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OPENING PANDORA'S BOX: SOVEREIGN BONDS IN INTERNATIONAL ARBITRATION（2） |
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OPENING PANDORA'S BOX: SOVEREIGN BONDS IN INTERNATIONAL ARBITRATION（2）
*728 Association with a commercial undertaking. A final typical element of an "investment," inherent in Article 25, is the operation of, or a reasonably close association with, a commercial undertaking. [FN110] The meaning of investment in international investment case law comprises equity holdings in private or publicly owned entities whose main goal is commercial. Corporate bonds, for instance, are issued by such entities. They are thus associated with a commercial undertaking and would fulfill this typical feature of an investment.
Sovereign bonds are different. The issuing entity is public. Funds raised via sovereign bonds are typically used for general budgetary purposes. There is no related commercial undertaking. The prospective sovereign bondholder does not participate in the elaboration of specific projects, and evaluates the commitment of capital against that background. Neither personnel nor ideas nor production facilities are associated with the bond. Rather, bondholders look solely to the country's creditworthiness.
The contrast between shares and sovereign bonds is instructive. Shares are associated with a commercial undertaking. Yet countries do not issue shares or share-like instruments. A shareholder owns part of the company; a bondholder does not. She has no voice in management. On the margin, even the smallest shareholder does. A corporate bond, after all, is merely a claim to some predefined part of the corporation's profit. In the case of sovereign bonds, it is a claim on a country's primary surplus. Given these distinctions, sovereign bonds do not share the fate of shares. There is no association with a commercial undertaking.
Sovereign bonds typically serve general budgetary purposes; for lack of association with a commercial undertaking, such bonds will generally fail to qualify as "investments." ICSID could still have jurisdiction over sovereign bonds associated with a transaction that, on its own merits, amounted to an "investment." [FN111] Bonds tied directly to specific projects, such as railway or power plant construction, come to mind. [FN112]
*729 The next section looks at the second leg of the double review. BITs' investment definitions differ: some BITs include sovereign bonds in their definitions, whereas others do not. Even if BITs cover sovereign bonds, a transaction nevertheless needs to fall inside the objective core of Article 25 (see discussion of this objective core above). If unique weight was attached to BIT consent, Article 25's investment requirement would become an empty shell.
BITs' Investment Definitions and Their Relation to Article 25
BITs use various definitions of investment, which are independent from Article 25. Do BIT definitions cover sovereign bonds (the second step in evaluating ICSID jurisdiction)?
Some BITs cover corporate bonds but explicitly exclude sovereign bonds. [FN113] Other BITs include sovereign bonds. [FN114] Sacerdoti observed that the "undertaking to respect contractual obligations found in many recent BITs may be relevant also as to equities and debentures issued by a contracting State or by its companies abroad." [FN115] Specific sovereign debt restructuring annexes--which limit the host state's treatment obligations (relative to public debt) to national and MFN treatment--are a recent innovation. [FN116] They are perhaps the first official recognition that ICSID arbitration could be used by holdout creditors to unravel sovereign debt restructurings approved by a majority of creditors.
It will be useful to take a closer look at the most relevant BITs for bondholders who did not participate in Argentina's exchange. The Argentina-Germany BIT's definition of investment includes "[c]laims to money used to create economic value or claims to performance that have *730 economic value." [FN117] The Argentina-Italy BIT extends coverage to "debentures, private or public bonds or any other right connected to services or performances having an economic value and capitalized income." [FN118] The plain text of both BITs thus indicates that the parties consented to the inclusion of sovereign bonds and other debt instruments.
By contrast, the Argentina-U.S. BIT covers "claim[s] to money or a claim to performance having economic value and directly related to an investment." [FN119] Not all claims to money or performance are included in this particular BIT. They need to be associated with transactions that are investments in their own right. In contrast to the German and Italian BITs with Argentina, the requirement of an association with an investment proper suggests that sovereign bonds used for general budgetary purposes are outside the scope of the Argentina-U.S. BIT. [FN120]
From BIT coverage it does not follow that sovereign bonds also qualify as investments under Article 25. BITs' separate, bilateral definition of investment does not determine the scope of the multilateral Article 25. Many commentators mistakenly interpret Article 25's definitional silence concerning "investment" as legitimating an elastic notion of investment, but the failure to reach consensus cannot be used to adopt a broad notion by default. [FN121] Reading away Article 25's investment requirement in this manner is at odds with commonly accepted principles of treaty interpretation. Putting exclusive weight on BIT consent deprives Article 25 of its core purpose.
