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Bilateral Debt

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Sovereign Debt

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Abstract

There are few instances in current practice of litigation between States in connection with bilateral loans as the matter is usually settled through negotiations (mainly within the framework of the Paris Club), while interstate litigation involving bonded debt has been occasionally resorted to in the framework of diplomatic protection.

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Notes

  1. 1.

    Cf. supra, Chap. 9.

  2. 2.

    Cf. infra, § 17.7.

  3. 3.

    In the Loan Agreement of 5 June 2009 between the Depositors’ and Investors’ Guarantee Fund of Iceland and the Commissioners of Her Majesty’s Treasury, with Iceland as guarantor, the chosen forum was England (Art 17.2); similarly, in the companion Loan Agreement of 5 June 2009 between the Depositors’ and Investors’ Guarantee Fund of Iceland and the State of the Netherlands, with Iceland as guarantor, the chosen forum was England (Art 16.2).

  4. 4.

    (1978) 17 ILM 1123.

  5. 5.

    In this connection, it is questionable whether a loan agreement retains its immunity when it passes on assignment to private parties. In Donegal International v. Zambia [2007] EWHC 197 (Comm) [20], [2007] 1 Lloyd’s Rep 397, 403, immunity was retained after assignment from Romania to Donegal as the parties to the assignment had so agreed. See Fox (2008), pp. 277–278.

  6. 6.

    A/RES/59/38 of 16 December 2004.

  7. 7.

    See Fox (2008), pp. 545–546. See also Art 4(2)(a) of the European Convention on State Immunity (1972) 11 ILM 470.

  8. 8.

    (1976) 15 ILM 1388.

  9. 9.

    “The statute must be applied by the district courts in every action against a foreign sovereign, since subject-matter jurisdiction in any such action depends on the existence of one of the specified exceptions to foreign sovereign immunity, 28 U.S.C. § 1330(a)”, Verlinden B.V. v. Central Bank of Nigeria, 103 S Ct 1962, 1971 (1983).

  10. 10.

    Section-by-Section Analysis attached to the Report on the Jurisdiction of United States Courts in Suits Against Foreign States (1976) 15 ILM 1398, 1406–1407.

  11. 11.

    For a definition of interstate arbitration, see Advisory Opinion Concerning the Interpretation of Article 3, paragraph 2, of the Treaty of Lausanne (Frontiers between Turckey and Iraq) (1925) PCIJ Series B No 12, 6, 26, and Art 15 of the 1899 Hague Convention for the Pacific Settlement of Disputes, in Scott (1909), p. 80.

  12. 12.

    Arbitration combines some elements of diplomatic and judicial procedure. On one hand, the negotiation activity of the party plays a central role in the decision to refer a dispute to arbitration; on the other hand, arbitration is an adjudicative machinery as the award is binding and arbitrators base their decision on the law. See Shaw (2008), p. 1054.

  13. 13.

    See Shaw (2008), p. 1051.

  14. 14.

    See Merrills (2005), pp. 91–94.

  15. 15.

    The problem of the enforcement of arbitral awards may be dealt with in at least three ways: establishing a fund under the arbitral agreement from which the victorious party may draw directly; drafting the arbitral decision in a manner that is acceptable to both parties, or enlarging the grounds for nullity of the award. See Merrills (2005), pp. 124–125.

  16. 16.

    Treaty of Amity, Commerce and Navigation between Great Britain and the United States, the “Jay Treaty” (signed 19 November 1794) (1794) 52 CTS 243, which provided for the establishment of three mixed claims commissions to settle the claims that had arisen in connection with the War of Independence (1775–1783), Ralston (1929), pp. 191–193. Originally, these commissions were composed of two commissioners, one appointed by the two opposing parties. In the event of disagreement, the commissioners were empowered to appoint a third party—the umpire—usually a national of a third State, to overcome the impasse. At a subsequent step, the umpire was directly and immediately appointed by the litigating governments. See Dolzer (1997), p. 438.

  17. 17.

    See Collier and Lowe (1999), p. 32. The point is well illustrated by the events that followed the termination of the Jay Treaty. After a further period of war between the United States and the United Kingdom, the Treaty of Peace of Ghent between Great Britain and the United States (24 December 1814) (1813–1814) 63 CTS 421, provided for the arbitration on territorial disputes through the establishment of mixed commissions, with the provision that should agreement between commissioners not be reached, the matter would be referred to a foreign head of State. When one commission failed to agree on a territorial question, the dispute was referred to the King of the Netherlands. As the recommendatory award made by the Dutch sovereign was not accepted by the parties, the matter was settled by negotiations within the framework of the Webster–Ashburton Treaty between Great Britain and the United States (signed 9 August 1842) (1842) 93 CTS 415. See Simpson and Fox (1959), p. 2.

