, paras. 49, 50.

123 Sacerdoti, supra note 76, at 308.

124 Fedax Jurisdiction Decision, supra note 63, para. 41; see CSOB Jurisdiction Decision, supra note 66, para. 88.

125 As I argued above, see supra text accompanying notes 104–09, the notes in the Fedax case would almost certainly fail the territorial link required under Article 25.

126 SGS-Philippines Jurisdiction Award, supra note 50, paras. 57, 9 9–112. In an obiter dictum (paragraph 10) the SGS-Philippines tribunal appeared to object to the “very broad definition of territoriality” in the Fedax Jurisdiction Decision, supra note 63.

127 SGS-Pakistan Jurisdiction Decision, supra note 47, paras. 7 5–77, 136.

128 The argument that money is fungible and that the proceeds from the sovereign bonds could therefore free financial resources in the host country for other uses is to no avail; such a reading is at odds with the plain meaning of “in the territory.”

129 ICSID awards are equivalent to final judgment in ICSID member countries. See ICSID Convention, supra note 28, Arts. 5 3–55.

130 For a general discussion of such conflicts, see Vaughan, Lowe, Overlapping Jurisdiction in International Tribunals, 1999 Australian Y.B. Int’l L. 191.Google Scholar

131 The exception to this general rule is Brazilian bonds, some of which incorporate UNCITRAL arbitration clauses. So far, holdout litigation has almost invariably been undertaken in domestic courts. The reasons are manifold. For one, sovereign bonds are complex financial transactions governed by municipal law. Moreover, sovereign bonds with arbitration clauses (ICSID or otherwise) could implicitly recognize the possibility of eventual default and thereby negatively affect their marketability; the inclusion of arbitration clauses is therefore generally avoided, leaving domestic courts the forum of choice. Finally, sovereign bonds are “conservative” financial instruments whose contractual terms display tremendous inertia against change (for example, to include arbitration clauses).

132 Schreuer, supra note 50, at 12 7–34.

133 Borchard & Wynne, supra note 55, at 115; Garcia-Amador, F. V., Second Report on State Responsibility, [1957] 2 Y.B. Int’l L. Comm’n 104, 117Google Scholar, UN Doc. A/CN.4/106. In negotiations for the multilateral agreement on investment, there was also strong support for this proposition. Organisation for Economic Co-operation and Development, Multilateral Agreement on Investment: Commentary to the Consolidated Text, at 2 3–24 (1998). The draft agreement, along with the commentary, is available on the OECD Web site, <http://www.oecd.org>.

134 Umbrella clauses contain the host state’s general commitment to honor all contractual undertakings. A treaty violation goes hand-in-hand with the contractual breach. Christoph, Schreuer, Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in the Road, 5 J. World Investment & Trade 231 (2004)Google Scholar, treats umbrella clauses in detail.

135 This question attracted much attention recently. See Emmanuel, Gaillard, Investment Treaty Arbitration and Jurisdiction over Contract Claims— the SGS Cases Considered, in Leading Cases, supra note 2, at 325Google Scholar; Christoph, Schreuer, Investment Treaty Arbitration and Jurisdiction over Contract Claims—the Vivendi I Case Considered, in Leading Cases, supra note 2, at 281Google Scholar; Yuval, Shany, Contract Claims vs. Treaty Claims: Mapping Conflicts Between ICSID Decisions on Multisourced Investment Claims, 99 AJIL 835 (2005)Google Scholar.

136 (U.S. v. Venez.), 9 R.I.A.A. 213 (1903). The ad hoc committee in the Vivendi Annulment Decision, for example, relied on this finding. Compania de Aquas del Aconquija, S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Annulment (July 3, 2002) [hereinafter Vivendi Annulment Decision].

137 Joy Mining Jurisdiction Award, supra note 50, para. 59. The Historical Salvors Jurisdiction Award, supra note 50, paras. 11 9–29, introduced the related concept of “readily recognizable” investment into ICSID case law.

138 Joy Mining Jurisdiction Award, supra note 50, para. 59.

139 An unexplored question is the possibility of investors forbearing (waiving) ICSID arbitration by agreeing to the exclusive jurisdiction of national courts. Space constraints do not allow further exploration here. In Aguas del Tunari v. Bolivia S.A., ICSID Case No. ARB/02/3, Respondent’s Objections to Jurisdiction (Oct. 21, 2005), the tribunal recognized the possibility of waiving ICSID arbitration for the first time. The mixed commission in Woodruff presented an interesting analysis specifically concerning sovereign bonds.