The Joy Mining Tribunal put it thus:
[T]hat the Convention has not defined the term investment does not mean, however, that anything consented to by the parties might qualify as an investment under the Convention. The Convention itself, in resorting to the concept of investment in connection with jurisdiction, establishes a framework to this effect: jurisdiction cannot be based on something different or entirely unrelated .... [T]here is a limit to the freedom with which the parties may define an investment if they wish to engage the jurisdiction of ICSID tribunals .... Otherwise Article 25 and its reliance on the concept of investment, even if not specifically defined, would be turned into a meaningless provision. [FN122]
Some BITs require a territorial link over and above Article 25. In such cases, a double review of this typical element is necessary. Sacerdoti questioned whether sovereign bonds would be *731 covered investments under the typical BIT. Since issuance of sovereign bonds would not meet the requirement of a territorial link with the host country, protection would not extend to sovereign bonds, ratione loci. [FN123] Yet a number of prominent cases interpret the BIT's territorial requirement liberally. In all three cases, the jurisdictional defense that the BIT required an "investment in the territory" was to no avail.
In Fedax, Venezuela duly disputed the tribunal's jurisdiction on the ground that Fedax had not made an investment "in the territory" of the contracting parties as prescribed by the BIT. In dismissing this argument, the tribunal stated that it "is a standard feature of many international financial transactions that the funds involved are not physically transferred to the territory of the beneficiary, but put at its disposal elsewhere." [FN124]
The tribunal substituted the territorial requirement with a much broader "utilized by the beneficiary of the credit." This reading is at odds with the plain language of the BIT. The tribunal's reasoning is also circular, as it infers the meaning of "investment" from prominent characteristics of international financial transactions. The tribunal mistakenly premised its holding on the postulated assumption that the BIT's contracting parties desired to cover all international financial transactions. Instead, the tribunal should have clarified the meaning of investment under Article 25 and the BIT first-- and only then evaluated whether the specific transaction amounted to an investment. [FN125]
Two other ICSID cases addressed BITs' territorial requirements. SGS v. Philippines held that preshipment inspection services conducted in a port outside the host country did not preclude qualification as an investment, since the contract's main purpose was the delivery of inspection certificates in the Philippines. [FN126] Some business activity related to the investment in the host state is necessary; the holding in SGS v. Pakistan was that "certain expenditures in ... Pakistan" and the "injection of funds into the territory" satisfied the BIT's territorial link. [FN127]
In Fedax, in sharp contrast to the two SGS cases, the holders of promissory notes never expended financial resources in Venezuela for a commercial undertaking, and they provided no service whose point of delivery was in the territory of the other contracting party. If the proceeds of a sovereign bond are deposited or used for transactions outside the issuing country, it is doubtful whether such a bond would meet a territorial BIT condition. [FN128] Using funds in the territory of another country is insufficient. Since there is never any commercial activity in the debtor country, sovereign bonds might fail to fulfill the BIT's territorial requirement.
The argument developed in this section may be summarized as follows. Article 25's silence on the definition of investment is content neutral. Typical elements circumscribe the objective *732 core meaning of "investment," which is independent of the BIT. This core defines, in effect, the outer perimeter of ICSID jurisdiction. Article 25's objective core is to be evaluated primarily against the nature of the transaction. If, instead, the term "investment" were limitless, then ICSID arbitration could be deployed to the detriment of bondholders of third countries. [FN129] A purely bilateral exercise of jurisdiction could also have substantial extraterritorial reach.
The basis for ICSID jurisdiction over debt instruments is weak. In many cases, sovereign bonds will fail to display typical features of an investment. Careful inspection of existing case law does not support ICSID jurisdiction over debt instruments, in general, and sovereign bonds, in particular.
The following section looks at how domestic jurisdiction clauses and collective action clauses interact with ICSID jurisdiction. The incomplete separation of contractual and treaty claims implies that ICSID tribunals owe deference to national courts in the presence of exclusive domestic jurisdiction or CACs.
II. RESOLVING OVERLAPPING JURISDICTION OVER SOVEREIGN BONDS
Sovereign bonds are typically governed by the municipal law of an important financial center and subject to their jurisdiction. ICSID could enjoy concurrent jurisdiction to the forum chosen by the bond. While international law currently has few rules to resolve such conflicts, overlapping jurisdiction is not unusual in international investment law. [FN130] Yet because sovereign bonds lack a specific connection to ICSID, arbitration under its auspices threatens to upset the sovereign debt market and dispute resolution in national courts.
Unlike old concession contracts or commercial contracts with governments, sovereign bonds do not contain arbitration clauses. [FN131] Sovereign bonds contracts are concluded as a whole, and ICSID arbitration--not contemplated when the contract was concluded--threatens to unravel the unity of the bond's contractual bargain. I conclude that exclusive domestic jurisdiction and CACs in sovereign bonds bar recourse to ICSID arbitration in most circumstances.
The Slippery Slope from Contractual to Treaty Causes of Action
How do sovereign bonds come under the ambit of international law? International law appears on the scene when a bondholder requests ICSID arbitration and alleges violations of the BIT's treatment standards. In principle, there are two nonexclusive routes of relief: contract and treaty. The bondholder could pursue contractual claims under the bond concurrently with *733 treaty claims. Alternatively, she could eschew her contractual claim for repayment and allege expropriation under international law.