  18. 18.

    The arbitral tribunal was established on the basis of the Treaty of Washington between Great Britain and the United States for the Amicable Settlement of all Causes or Differences between the Two Countries (signed 8 May 1871) (1871–1872) 143 CTS 145. The dispute regarded compensation requested by the United States from the United Kingdom for losses resulting from the sale of the warship Alabama to the Confederate States during the American Civil War (1861–1865); see the arbitral award in Moore (1898), pp. 653–659. See Schwarzenberger (1986).

  19. 19.

    The Alabama arbitration was shortly followed by the Behring Sea Fur arbitration (1893) JB Moore (1898), pp. 935–942, and by the British Guiana–Venezuela Boundary arbitration (1899) (1899–1900) 92 State Papers 160–162. See Schwarzenberger (1986), pp. 83–91.

  20. 20.

    See Scott (1909), p. 80.

  21. 21.

    See Scott (1909), p. 308.

  22. 22.

    See Schlochauer (1997), Jonkman (1999), and Shifman (2005).

  23. 23.

    In Permanent Court of Arbitration, Basic Documents (The Hague, 1998) 41, these rules are based on the UNCITRAL Arbitration Rules 1976 (1976) 15 ILM 701. The Optional Rules provide for the composition of the arbitral tribunal (Arts 5–14), the arbitral proceeding (Arts 15–30), and the award (Arts 31–41). The Rules are characterised by a high level of flexibility as compared with the rules contained in the two Hague Conventions on the Pacific Settlement of International Disputes: the Rules are available to all the States and not only to those party to the Hague Conventions. The choice of arbitrators is not confined to the persons listed as members of the panel: the parties are free to designate any authority.

  24. 24.

    The Rules were originally conceived by the International Law Commission as a draft Convention on Arbitral Procedure (1953), but—failing to find favour with the States—were redrafted in a set of optional rules; see Carlston (1954) and Bos (1956). See the text in Simpson and Fox (1959), pp. 295–304. The Rules cover the determination of the existence of a dispute, the compromis, the constitution of the tribunal, the applicable law, and the rendering of the award; however, the Rules have so far failed to be accepted in the arbitral practice. See Collier and Lowe (1999), p. 35.

  25. 25.

    On commercial arbitration generally, see Gaillard and Savage (1999) and Blackaby and Partasides (2010).

  26. 26.

    Supra, note 23. The UNCITRAL Rules were applied, with modifications, by the Iran–US Claims Tribunal, Baker and Davies (1992).

  27. 27.

    ICC Rules of Arbitration 1998 (1997) 36 ILM 1604; see Craig et al. (2000) and Derains and Schwartz (2005). In 1984, the Comisariat Français à l’Energie Nucleaire and the Iranian government decided to submit to arbitration conducted on the basis of the former ICC rules a dispute related to a loan agreement (ICC Arbitration No 5124); see Park (1991), pp. 1345–1346.

  28. 28.

    LCIA Rules 1998 (1998) 37 ILM 669; see Turner and Mohtashami (2009).

  29. 29.

    Art 14 of the Intercreditor Agreement and Art 14 of the Loan Facility Agreement; the latter document contains a waiver of immunity clause, which permits enforcement and execution against the borrower. Cf. supra, § 2.4.6.2.

  30. 30.

    See Shaw (2008), p. 1055, and also confidentiality, Malintoppi (2006), p. 140.

  31. 31.

    See Collier and Lowe (1999), p. 38. On the differences between jurisdiction and arbitration, see Jennings (2002).

  32. 32.

    See Borchard (1923) and Hudson (1943).

  33. 33.

    The Covenant constitutes Part I to the Treaty of Peace with Germany of 28 June 1919 (1919) 225 CTS 195.

  34. 34.

    While the Permanent Court of International Justice was not an organ of the League of the Nations, the International Court of Justice is the principal judicial organ of the United Nations, Collier and Lowe (1999), p. 125. On the ICJ generally, see Rosenne (2006).

  35. 35.

    In Corfu Channel (United Kingdom v. Albania) (Preliminary Objections) [1948] ICJ Rep 15, 27–28, the Court inferred consent from the unilateral application of Great Britain and the subsequent counterparty letter implying the acceptance of the jurisdiction of the Court. This doctrine is known as forum prorogatum, Yee (1999).

  36. 36.

    See the General Act for the Pacific Settlement of International Disputes (dated 26 September 1928) XCIII LNTS 343 (revised 28 April 1949) 71 UNTS 100. The General Act should be still in force; see Aegean Sea Continental Shelf (Greece v. Turkey) [1978] ICJ Rep 3.

  37. 37.

