Investment Arbitration for Debt Disputes: Undermining Human Rights Compliance?

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Written By: Kate Joohyun Lee

On October 26, 2017, Columbia Law School’s Columbia Center on Sustainable Investment (CCSI), the Columbia International Arbitration Association (CIAA), and Human Rights Institute (HRI) invited Juan Pablo Bohoslavsky and Edward Guntrip to speak on the effect of sovereign debt litigation in international arbitration especially in regards to human rights.

Juan Pablo Bohoslavsky is the United Nations Independent Expert on Debt and Human Rights. Earlier this year in July, Mr. Bohoslavsky published his report on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights.

Edward Guntrip, a coauthor of the report, is a Lecturer in Law at the University of Sussex whose research focuses on international investment law, investor state dispute settlement, and human rights.

At the event, Mr. Bohoslavsky presented the findings of his report, which considers debt disputes that are monitored by the international investment arbitration system and the arising human rights implications. Due to the lack of an international framework that regulates sovereign debt restructuring, creditors and vulture funds see investment arbitration as a forum through which they can enforce sovereign debt instruments, and most tribunals have found jurisdiction over such claims.

The danger in this trend is that vulture funds and holdout creditors may increasingly use arbitration to enforce debt instruments, hindering possible debt restructuring. In sum, the report finds that, by leaving such a door open, this trend in investment arbitration may adversely affect economic recovery, public services, and human rights.

To mitigate such abuse, the report recommends that arbitrators who believe they have jurisdiction over debt disputes to be required to apply human rights law to both parties. Mr. Bohoslavsky concluded by saying that “International debt disputes should be solved in a transparent, fair and timely manner through an international sovereign debt workout mechanism…arbitrators would need very good reasons not to consider these principles if they have to decide on debt disputes with an impact on debt restructuring.”

Mr. Guntrip offered his thoughts on the impact of the report, presenting possible avenues of reform to address the problems outlined in the report.

Firstly, investment law disputes should be viewed as international law disputes that involve a foreign investor, rather than a dispute solely governed by international investment law. Secondly, there is a need to ascertain the scope of the contemporary international investment law regime, the function of investment arbitration, and the interpretative limits of investment arbitrators. For example, arbitrators who incorrectly interpret sovereign debt to fall under the umbrella of investment may end up hurting the legitimacy or transparency of the international arbitration regime.

Finally, a comprehensive international legal framework is needed to manage sovereign debt. As part of this legal framework, the human right implications of sovereign debt disputes should be considered.

Along with the report, which highlights the specific interactions among investment arbitration, sovereign debt, and human rights, Mr. Guntrip emphasized a need for collective thinking and action on the part of the investment and the sovereign debt community to consider the human rights implications of economic activities.

The report of the Independent Expert on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights can be found here.

A webcast of the event can be found here.