Article 25 of the ICSID Convention draws no distinction between treaty and contractual claims. ICSID jurisdiction may well extend to purely contractual disputes, as long as the dispute arises directly out of an investment. [FN132] That said, contractual and treaty claims operate on separate planes. A country's default on a sovereign bond does not, in itself, imply a breach of BIT treatment obligations. [FN133] As an exception to this general rule, umbrella clauses are said to elevate all contractual to treaty claims; [FN134] in the presence of an umbrella clause, a sovereign bond default could ipso facto constitute an internationally wrongful act.
ICSID tribunals have struggled to delimit contractual from treaty causes of action. [FN135] Some awards strictly distinguish the "contractual" and "treaty" spheres. At times the two cannot be disentangled since the unity of the transaction mandates joint deliberation. The 1903 Woodruff case called for an analysis of the "fundamental basis of the claim" whenever treaty and contractual elements are intertwined. [FN136] The test to determine that basis is objective. Even if a bondholder characterizes her claim as BIT based, the tribunal could conclude otherwise--that the claim is essentially contractual.
Municipal law governs sovereign bonds. National courts almost invariably enjoy jurisdiction. Of outstanding sovereign bonds, only a small fraction provide for dispute settlement under UNCITRAL. No sovereign bond contains references to arbitration under ICSID. Sovereign bonds governed by municipal law lack a "specific connection" to ICSID. [FN137] Their configuration departs from the prototypical ICSID foreign investment dispute: the host country's law does not govern the bond; its courts do not enjoy jurisdiction; and bondholders are guaranteed access to an impartial forum, the municipal courts of a financial center.
On the requirement of a specific connection to ICSID, Joy Mining explained:
[M]any ICSID and other arbitral decisions ... have progressively given a broader meaning to the concept of investment. But in all those cases there was a specific connection to ICSID, either because the activity in question was beyond doubt an investment or because there *734 was an arbitration clause involved. The same holds true of concession contracts in which the investor is called to perform a public service on behalf of the State. [FN138]
The tribunal's restraint in exercising jurisdiction over contracts entirely outside ICSID's sphere lends further support to the conclusion that ICSID lacks jurisdiction over sovereign bonds.
When sovereign bonds are issued, the only remedies contemplated are contractual ones in national courts; ICSID arbitration is not. Since litigation of these complex technical contracts occurs invariably in national courts, the sudden invocation of ICSID arbitration would undermine legal certainty in the sovereign debt market and, more generally, for all international financial transactions. Successful bondholder arbitration before ICSID would upset long-standing expectations. If future ICSID tribunals follow Fedax, the implications for international financial transactions are enormous. The unity of the contractual bargain negotiated between bondholders and the country could also dissolve.
I now turn to whether domestic-jurisdiction clauses constitute a bar to ICSID arbitration. Exclusive-jurisdiction clauses in the bond could prevent ICSID from hearing bondholder claims.
Choice of Forum in Sovereign Bonds
The following is a typical formulation of a nonexclusive domestic-jurisdiction clause in a sovereign bond governed by New York law:
Country X will irrevocably submit to the non-exclusive jurisdiction of any New York State or Federal court in New York City in any related proceeding i.e., any suit, action or proceeding arising out of or relating to the debt securities and Country X will irrevocably agree that all claims in respect of any related proceeding may be heard and determined in such New York State or Federal court.
This wording (with emphasis added) confers nonexclusive jurisdiction on New York State or federal courts. The clause places this sovereign bond firmly in the ambit of New York law but does not as such bar ICSID arbitration. Since arbitration of sovereign bonds is a novel (and recent) idea, it is not surprising that the clause is silent on ICSID or UNCITRAL arbitration. Moreover, consent to ICSID jurisdiction is typically given in a BIT, with no need for a jurisdictional clause in the bond itself.
The following is a clause, occasionally found in sovereign bonds, that establishes exclusive domestic jurisdiction: "The parties agree that any claim or suit which may arise in relation hereto or to the Bonds issued shall be subject to the exclusive jurisdiction of the Courts and Tribunals of Madrid, and expressly waive any other venue to which they may be entitled." This derogation clause (emphasis added) excludes jurisdiction by "any other venue." Would this clause bar an ICSID tribunal from hearing treaty and contractual claims? [FN139]
*735 Absence of the term "exclusive" is an insufficient basis for concluding that ICSID arbitration is available. [FN140] In particular, where several modes of adjudication are listed in the bond, a careful interpretation might reveal that such jurisdiction was intended to be exclusive. A good example is a sovereign bond that foresees jurisdiction in two or more municipal jurisdictions or in one municipal jurisdiction along with concurrent UNCITRAL arbitration. Sovereign bonds often provide for the jurisdiction of the issuing country and an important financial center.
