Summary

In this report, the Independent Expert studies the human rights implications of debt disputes being submitted to the international investment arbitration system and whether, from a human rights perspective, investment arbitration is an adequate option for solving disputes in the context of debt restructuring.

In the absence of an international framework to regulate sovereign debt restructuring, investment arbitration has recently been seen as a potential forum for holdout creditors and vulture funds to seek to enforce sovereign debt instruments. However, the system of investment arbitration was created to provide legal security for foreign direct investment and to contribute to economic development, not to enforce financial obligations, and even less to provide an avenue for the claims of speculative hedge funds and non-cooperative creditors. To date, however, most investment tribunals have found jurisdiction over sovereign debt disputes. The willingness of investment arbitrators to hear such disputes may encourage vulture funds and holdout creditors to use this form of dispute resolution, making debt restructuring longer and more costly and difficult.

Most bilateral investment treaties do not contain any explicit human rights provisions and investment arbitration tribunals have been rather reticent about encompassing human rights robustly in their decisions. Notwithstanding a few arbitration decisions, the consideration of human rights issues in international investment arbitration has so far remained rather on the periphery of the international investment law regime. Given the deep and broad human rights implications of debt crises, it would be a dangerous development if bilateral investment treaties became a forum for solving sovereign debt disputes.

While the international community is making great efforts to prevent or minimize holdout litigation, investment arbitration may open a new door for such creditors to deploy disruptive strategies. The current system of investment arbitration may therefore impair economic recovery and undermine State funding for public services and State institutions that give effect to economic, social, cultural rights and the protection of civil and political rights.