140 SGS-Philippines Jurisdiction Award, supra note 50, para. 134; see id., paras. 14 9–53 (surveying arbitral practice).

141 For insightful analysis of the hierarchy between the two modes of consent, see, in particular, Zachary, Douglas, The Hybrid Foundations of Investment Treaty Arbitration, 2003 Brit. Y.B. Int’l L. 151, 248.Google Scholar His view is controversial. For example, the SGS-Philippines tribunal suggested that a BIT and a contract governed by national law are on a different footing. SGS-Philippines Jurisdiction Award, supra note 50, para. 142.

142 Southern Pacific Properties Ltd. v. Egypt, Jurisdiction, ICSID Case No. ARB/84/3, para. 83 (Apr. 14, 1988), 3 ICSID Rep. 131 (1995). Similarly, in the SGS-Philippines Jurisdiction Award, supra note 50, para. 141, the tribunal relied on generalia specialibus non derogant to give precedence to the parties’ contractual choice of forum for contractual causes of action.

143 SGS-Philippines Jurisdiction Award, supra note 50, para. 141. Antonio Crivellaro stressed in his dissent (paragraphs 9–10) that since the BIT only offers arbitration, there is no arbitration agreement until the investor initiates arbitration.

144 See supra note 14.

145 The fair and equitable treatment standard is examined in greater detail infra text accompanying notes 21 2–42.

146 Douglas, supra note 141, at 243.

147 Id. at 248 (emphasizing the importance of upholding the collective will of both parties, in view of ensuring continued broad support for investment treaty arbitration).

148 SGS-Philippines Jurisdiction Award, supra note 50, para. 141.

149 Telenor Mobile Communications A.S. v. Hungary, ICSID Case No. ARB/04/15, Award, para. 95 (Sept. 13, 2006).

150 On responsibility for debt generally, see August, Reinisch, State Responsibility for Debts: International Law Aspects of External Debt and debt restructuring (1995).Google Scholar

151 It is important to keep in mind that these treatment standards differ across BITs.

152 International law is part of the general system of law. See Statute of the International Court of Justice, Art. 38(1), at <http://www.icj-cij.org>.The most important doctrinal contribution is by Hersch Lauterpacht, Private Law Sources and Analogies of International Law: With Special Reference to International Arbitration (1927).

153 Certain Norwegian Loans (Fr. v. Nor.), 1957 ICJ Rep. 9, 37 (July 6) (Lauterpacht, J., sep. op.).

154 For general international law, see Article 25 (state of necessity) of the International Law Commission’s Articles on Responsibility of States for Internationally Wrongful Acts, in Report of the International Law Commission on the Work of Its Fifty-third Session, UN GAOR, 56th Sess., Supp. No. 10, at 43, UN Doc. A/56/10 (2001), reprinted in James, Crawford, The International Law Commission’s Articles on State Responsibility: Introduction, Text and Commentaries (2002)Google Scholar. The tribunal in the CMS Award, supra note 38, paras. 21 4–27, 30 4–89, dismissed Argentina’s state of necessity defense despite a serious financial crisis. The tribunal in LG & E Energy Corp. reached the opposite conclusion on identical facts; for a critique of this divergence, see Schill and Waibel, supra note 38.

155 In truth, the existing universe of BITs displays many different shades of treatment standards.

156 A good example of this approach is Noble Ventures Inc. v. Romania, ICSID Case No. ARB/01/11, Award (Oct. 12, 2005), at <http://ita.law.uvic.ca/documents/Noble.pdf>, in which the tribunal’s definition of the arbitrary treatment standard is guided by a commonality of municipal law. For further discussion see infra text accompanying notes 22 7–29.

157 It is not my aim here to present a comprehensive treatment of the case law relating to these standards.

158 Some BITs include specific debt-restructuring annexes that limit treatment obligations on public debt to MFN and national treatment. See supra note 116.

159 To assure participating bondholders that nonparticipating creditors would not receive more favorable treatment, the Argentine bond exchange included a most-favored-creditor clause. This clause grants participating bondholders the right to compensation, either in cash or kind, that is substantially similar to that received by nonparticipating creditors in any future exchange offer.

160 “Haircut” is the technical term for the write-off from net present value in a debt restructuring.