The provisions for arbitration included in BITs and the jurisdictional clauses of sovereign bonds are on a par, with neither subordinate to the other. The two modes of host state consent to dispute settlement differ in one respect only: one is given in a BIT, the other in a contract governed by municipal law. [FN141] In both cases, the parties to the agreement are the host state and the foreign investor. No hierarchy exists between them. The agreement to submit to ICSID arbitration is on par with the contractual agreement to submit to the jurisdiction of municipal courts.
Which principles guide resolution in ICSID awards when the two modes of consent conflict? In SPP v. Egypt, the tribunal held that an exclusive specific-arbitration agreement would take precedence over the BIT concluded between the investor's state of nationality and Egypt; the basis of this decision was the principle generalia specialibus non derogant and posterior tempore, potior iure. [FN142] The BIT hence does not affect a preexisting dispute resolution clause. Thus, applying the principle of lex specialis, the tribunal in SGS v. Philippines considered the exclusive domestic-jurisdiction clause to be controlling; [FN143] a specific contractual dispute resolution clause took priority over the BIT.
What are the implications for sovereign bonds? As we saw, municipal law governs these debt instruments. They have no specific connection to ICSID. Application of the lex specialis and generalia specialibus non derogant principles to sovereign bonds that provide for exclusive domestic jurisdiction prevents ICSID from hearing such claims. This outcome preserves the unity of the bond's bargain. The bondholder cannot request ICSID arbitration on the bond while simultaneously disregarding a valid jurisdictional clause in the very same contract. Conversely, non-exclusive jurisdiction of national courts might leave ICSID jurisdiction untouched.
The next section demonstrates how recourse to ICSID arbitration could seriously undermine the international community's collective action policy adopted following the wave of financial crises at the end of the last century. While there are no CACs in the bonds held by creditors who did not participate in Argentina's exchange, the interaction of ICSID arbitration and CACs is a major, future concern of international public policy. I explain how holdout creditors could *736 claim that the use of CACs approved by the requisite majority of bondholders violated BIT treatment standards.
Preclusion of ICISD Arbitration by Collective Action Clauses
This section explores whether CACs change the substance of bondholders' potential treaty claims. Could nonparticipating bondholders bring a treaty cause of action based on bonds not tendered in the debt restructuring? With regard to contractual obligations, the situation is clear-cut. As a contractual mechanism for collective action, it is beyond doubt that the valid exercise of CACs alters the contractual obligations under the bond. It is submitted that CACs have similar effects for treaty causes of action.
CACs are standard clauses in sovereign bonds governed by English or Japanese law and have recently become the market standard in sovereign bonds governed by New York law. The increased prominence of CACs in New York law, which is the choice of law for many sovereign bonds, is due to a concerted effort by the international community--and by the Group of Ten, in particular--to secure the general use of CACs in order to facilitate the orderly resolution of sovereign debt crises. [FN144] While CACs have yet to be tested in actual crises, the view is widespread that these clauses will diminish the holdout problem in future sovereign debt restructurings.
CACs come in two forms: majority amendment and majority enforcement clauses. Majority amendment clauses allow a qualified majority of bondholders, typically 75 percent, to bind all creditors to the terms of a sovereign debt restructuring. Majority enforcement provisions limit the ability of individual creditors to enforce: they require an affirmative vote of 25 percent to accelerate and enforce a bond after a default.
CACs have no equivalent in BITs. In 2002, when the international community started to advocate use of CACs to facilitate sovereign debt restructurings, municipal courts were the sole venue for sovereign debt litigation. At the time, ICSID arbitration on sovereign bonds, or arbitration under any other set of arbitral rules for that matter, was not contemplated. The prima facie limited coverage of CACs--their failure to include arbitration--opens up a new window of opportunity for holdout litigation. The importance of this potential loophole for sovereign debt markets cannot be overemphasized. Consider the following scenario.
ICSID tribunals could conceivably hear treaty claims concerning sovereign bonds despite the legitimate exercise of CACs, which would become ineffective in binding nonparticipating creditors. If CACs were to leave treaty claims untouched, then they would bar only contractual causes of action originating in the bond contract. Bondholders might be able to obtain compensation even though the contractually prescribed majority of bondholders accepted the sovereign debt restructuring. Recourse to ICSID arbitration could thus create a legal gap in the international community's collective action policy.
Sovereign debt restructurings via CACs do not breach the terms of sovereign bonds. ICSID tribunals ought to pay deference to the exercise of such contractually agreed clauses. Whenever nonparticipating bondholders seek to obtain more favorable recovery through ICSID arbitration than they would have had under the contractual terms of the restructured bond, the valid *737 exercise of CACs generally bars ICSID tribunals from hearing treaty causes of action; nonparticipating creditors may rely on treaty claims only if the country implemented a coercive bond exchange.
