Max Planck Lecture Series: Prof. Michael Waibel delivered a lecture on “Investment Arbitration as a Means of Resolving Sovereign Debt Disputes”

23 November 2016
Prof. Michael Waibel and Prof. Rodrigo Olivares-Caminal participated in the fourth lecture of the Max Planck Lecture Series on Sovereign Debt. The lecture dealt with a key legal issue: the question of whether investment arbitration is the appropriate forum to resolve sovereign debt disputes.

On 9 November 2016, Prof. Michael Waibel (University of Cambridge University) and Prof. Rodrigo Olivares-Caminal (Queen Mary University of London) were invited to speak about investment arbitration and sovereign debt litigation at the Max Planck Institute Luxembourg for Procedural law.

Prof. Waibel reckoned that investment arbitration has a limited role to play as a means of resolving sovereign debt disputes. Instead, it can threaten the resolution process. After a brief presentation on the International Centre for Settlement of Investment Disputes and the stakes in ICSID arbitration over sovereign bonds, Prof. Waibel described the main issues related to investment arbitration of sovereign debt disputes and the policy implications regarding sovereign debt crisis resolution.

Prof. Waibel raised the question of whether sovereign bonds qualify as “investment” on the basis of article 25 of the ICSID Convention, also taking into account the travaux préparatoires of the Convention. Considering the investment treaty practice, he argued that those instruments do not always include sovereign bonds in the definition of “investment”. Moreover, BIT coverage does not necessarily mean that sovereign bonds qualify as “investment” under article 25. He made this deduction in light of recent investment arbitration cases, such as Fedax NV v. Venezuela, Abaclat and Ambiente Ufficio v. Argentina and Postová banka and Istrokapital v. Greece. These cases illustrate the intricacies of sovereign bonds disputes before ICSID tribunals. In the last part of his presentation, he opined that ICSID tribunals may potentially threaten collective action policy and predicted that sovereign debt restructurings could evolve in hard-to-foresee ways.

Prof. Olivares-Caminal emphasized on the inadequacy of investment arbitration to resolve sovereign debt disputes. He described the fragmented sovereign debt market and the restructuring process, which depends on the specific terms contained in sovereign bonds. Prof. Olivares-Caminal stressed on the importance of “contractual sweeteners” (such as rights upon future offers –"RUFO"– clauses, collaterals, guarantees, GDP linked notes) that aim at preventing or mitigating the risk of sovereign debt litigation. He came to the conclusion that going to litigation should be avoided, hence the need to improve contractual terms.

After their presentation, the two professors had a lively discussion during the Q&A session.

For a picture gallery of the lecture, please click here.