161 The potential unraveling of the BIT’s treaty bargain echoes the argument developed in the earlier section on preserving the unity of the contractual bargain. See supra notes 14 6–49 and accompanying text. Analysis of this issue is in its infancy. Likewise, if one construes MFN clauses in complex BITs (or free trade agreements) as absolute prohibitions of differentiated treatment according to nationality, the door is open for choosing specific substantive rights and obligations created by those BITS, thereby undermining the contractual bargain. A detailed discussion is beyond the scope of this article.

162 See U.S.-Uruguay BIT, supra note 116, Annex G (concerning sovereign debt restructuring).

163 See the U.S.-Australia Free Trade Agreement, supra note 116, which provides solely for domestic dispute settlement.

164 See Rudolf, Dolzer & Terry, Myers, After Teemed: Most-Favored Nation Clauses in Investment Protection Agreements, 19 ICSID Rev. 49 (2005)Google Scholar; Dana, H. Freyer & David, Herlihy, Most-Favored-Nation Treatment and Dispute Settlement in Investment Arbitration: Just How “Favored” Is “Most-Favored”? 20 ICSID Rev. 58 (2005)Google Scholar; Ruth, Teitelbaum, Who’s Afraid of Maffezini? Recent Developments in the Interpretation of Most Favored Nation Clauses, 22 J. Int’l Arbitration 225 (2005)Google Scholar. The case law is discussed in Emmanuel, Gaillard, Establishing Jurisdiction Through a Most-Favored-Nation Clause, N.Y. L.J., June 2, 2005, at 3.Google Scholar

165 Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Award (Nov. 13, 2000) [hereinafter Maffezini Award].

166 That is, recourse to arbitration only once domestic remedies prove unsuccessful. See Christoph, Schreuer, Calvo’s Grandchildren: The Return of Local Remedies in Investment Arbitration, 4 L. & Prac. Int’l Cts. & Tribunals 1 (2005).Google Scholar

167 Once a particular mode of adjudication is chosen, the other is no longer available.

168 See Técnicas Medioambientales Teemed, S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award, para. 69 (May 29, 2003) [hereinafter Teemed Award], which applied Maffezini’s framework of public policy exceptions and held that the “core matters” of BITs are exempt from the application of the MFN clause. Similarly, in National Grid PLC v. Argentine Republic, Jurisdiction, paras. 8 6–93 (June 20, 2006), an UNCITRAL tribunal endorsed Maffezini, pointed out that the MFN clause applied to dispute settlement, but could not grant access to a different type of arbitration. By contrast, Plama Consortium Ltd. v. Bulgaria, Jurisdiction, ICSID Case No. ARB/03/24, Jurisdiction, para. 209 (Feb. 8, 2005), considerably restricted the scope of the MFN clause in procedural matters.

169 There are precedents for multiple claimants in ICSID case law.

170 There is no precedent for such procedural bundling under ICSID. It is unclear how ICSID would deal with a large number of parallel bondholder claims. If each bondholder had to pay the registration fee for ICSID arbitration, the costs of arbitration could be prohibitive for all but large bondholders.

171 It would only be a class in the sense that a large number of bondholders would act together, with their claims being arbitrated as a group. Technically speaking, ICSID has no procedure for U.S.-style class actions. It is also worth noting that, in contrast to the claimants in such actions, a small group of bondholders would not represent the interests of all Argentine bondholders.

172 Aron Broches, Selected Essays: World Bank, ICSID, and Other Subjects of Public and Private International Law 248 (1995).

173 The question of standing on global bonds (for definition, see supra note 93) surfaced in U.S. sovereign debt litigation but was not resolved on the merits. See Fontana v. Republic of Argentina, 415 F.3d 238 (2d Cir. 2005).

174 For example, the Argentine Bond Restructuring Agency Pic (ABRA) incorporated in Ireland after the Argentinean default.

175 If each bondholder had to pay the fees for lodging arbitration under ICSID’s Rule 16 individually, this route would become prohibitively expensive. According to ICSID’s schedule of fees of July 6, 2005, at <http://www.worldbank.org/icsid/schedule/schedule.htm>, a fee of U.S.$25, 000 is “payable to the Center by the party requesting the institution of conciliation or arbitration proceedings under the Convention.”

176 For overviews, see W. Michael, Reisman & Robert, D. Sloane, Indirect Expropriation and Its Valuation in the BIT Generation, 2004 Brit. Y.B. Int’l L. 115Google Scholar; Schreuer, supra note 110; August, Reinisch, Expropriation, in The Oxford Handbook of International Investment Law (Peter, Muchlinksi et al. eds., forthcoming 2008).Google Scholar

177 According to Higgins, “Sometimes rights that might seem more naturally to fall under the category of contract rights are treated as property.” Rosalyn, Higgins, The Taking of Property by the State: Recent Developments in International Law, 176 Recueildes Cours 259, 271 (1982 III).Google Scholar Similarly, Sacerdoti, supra note 76, at 381, notes that “ [a]li rights and interests having an economic content come into play, including immaterial and contractual rights.”