Breach and coercion need to be assessed primarily on the basis of the bond's governing law. Scenarios might exist where the BIT claim is entirely separable from any contractual breach. Manifest discrimination against nonparticipating creditors compared to those creditors who chose to go along with the restructuring could lead to such severability. In particular, manifest discrimination could violate the fair and equitable standard. [FN145] Tribunals would then not be bound by CACs and could exercise jurisdiction even in the absence of a contractual breach. This question deserves closer scrutiny.
Moreover, the government's proposed restructuring is only the proximate cause of any loss to bondholders. Typically, in such an exchange a country proposes new financial terms on its outstanding indebtedness on a take-it-or-leave-it basis. With the help of CACs, certain key terms of the bonds are modified. This modification comes into effect, however, only with the affirmative vote of a qualified majority of bondholders, typically 75 percent. The direct cause of any loss, however, is the acceptance of exchange by the contractually required majority. Characterizing such a restructuring agreement as sovereign action is difficult. If it is only an agreement, not a governmental measure, then it cannot violate the BIT's treatment standards.
The next section explains why ICSID tribunals owe deference to clauses for exclusive domestic jurisdiction and collective action.
Preserving the Unity of the Contractual Bargain
Extending CACs' preclusive effect to treaty causes of action preserves the unity of the contractual bargain. [FN146] If, despite an exclusive domestic jurisdiction clause in the bond or a valid exercise of CACs under the terms of the bond, the bondholder requests arbitration, then she pleads the breach of one term, while not observing another of the very same contract. ICSID jurisdiction in such circumstances could effectively allow one party to change the contractual bargain at its discretion and to override the CACs. Such an outcome is inconsistent with ICSID's aim of contributing to a stable and positive investment climate. [FN147] It would also run deeply contrary to expectations in the sovereign debt market--and in international financial transactions, more generally--thereby undermining legal certainty.
ICSID case law often safeguards the contractual bargain. SGS v. Philippines, for example, held:
It is not to be presumed that such a general provision [the BIT] has the effect of overriding specific provisions of particular contracts, freely negotiated between the parties ... [A BIT is] a framework treaty, intended by the State Parties to support and supplement, not to override or replace, the actually negotiated investment arrangements made between the investor and the host State." [FN148]
*738 Telenor v. Hungary found that "to invoke the MFN clause to embrace the method of dispute resolution is to subvert the intention of the parties to the basic treaty, who have made it clear that this is not what they wish." [FN149] If ICSID had jurisdiction, and if arbitration is not barred by exclusive domestic jurisdiction clauses or CACs, the next step in successful ICSID arbitration is proving a violation of BIT treatment standards.
III. SOVEREIGN DEFAULT AS TRIGGER FOR STATE RESPONSIBILITY
The central question in the following section is whether sovereign debt restructurings or defaults on sovereign bonds trigger international liability. [FN150] Only if the bondholder was to demonstrate violation of a BIT treatment standard would she be entitled to compensation under international law. From the perspective of participating bondholders, any compensation paid to nonparticipating creditors for violation of BIT obligations could amount to preferential payment--in which case the strategy of holding out for full repayment on the bonds could potentially succeed.
This section first takes one step back to examine the nature of breach for sovereign default, along with the applicable law. Subsequently, four specific treatment standards will be examined: MFN treatment, national treatment, expropriation, and fair and equitable treatment. [FN151]
The Nature of Breach for Sovereign Default
Modern sovereign bonds are governed by the municipal law of a foreign financial center, not by international law. Accordingly, the sovereign bond repayment claim is grounded in some municipal law. This law shapes the claim's content: its existence, ownership, and scope. BITs, by contrast, prescribe whether a contractual right is afforded certain treaty protections. The applicable law has no bearing on jurisdiction. Whether an ICSID tribunal enjoys jurisdiction over contractual claims in addition to treaty claims is a function only of the interaction between the ICSID Convention and the applicable BIT.
The separation of treaty and contractual claims is incomplete. Limited recourse to municipal law to determine a treaty breach is necessary. It is commonly asserted that once municipal law has recognized a property or contractual right, the treaty regime controls. Nevertheless, although international law does assume primacy over municipal law, the takeover is incomplete. Postulating a complete divorce of international from municipal law on the basis of this time-honored tenet is mistaken--for two reasons.
First, BITs lay down standards of treatment. By definition, these standards are the ground rules for the host state's behavior. Investment treaties do not purport to specify the contours of the claim in question--only the yardsticks against which the host state's conduct is to be judged. Since the underlying right of repayment will be one created by the municipal law governing the sovereign bond, an international tribunal would typically not be able to consider the related treaty claim in isolation from the underlying right itself. More generally, abstracting *739 entirely from applicable municipal law is impossible. General principles of municipal law are important sources of international law. [FN152] Borrowing from Hersch Lauterpacht, the notion that if a transaction is protected by international law, it is for that reason at the same time outside the sphere of municipal law is impossible and, if accepted, is potentially subversive of the international investment regime. [FN153] Proper consideration of treaty claims requires a thorough examination of the contractual claim. In this limited respect, recourse to municipal law is necessary.