    This submission clause may be encapsulated in multilateral treaties (for instance, the Optional Protocols to the Vienna Convention on Diplomatic Relations (done 18 April 1961) 500 UNTS 95 and the Vienna Convention on Consular Relations (done 24 April 1963) 596 UNTS 261 conferred jurisdiction upon the Court in the Hostages Case (United States Diplomatic and Consular Staff in Tehran (USA v. Iran) [1980] ICJ Rep 3) or in bilateral treaties (for instance, the Belgian Spanish commercial treaty of 1927 conferred jurisdiction upon the Court in the Barcelona Traction, Light and Power Company Limited, (Belgium v. Spain) Preliminary Objections [1964] ICJ Rep 6).

  38. 38.

    “Any State party to the Statute, in adhering to the jurisdiction of the Court in accordance with article 36, paragraph 2, accepts the jurisdiction in its relations with States previously having adhered to that clause. At the same time, it makes a standing offer to the other States parties to the Statute which have not yet deposited a declaration of acceptance. The day one of those States accepts that offer by depositing in its turn its declaration of acceptance, the consensual bond is established and no further condition need to be met”, Land and Maritime Boundary between Cameroon and Nigeria (Cameroon v. Nigeria) (Preliminary Objections) [1998] ICJ Rep 275, 291.

  39. 39.

    This type of reservation is known as “Connally Reservation”; see Henkin (1971) and Dolzer (1992). However, its formulation appears to contradict Art 36(6) of the Statute, under which it is the Court that determines its own jurisdiction, Shaw (2008), p. 1084.

  40. 40.

    Although formally binding solely for the parties, the decision may contribute to the evolution of international law; see, generally, Shahabuddeen (1996).

  41. 41.

    In recent times, the rate of judgment compliance is generally good; cf. Paulson (2004) and Llamzon (2007). In the event of failure to act by the Security Council (the judgment rendered by the ICJ in Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States) (Merits) [1986] ICJ Rep 14 was not enforced, but the Security Council was unable to act because of the US veto; see Collier and Lowe 1999, p. 178), the claimant State may bring an action before the domestic courts to enforce the ICJ judgment or may resort to countermeasures.

  42. 42.

    Case concerning the Loan Agreement between Italy and Costa Rica (1998) XXV RIAA 21. The arbitration was conducted under the PCA Optional Rules of Arbitration between States (cf. supra, § 14.2). See Hamilton et al. (1999), pp. 202–205, and Milano (2007).

  43. 43.

    Case concerning the Loan Agreement between Italy and Costa Rica (n. 42) 65–66; cf. supra, § 13.3.5.

  44. 44.

    Case concerning the Loan Agreement between Italy and Costa Rica (n. 42) 61–62; cf. supra, § 4.2.1.

  45. 45.

    Case concerning the Loan Agreement between Italy and Costa Rica (n. 42) 69–70; cf. supra § 13.3.3.

  46. 46.

    This use of equity was justified by the Court on two grounds: the solution between the two governments was sought at a diplomatic level with the result that “[c]’est donc ben au niveau et dans la perspective de relations entre Gouvernements qu’il y a lieu à ce stade pour le Tribunal arbitral d’examiner et de fixer les conséquences de l’inexécution et de décider de questions comme les modalités de remboursement ou celles des intérêts”, and the relevant norms of international law were permeated by equity infra legem; Case concerning the Loan Agreement between Italy and Costa Rica (n. 42) 72–73.

  47. 47.

    See Buchheit and Karpinski (2006), pp. 229–230.

  48. 48.

    The Export-Import Bank of China is the agency responsible for development aid; cf. supra, § 3.5.2.

  49. 49.

    In 2011, the Export-Import Bank tried to enforce the judgment against certain funds that were awarded to Grenada under an ICSID arbitration [RSM Production Corp. v. Grenada, Case No ARB/05/14 (order of the committee discontinuing the proceeding and decision on costs, 28 April 2011)], but the Southern District Court of New York found the funds immune from attachment, The Export-Import Bank of China v. Grenada, 876 F Supp 2d 263 (SDNY 2012).

  50. 50.

    NML Capital LTD et al. v. The Republic of Argentina, 2012 US App LEXIS 22281 (26 October 2012, 2nd Cir); cf. infra, § 17.5.1.

  51. 51.

    The Export-Import Bank of the Republic of China v Grenada, 2013 US Dist Lexis 117740 (19 August 2013) at **11–13. Although it did not explicitly take a position in relation to the meaning of the pari passu, the Court seemed to lean in favour of the “ranking” interpretation; cf. supra, § Chap. 7, note 87.

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  1. Catholic University, Milan, Italy

    Mauro Megliani

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Megliani, M. (2015). Bilateral Debt. In: Sovereign Debt. Springer, Cham. https://doi.org/10.1007/978-3-319-08464-0_14

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