178 Ernst, H. Feilchenfeld, Rights and Remedies of Holders of Foreign Bonds, in 2 Bonds and Bondholders, Rights and Remedies 130, 203 (Silvester, E. Quindry ed., 1934).Google Scholar

179 Of course, these awards have no binding effect on ICSID tribunals, though they might find the awards’ reasoning persuasive or infer state practice. ICSID tribunals have certainly relied on non-ICSID awards in the past. See, for example, the Woodruff case, see supra note 136 and accompanying text. A nexus to physical property, however, seems to be the exception rather than the rule. See Bayindir Insaat Turizm Ticaret Ve Sanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Jurisdiction, para. 255 (Nov. 14, 2005).

180 Starrett Housing Corp. v. Islamic Republic of Iran, 4 Iran-U.S. CI. Trib. Rep. 122, 156(1983111) (emphasis added).

181 Phelps Dodge International Corp. v. Islamic Republic of Iran, 10 Iran-U.S. Cl. Trib. Rep. 157, 170 (1986 I).

182 Compagnie Generale des Eaux de Caracas [Belgian Waterworks] v. Venezuela (1903), in The Law and Procedure of International Tribunals, supra note 112, at 78.

183 Boccardo v. Venezuela (1903), in The Law and Procedure of International Tribunals, supra note 112, at 80.

184 Edwin, M. Borchard, Contractual Claims in International Law, 13 Colum. L. Rev. 457, 460, 476 (1913).Google Scholar The other two categories are (1) claims arising out of contracts between nationals of different countries, and (2) claims arising out of contracts between the a citizen abroad and a foreign government. Similarly, Luis Drago noted in State Loans in Their Relation to International Policy, 1 AJIL 692, 695 (1907), that sovereign bonds are “issued by virtue of the sovereign power of the state, as is its currency.” For opposing view (rejecting the distinction promulgated by Borchard), see Aspinwall v. Venezuela (1885), in Moore, supra note 30, at 3651; O’Connell, D. P., State Succession in Municipal Law and International Law 189 (1967)Google Scholar; William Edward, Hall, International Law (6th ed. 1909)Google Scholar, at 276 (“Fundamentally, . . . there is no difference in principle between wrongs inflicted by breach of a monetary agreement and other wrongs for which the state, as itself the wrongdoer, is immediately responsible.”). See also the rejection of various “responsibilities] of states” in Russia v. Turkey (Russian Indemnity), Hague Ct. Rep. (Scott) 298 (Perm. Ct. Arb. 1912), 7 AJIL 178, 188 (1913).

185 Schreuer, supra note 110, at 24 (emphasis added); Ursula, Kriebaum & Christoph, Schreuer, The Concept of Property in Human Rights Law and International Investment Law, in Human Rights Democracy and the Rule of Law: Liber Amicorum Luzius Wildhaber 743, 757 (Stephan, Breitenmoser et al. eds., 2007).Google Scholar

186 Waelde & Kolo, supra note 110, at 835 (emphasis added).

187 Consortium R.F.C.C. v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Award, para. 65 (Dec. 22, 2003).

188 For example, in Jalapa Railroad & Power Co., (U.S. v. Mex.) (U.S.-Mex. Mixed CI. Comm’n 1948), in 8 Whiteman, Digest of International Law 908 (1967), Am.-Mex. CI. Rep. 538, 540 (1948), the commission held that a legislative act declaring a particular clause in a contract null and void could not be interpreted as an ordinary breach of contract; rather, the government stepped out of its role as contracting party and, by exercising its sovereign powers, sought to excape its obligations under the contract. To the same effect, see Impregilo S.p.A. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/3, Jurisdiction, para. 261 (Apr. 22, 2005).

189 Consortium R.F.C.C. (quoted approvingly in Impregilo, para. 278).

190 Impregilo, para. 276.

191 Schreuer, supra note 110, at 1–2.

192 This argument was accepted in Methanex Corp. v. United States, Final Award, para. 3 (NAFTA Ch. 11 Arb. Trib. Aug. 3, 2005); see Saluka Partial Award, supra note 98, para. 263.