Second, investment law and, more generally, international law are underdeveloped in a central respect. Under the general principles of law found in many municipal systems, extraordinary circumstances may occasionally warrant a modification of contractual claims. The lack of payment capacity and the use of general regulatory powers in national economic emergencies are pertinent examples. [FN154] Current international law provides only broad guidance as to which circumstances justify noncompliance with international obligations. [FN155] The lex contractus and general principles of law contain more nuanced answers. [FN156] Recourse to municipal law is also relevant for abstract terms such as fair and equitable treatment.
Against this background--which concerns, in this context, the basis for determining breach of treatment standards--I turn to four potential bases of international liability on sovereign bonds. MFN and national treatment are discussed together due to their structural similarities. Cases have been selected to illustrate the main implications of these four treatment standards for sovereign bonds. [FN157]
Most-Favored-Nation and National Treatment
The national treatment and MFN clauses in BITs allow bondholders to assert discrimination based on nationality. National treatment clauses could obligate the issuing country to grant the same treatment to covered foreign bondholders as to its domestic bondholders, or to all creditors more generally. MFN clauses could allow foreign bondholders to benefit from more-favorable privileges granted to third-country bondholders. [FN158]
*740 Modern sovereign bonds are atomized debt instruments: countries will often know neither the identities nor the nationalities of their bondholders. When a sovereign debt restructuring becomes necessary, this informational constraint may be severe. Discriminating between domestic and foreign bondholders was easier when nationals of the issuing country bought mainly domestic bonds and foreign citizens bought mainly external bonds. But now, even if a country desired to treat bondholders unequally, purposeful discrimination against foreign bondholders within a single bond issue, while theoretically possible, is exceedingly difficult as a practical matter.
Today, the primary fault line of discrimination is between bondholders who participate in a restructuring and those who choose to retain their old bonds. [FN159] The first type of discrimination is unlikely to give rise to an MFN claim, as nationality is not the discriminating factor. There might be scenarios in which bondholders of one nationality receive slightly less than bondholders of another (a "larger haircut"), [FN160] in apparent violation of the BIT's MFN clause. Nevertheless, while such discrepancies in treatment among external bondholders could arise in principle due to application of different terms in the original bonds, discrimination among foreign bondholders is unlikely to be substantial.
Asserting national treatment claims might be more promising. Domestic debt is often restructured under different terms than external debt. A national treatment claim could arise if a foreign bondholder suffered a deeper haircut in the external debt restructuring than a national bondholder affected by the domestic debt restructuring. Since the original debt instruments will often differ substantially in their legal and financial terms, however, proof of discrimination might be difficult in practice.
The policy implications of MFN and national treatment obligations on sovereign debt remain unexplored. These two treatment obligations could curtail a country's room for maneuver in sovereign debt restructurings. Application of the two clauses raises delicate normative judgments on the unity of the BIT's treaty bargain. [FN161] Three main questions come to mind: Could a bondholder who is a national of country X claim the same treatment as bondholder of nationality Y? Could jurisdiction be extended to cover sovereign bonds? Would the clause allow access to a more favorable dispute settlement mechanism?
The following three examples illustrate these tensions. First, suppose the BIT between countries X and Y restricted treatment obligations with respect to sovereign debt to MFN and national treatment. [FN162] Second, assume the BIT between X and Z covered sovereign bonds, but that the BIT between X and Y did not. Finally, imagine the X-Y BIT provided for dispute *741 settlement solely in domestic courts. [FN163] The first example concerns the BIT's substantive protections, whereas the second and third are procedural. An MFN clause in the X-Y BIT could, based on the more favorable X-Z BIT, enable a Y bondholder to benefit from more expansive jurisdiction, greater scope of protection, or international arbitration.
ICSID case law on propagation of substantive and procedural third-party benefits via the MFN clause is in flux. [FN164] Whether MFN clauses cover only substantive or also procedural benefits, including jurisdiction, remains controversial; the more limited goal of this article is to identify some implications of the MFN treatment obligation for sovereign debt restructurings and the procedural bundling of sovereign bond claims.
