This article addresses the issue of the interaction between sovereign debt and investment arbitration. The point has been recently highlighted by the Report of the UN Independent Expert on Sovereign Debt. In this context, investment arbitration has been regarded as capable of disrupting an orderly debt restructuring, since creditors may prefer operating outside a restructuring process and submitting their claims to arbitration. Arbitration becomes an escape route for creditors who do not want to accept take-it-or-leave-it conditions and are faced with domestic courts who decline to hear the case on the basis of the immunity doctrine. Arbitration may well be the ideal venue to balance the interests at stake. Under a human rights approach, creditors are called not to lend or have to cease lending when doing so would affect the socio-economic rights of the population. Under a necessity approach, the obligation of paying interest and reimbursing capital would be suspended to the extent that it would affect the duty of a state to provide essential services to the population. Under a transnational public policy approach, a claim is not enforceable when doing so would infringe the socio-economic rights of the population. Under an expropriation approach, the compensation for a default should consider the speculative intent in purchasing bonds after the default and award not the nominal value but the purchase price.
Journal of International Arbitration