193 On state responsibility in general, see Stephen, M. Schwebel, On Whether the Breach by a State of a Contract with an Alien Is a Breach of International Law, in Justice in International Law: Selected Writings of Stephen M. Schwebel 425, 434 (1994)Google Scholar: “[A] State is responsible under international law if it commits not any breach, but an arbitrary breach, of a contract between that State and an alien. What is ‘arbitrary’? It is a breach ‘for governmental rather than commercial reasons.’ “

194 Waste Management, Inc. v. United Mexican States, ICSID Case No. ARB(AF)/00/3, Award (Apr. 30, 2004) [hereinafter Waste Management Award].

195 Id., para. 174.

196 Id., para. 177.

197 Olguín Award, supra note 96.

198 Id., para. 84 (unofficial ICSID translation): “Expropriation therefore requires a teleologically driven action for it to occur; omissions, however egregious they may be, are not sufficient for it to take place.”

199 Schreuer, supra note 110, para. 118.

200 SGS-Philippines Jurisdiction Award, supra note 50, para. 161: “Whatever debt the Philippines may owe to SGS still exists; whatever right to interest for late payment SGS had it still has. There has been no law or decree enacted by the Philippines attempting to expropriate or annul the debt, nor any action tantamount to an expropriation.”

201 CMS Award, supra note 38, paras. 26 3–64.

202 J. A. Manasse & Co. v. Mexico (1868), in Moore, supra note 30, at 3462, 3463.

203 See supra note 133 and accompanying text. Contra Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Final Award, para. 29 (Mar. 9, 1998), 5 ICSID Rep. 200 (2002), 37 ILM 1391 (1998). Venezuela is bound under international law to pay the promissory notes when due.

204 Feilchenfeld, supra note 178, at 170.

205 See supra note 18 for some background on this law.

206 All private debt restructurings—in the corporate and the sovereign context—rely to some extent on incentives to keep in creditors who consider a holdout strategy. The key question is when such incentive devices become coercive. In assessing coerciveness, it would be reasonable to take into account limited possibilities of enforcement against sovereigns, as well as the absence of restructuring alternatives for countries.

207 See Certain Norwegian Loans (Fr. v. Nor.), 1957 ICJ Rep. 9 (July 6). In dissent, id. at 90, Judge Read cited the French position that sovereign bonds issued abroad “cannot be repudiated without giving rise to a breach of international law.”

208 Lauder v. Czech Republic, Final Award, para. 200 (uncitral Arb. Trib. Sept. 3, 2001), at <http://ita.law.uvic.ca/documents/LauderAward.pdf>. See Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/l, Award, para. 103 (Aug. 30, 2000), where the tribunal held that indirect expropriation takes place if “the effect of depriving the owner, in whole or in significant part, of the use or reasonably-to-be-expected economic benefits of property even if not necessarily to the obvious benefit of the host State.”

209 “As long as the debt is omitted from the budget [, virtual destruction is] not treated differently from regular complete repudiation.” Feilchenfeld, supra note 178, at 205.

210 All private debt restructurings—in the corporate and the sovereign context—rely to some extent on incentives to bind in creditors who consider a holdout strategy. The key question is when such incentive devices become coercive. In assessing coerciveness, it would be reasonable to take into account limited possibilities of enforcement against sovereigns as well as the absence of restructuring alternatives for countries.

211 See Christoph, Schreuer, Fair and Equitable Treatment in Arbitral Practice, 6 J. World Investment & Trade 357, 360–67 (2005)Google Scholar (highlighting variation in linkage to customary law); Catherine, Yannaca-Small, Fair and Equitable Treatment Standard in International Investment Law, in International Investment Law: A Changing Landscape 73, 81103 (OECD ed., 2005).Google ScholarIoana, Tudor, The Fair and Equitable Treatment Standard in International Foreign Investment Law (forthcoming 2008)Google Scholar comprehensively covers the case law on fair and equitable treatment.

212 Schreuer, supra note 211, at 37 3–74.

213 Elettronica Sicula S.p.A. (ELSI) (U.S. v. Italy), 1989 ICJ Rep. 15, paras. 101, 128 (July 20).

214 Genin v. Republic of Estonia, ICSID Case No. ARB/99/2, Award, para. 367 (June 25, 2001).

215 Pope & Talbot Inc. v. Canada, Phase 2, para. 118 (NAFTA Ch. 11 Arb. Trib. Apr. 10, 2001), 7 ICSID Rep. 102, available at <http://ita.law.uvic.ca/documents/PopeandTalbot-Merit.pdf>.