In Maffezini, the tribunal held that the MFN clause applies to dispute resolution and not solely to BITs' substantive protections. [FN165] As a counterbalance, the tribunal also developed a list of judge-made public policy exceptions to MFN clauses (exhaustion of local remedies, [FN166] fork-in-the-road provisions, [FN167] and submission to a particular arbitral forum). In the tribunal's view these public policy exceptions are implicit in BITs, with the consequence that the central public policy considerations were outside the scope of the MFN clause despite the BIT's failure to mention them explicitly. [FN168]
Bundling Bondholder Claims
The progressively more expansive interpretation of MFN clauses à la Maffezini raises the specter of procedural bundling of numerous bondholder claims. [FN169] Such bundling would likely require that bondholders with different nationalities be considered to have identical claims. [FN170] Invocation of substantial and procedural benefits in third-party BITs via MFN clauses could be the critical ingredient for achieving this goal. As a result, MFN clauses could *742 be used to replicate some features of "class actions." [FN171] Potentially, thousands of bondholders spread across various jurisdictions and subject to different BITs could then pursue their claims in a single ICSID arbitration.
Broches outlined an interesting alternative for pooling sovereign debt claims:
If ... the transaction takes the form of a public bond issue, implying wide distribution, a different treatment is called for .... The arbitration agreement could then be concluded between the borrower and the trustee ... and the parties could provide that the latter's nationality shall be exclusively relevant for the determination of the jurisdiction of the Centre .... Such provisions would seem permitted both by the letter and the spirit of the Convention. [FN172]
To date, no sovereign bond includes such an arbitration agreement. However, Broches's suggestion begs the question whether an individual bondholder might lack standing to initiate ICSID arbitration. It is conceivable that only the holders of global bonds under the trust indenture or the agency agreement would be deemed to have standing to initiate ICSID arbitration. [FN173]
A special-purpose vehicle collecting bondholder claims is a related option. Bondholders could transfer legal title to such an entity for the purpose of negotiation and possible litigation. [FN174] As long as that vehicle did not lead to an effective change in nationality, it could serve as a possible avenue for collectively enforcing sovereign bonds. Provided that the vehicle has legal personality, it is likely to enjoy standing before ICSID.
Finally, bondholder organizations could collect powers of attorney from thousands of bondholders with the same nationality. Arbitration would then be initiated in the bondholders' own names. On this approach it is immaterial whether there is one or a thousand claimants. Restricting claimants to a single nationality offers the advantage that the BIT obligations with respect to the bondholders would be identical. It remains to be seen how ICSID will cope with such a multitude of claimants. [FN175]
The next section examines expropriation--another treatment obligation that is commonly found in BITs and that holds promise for sovereign bondholders.
Expropriation
Defaults on sovereign bonds, as well as a chain of sovereign actions in the lead up to, or during, debt restructurings, could potentially be considered direct or indirect expropriation, with the consequence that the state is bound to pay compensation. A threshold question is the scope *743 of protected property under the ICSID Convention and a BIT. Are contractual rights subject to expropriation? The extent of coverage is a jurisdictional matter but is discussed here due to the close link with this particular treatment standard.
Because they typically define investments to include contractual rights, BITs lend considerable support to the view that rights arising from a contract are potentially susceptible to expropriation, and in much the same way as tangible property. [FN176] BITs do not explicitly address, however, whether default equals expropriation. Scholars similarly maintain that expropriation covers tangible and intangible rights. [FN177] Specifically with regard to debt, Feilchenfeld argues that "[d]ebts are property rights; as property rights they are protected by the general rule of maintenance recognized in international law; ... this rule is not restricted to tangible property." [FN178] Yet two caveats apply before jumping to the conclusion that sovereign bonds are subject to expropriation.
Some non-ICSID arbitral tribunals treat contractual rights as subject to expropriation only if they are closely related to physical property. [FN179] In Starrett Housing, the tribunal noted with approval that the claimants "rely on precedents in international law in which cases measures of expropriation or taking, primarily aimed at physical property, have been deemed to comprise also rights of a contractual nature closely related to the physical property." [FN180] The Phelps Dodge International Corp. tribunal declined to find expropriation of the claimant's contractual rights, because the link with shares was insufficiently direct. [FN181]
[FN110]. So far, no ICSID tribunal has explicitly recognized this feature. I submit that recognition is appropriate. Christoph Schreuer, The Concept of Expropriation Under the ETC and Other Investment Protection Treaties, in INVESTMENT ARBITRATION AND THE ENERGY CHARTER TREATY 108, 139 (Clarisse Ribeiro ed., 2006), mentions a "broad concept of economic rights that are necessary for the investor to pursue its business successfully" (emphasis added); Thomas Waelde & Abba Kolo, Environmental Regulation, Investment Protection and "Regulatory Taking" in International Law, 50 INT'L & COMP. L.Q. 811, 835 (2001) (emphasis added), speaks of "a combination of rights in a commercial, corporate setting and under a regulatory regime." In the Fedax Jurisdiction Decision, supra note 63, para. 19, Venezuela's submitted investment meant "the laying out of money or property in business ventures, so that it may produce a revenue or income." See infra notes 113-14 for examples of other BITs.