216 Pope & Talbot Inc. v. Canada, Damages, para. 64 (NAFTA Ch. 11 Arb. Trib. May 31, 2002), 41 ILM 1347 (2002), available at <http://ita.law.uvic.ca/documents/Pope-Damages.pdf>. To the same effect, see ADF Group Inc. v. United States, ICSID Case No. ARB(AF)/00/l, Award, paras. 17 9–86 (Jan. 9, 2003), 18 ICSID Rev. 195 (2003), 6 ICSID Rep. 470 (2004).

217 Mondev International Ltd. v. United States, ICSCID No. ARB(AF)/99/2, Award, para. 127 (Oct. 11, 2002), 6 ICSID Rep. 192 (2004), 42 ILM 85 (2003) (quoted approvingly in Loewen Group, Inc. v. United States, ICSID Case No. ARB(AF)/98/3, Award, para. 133 (June 26, 2003), 7 ICSID Rep. 442 (2005), 42 ILM 811 (2003)).

218 Loewen Group, para. 135.

219 Id., para. 132.

220 Id., para. 137.

221 Waste Management Award, supra note 194, para. 98.

222 Id., para. 140.

223 CMS Award, supra note 38, paras. 27 4–75.

224 Id., paras. 274, 281, 284.

225 Id., para. 280.

226 Lauder v. Czech Republic, Final Award, para. 292 (uncitral Arb. Trib. Sept. 3, 2001), at <http://ita.law.uvic.ca/documents/LauderAward.pdf>.

227 Noble Ventures, Inc. v. Romania, ICSID Case No. ARB/01/11, Award, paras. 17 7–78 (Oct. 12, 2005), at <http://ita.law.uvic.ca/documents/Noble.pdf>.

228 Lauterpacht, supra note 152.

229 UNCTAD, Fair and Equitable Treatment, UN Doc. UNCTAD/ITE/IIT/11, Vol. Ill, at 12 (1999).

230 Schreuer, supra note 211, at 379.

231 ICSID Convention, supra note 28, Art. 52. ICSID tribunals’ final awards may be challenged before an ad hoc committee that has the power to annul the award in certain narrow circumstances (for example, improper constitution of the tribunal, manifest excess of power, corruption of a member of the tribunal, serious departure fom a fundamental rule of procedure).

232 Vivendi Annulment Decision, supra note 136, para. 101 n.73.

233 Waste Management Award, supra note 194, para. 115.

234 Mondev v. United States, ICSCID No. ARB(AF)/99/2, Award, para. 98 (Oct. 11, 2002), 6 ICSID Rep. 192 (2004), 42 ILM 85 (2003).

235 SGS-Philippines Jurisdiction Award, supra note 50, para. 162.

236 Schreuer, supra note 211, at 380.

237 Metalclad Corp. v. United Mexican States, ICSID Case No. ARB(AF)/97/l, Award, paras. 76, 89 (Aug. 30, 2000) (affirming a violation of fair and equitable treatment on this ground); see Maffezini Award, supra note 165, para. 83; CME Czech Republic B.V. v. Czech Republic, Partial Award, para. 611 (UNCITRAL Arb. Trib. Sept. 13, 2001), at <http://ita.law.uvic.ca/documents/CME-2001PartialAward.pdf>; Teemed Award, supra note 168, para. 152.

238 Schreuer, supra note 211, at 374.

239 Pope & Talbot Inc. v. Canada, Damages, paras. 6 8–6 9 (NAFTA Ch. 11 Arb. Trib. May 31, 2002), 41 ILM 1347 (2002), available at <http://ita.law.uvic.ca/documents/Pope-Damages.pdf>.

240 Teemed Award, supra note 168.

241 The need for such gymnastics is not surprising, given the discussion in part I on why sovereign bonds are unlikely to qualify as “investment” for lack of association with a commercial undertaking.

242 The law prevents an improved offer to nonparticipating creditors. See supra note 18.

243 For this “Hull” formula, see Sornarajah, supra note 59, at 24 2–46. Adequacy refers to fair market value. On this notion, see Irmgard, Marboe, Compensation and Damages in International Law, 7 J. World Investment & Trade 723 (2006).Google ScholarSee also AGIP S.p.A. v. People’s Republic of the Congo, Award, ICSID Case No. ARB/77/1, Award (Nov. 30, 1979), 1 ICSID Rep. 306, 322 (1993); Liberian Eastern Timber Corp. v. Republic of Liberia, ICSID Case No. ARB/83/2, Award (Mar. 31, 1986), 2 ICSID Rep. 346 (1994), 26 ILM 647 (1987).

244 Reinisch, supra note 176.

245 Maffezini Award, supra note 165, para. 64; CMS Gas Transmission Co. v. Argentine Repubic, ICSID Case No. Arb/01/8, Objections to Jurisdiction, para. 29 (July 17, 2003); CMS Award, supra note 38, para. 244.

246 Starrett Housing Corp. v. Islamic Republic of Iran, 4 Iran-U.S. CI. Trib. Rep. 122, 156 (1983 III).

247 Saluka Partial Award, supra note 98, paras. 55, 275; see Generation Ukraine Inc. v. Ukraine, ICSID Case No. ARB/00/9, Award, para. 20.37 (Sept. 16, 2003), 44 ILM 404 (2005).

248 For insightful analysis on general risk allocation in international investment law, see William W., Burke-White & Andreas Von, Staden, Investment Protection in Extraordinary Times: The Interpretation and Application of Non-precluded Measures Provisions in Bilateral Investment Treaties, 48 Va. J. Int’l L. (forthcoming 2008).Google Scholar

249 Ernst, H. Feilchenfeld, Public Debts and State Succession 657 (1931).Google Scholar

250 Default risk on a bond is different from the risk sharing that is typical of investments within Article 25 of the ICSID Convention. On this typical element, see supra text accompanying notes 10 2–03. Risks of the transaction may be held against the investor.

251 “Creditor moral hazard” refers to the phenomenon in which an implicit repayment guarantee by a third party (the executive, the courts, or an international institution such as the International Monetary Fund) to creditors modifies the relative risk properties of financial instruments ex post, prompting creditors to take on excessive risk ex ante.

252 “Legal liability... is the sanction for defeated expectations in law.” Edwin, M. Borchard, International Loans and International Law, 26 ASIL Proc. 135, 163 (1932).Google ScholarSee Consortium R.F.C.C. v. Kingdom of Morocco, ICSID Case No. ARB/00/6, Award, para. 69 (Dec. 22, 2003) (“effets substantiels d’une intensite certainé qui réduisent et/ou font disparaître les bénéfices légitimement attendus de l’exploitation des droits objets de ladite mesure à un point tel qu’ils rendent la détention de ces droits inutile”); Saluka Partial Award, supra note 98, paras. 30 2–04 (“ [the investor’s] expectations, in order for them to be protected, must rise to the level of legitimacy and reasonableness in light of the circumstances”); Olguín Award, supra note 96, para. 65 (b) ([Olguín] “had his reasons (which this Tribunal makes no attempt to judge) for investing in that country, but it is not reasonable for him to seek compensation for the losses he suffered on making a speculative, or at best, a not very prudent, investment”).

253 1934 PCIJ (ser. A/B) No. 63 (Dec. 12).

254 The Law and Procedure of International Tribunals, supra note 112, at 73, 73. Whether a particular bondholder actually knew about the possibility of performance is a matter in equity, not in law. The investment treaty regime does not seek to protect inexperienced retail investors.

255 Aspinwall v. Venezuela (1885), in Moore, supra note 30, at 3651, 3664; see Ballistini v. Venezuela, (Fr.-Venez. Comm’n 1903), in Venezuelan Arbitrations of 1903, at 503 (Jackson H. Ralston ed., 1904). As stated in Boccardo v. Venezuela (1903), in The Law and Procedure of International Tribunals, supra note 112, at 80, 80:

It is a principle of public international law that the internal debt of a state, classified as a public debt, which is subject to speculations current amongst that sort of values which are acquired freely and spontaneously at very different rates of quotations which mark great fluctuations of their rise and fall, can never be subject of international claims in order to obtain their immediate repayment in cash.

256 Statement of Interest of the United States of America in Opposition to the First Amended Complaint in [CIBC Bank & Trust Co. (Cayman) v. Banco Central do Brasil, 886 F.Supp. 1105 (S.D.N.Y. 1995)], as quoted in Philip J. Power, Sovereign Debt: The Rise of the Secondary Market and Its Implications for Future Restructurings, 64 Fordham L.R. 2701, 2752 (1996) (emphasis added). In James v. United Kingdom, 98 Eur. Ct. H.R. (ser. A) para. 54 (1986), the European Court of Human Rights similarly pronounced that

the taking of property without payment of an amount reasonably related to its value would normally constitute a disproportionate interference which could not be justifiable under Article 1. Article 1 does not, however, guarantee a right to full compensation in all circumstances. Legitimate objectives of ‘public interest’, such as pursued in measures of economic reform or measures designed to achieve greater social justice, may call for less than reimbursement of the full market value.

257 See, e.g., Christoph, H. Schreuer, Unjustified Enrichment in International Law, 22 Am. J. Comp. L. 281 (1974).Google Scholar

258 Sturzenegger & Zettelmeyer, supra note 7, at 4–8. They propose this technique for calculating investor losses in restructurings. It could play a similarly useful role in asesssing fair market value.

259 See supra note 30.

260 Courts avoid jurisdiction on the basis of doctrines such as comity or act of state. See generally Fawcett, J. J., Declining Jurisdiction in Private International Law: Reports to the XIVth Congress of the International Academy of Comparative Law, Athens, August 1994 (1995)Google Scholar. For example, instead of looking at the underlying bond transaction, the Italian Corte di Cassazione, sez. un., 27 May 2005, n. 11225, 88 Rivista Di Diritto Internazionale 856 (2005), recently focused on the sovereign acts undertaken in the financial crisis, and declined jurisdiction. The U.S. district court in Allied Bank Int’l v. Banco Credito Agricola de Cartago, 566 F.Supp. 1440 (S.D.N.Y. 1983), aff’d, 733 F.2d 23 (2d Cir. 1984), originally reached a similar result. On rehearing, the circuit court reached the opposite conclusion, 757 F.2d. 516 (2d Cir. 1985).

261 See, for insrance, the cases cited supra note 22, where national courts accepted jurisdiction.

262 Such discretion is often critical for sovereign debt restructurings. Equal treatment of domestic and foreign creditors might be economically undesirable and infeasible politically. See the persuasive arguments in Anna, Gelpern & Brad, Setser, What Iraq and Argentina Might Learn from Each Other, 6 Chi. J. Int’l L. 391 (2005).Google Scholar For a more general argument that investment treaty arbitration introduces unprecendented state liability for business losses due to governmental regulation, see Gus Van, Harten, Investment Treaty Arbitration and Public Law (2007).Google Scholar

263 In general, municipal judgments have no binding force outside the forum’s jurisdiction. They require recognition. Under the ICSID Convention, supra note 28, Art. 53, such recognition is automatic, without possibility of substantial review.

264 Id., Art. 55 (“Nothing in Article 54 shall be construed as derogating from the law in force in any Contracting State relating to immunity of that State or of any foreign State from execution.”).

265 See Article 25 of the International Law Commission’s Articles on State Responsibility, supra note 154. The Russian Indemnity case, see supra note 184, 7 AJIL at 190, recognized that nonpayment of public debt could be justified in extreme economic and financial circumstances. More recently, the Federal Constitutional Court of Germany denied that a state of necessity could justify the suspension of payment obligations owed to private creditors under sovereign bonds (Joined Case Nos. 2 BvM 1–5/03 & 1–2/06 (May 8, 2007), at <http://www.bverfg.de/entscheidungen/ms20070508_2bvm000103.html>; see case report in this issue by Beate Rudolf and Nina Hüfken). A detailed examination of whether such circumstances potentially preclude liability is beyond the scope of these preliminary observations. For a general overview, see Thomas, Pfeiffer, Zahlungskrisen ausländischer Staaten im deutschen und intemationalen Rechtsverkehr, 102 Zeitschrift Für Vergleichende Rechtswissenschaften 141 (2003).Google Scholar

266 Tools to assess a country’s payment capacity are still in their infancy, and opinions differ on the appropriate methodology.

267 Plans for reorganizing finances of defaulting states through international arbitration have long currency. The arbitrators would need to examine, inter alia, the country’s economic conditions, its projected economic developments, and its budgetary situation. Albert, Wuarin, Essai Sur Les Emprunts D’etats Et La Protection Des Droits des Porteurs de Fonds D’etats Etrangers 12 829 (1907)Google Scholar. Similarly, John Fischer, Williams, Chapters on Current International Law and the League of Nations 32 729 (1929)Google Scholar, would require arbitrators to examine carefully the internal needs of the country. See Drago, supra note 184, at 705.

268 For instance, U.S. crises in the 1830s and the 1870s, post-WWI financial adjustment and the Great Depression, the German debt renegotiation after WWII, the Latin American debt crises of the 1980s, and the East Asian and Russian crises of the 1990s.

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