[FN111]. ICSID has jurisdiction as long as the dispute "arises directly out of an investment." In the Fedax Jurisdiction Decision, supra note 63, para. 24, the tribunal put it thus:
It is apparent that the term "directly" relates in this Article to the "dispute" and not to the "investment." It follows that jurisdiction can exist even in respect of investments that are not direct, so long as the dispute arises directly from such transaction. This interpretation is also consistent with the broad reach that the term "investment" must be given in light of the negotiating history of the Convention.
The CSOB Jurisdiction Decision, supra note 66, para. 32, followed the Fedax Jurisdiction Decision in this respect, noting that
a dispute ... must be deemed to arise directly out of an investment even when it is based on a transaction which, standing alone, would not qualify as an investment under the Convention, provided that the particular transaction forms an integral part of an overall operation that qualifies as an investment.
[FN112]. In the Compagnie Générale des Eaux case, a mixed commission considered such a bond. Compagnie Générale des Eaux de Caracas [Belgian Waterworks] v. Venezuela (1903), in THE LAW AND PROCEDURE OF INTERNATIONAL TRIBUNALS 78 (Jackson H. Ralston ed., 1926). While the case has no direct bearing on the interpretation of ICSID's Article 25, it might still possess some persuasive force.
[FN113]. The Bahrain-U.S. BIT limits investments to bonds and debt interests in a company: "Shares, stock, and other forms of equity participation, and bonds, debentures, and other forms of debt interests, in a company." Treaty Between the United States of America and Bahrain Concerning the Encouragement and Reciprocal Protection of Investment, with Annex, Art. 1(d)(2), Sept. 29, 1999, S. TREATY DOC. NO. 106-25 (2000). The North American Free Trade Agreement includes debt securities and loans of enterprises. Public issuers are explicitly excluded. North American Free Trade Agreement, Dec. 17, 1992, Can.- Mex.-U.S., Art. 11.39, 32 ILM 289 & 605 (1993). The Canadian Model BIT, at < http://ita.law.uvic.ca/documents/Canadian2004-FIPA-model-en.pdf>, also excludes debt instruments issued by public entities.
[FN114]. The 2004 U.S. Model BIT, at , covers, among others, "bonds, debentures, other debt instruments, and loans." A similar, wide definition is found in the Japan-South Korea BIT: "[E]very kind of asset ... including ... bonds, debentures, loans, and other forms of debt [as well as] rights under contracts." Agreement Between the Republic of Korea and Japan for the Liberalisation, Promotion and Protection of Investment, Mar. 22, 2002, Art. 1(2), Treaty No. 17, Ministry of Foreign Affairs Notification No. 430 (Japan).
[FN115]. Sacerdoti, supra note 76, at 307 (emphasis added).
[FN116]. Annex 10-B of the Chile-U.S. Free Trade Agreement, June 6, 2003, limits obligations relative to public debt to national and MFN treatment: "The rescheduling of the debts of Chile ... owed to the United States and the rescheduling of its debts owed to creditors in general are [subject only to] article 10.2 [MFN treatment] and 10.3 [national treatment]." See U.S.-Australia Free Trade Agreement, May 18, 2004, Art. 11.17(4)(c); U.S.-Morocco Free Trade Agreement, June 14, 2004, Art. 10.27(c); U.S.-Central America-Dominican Republic Free Trade Agreement, Aug. 2, 2005, Art. 10.28(c). Similar policy considerations are apparent in the U.S.-Uruguay BIT, Nov. 4, 2005. Its Annex G qualifies treatment standards with respect to sovereign debt: "No claim that a restructuring of a debt instrument issued by Uruguay breaches an obligation under Articles 5 through 10 [fair and equitable treatment, full protection and security, expropriation] may be submitted to ... arbitration ... if the restructuring is a negotiated restructuring ...." U.S. free trade agreements and bilateral investment treaties are available at the Office of the U.S. Trade Representative Web site, . "Negotiated restructuring" is defined as restructuring to which a specified majority (usually two-thirds) of creditors has consented.
[FN117]. Article 1.1(c) of the Argentina-Germany BIT, Apr. 9, 1991, at < http://www.unctad.org/sections/dite/iia/docs/bits/germany_argentina_sp.pdf>, includes "los derechos a fondos empleados para crear un valor económico o a prestaciones que tengan un valor económico."
[FN118]. Article 1(c) of the Argentina-Italy BIT, May 22, 1990, at , includes "obbligazioni, titoli pubblici o privati o qualsiasi altro diritto per prestazioni o servizi che abbiano un valore economico, come altresì redditi capitalizzati."
[FN119]. Treaty with Argentina Concerning the Reciprocal Encouragement and Protection of Investment, Nov. 14, 1991, Art. 1(a)(iii), S. TREATY DOC. 103-2 (1993).
[FN120]. See Article I.4(h) of the Morocco-U.S. BIT, limiting coverage to "a claim to money or a claim to performance having economic value, and associated with an investment." Treaty Between the U.S and Morocco Concerning the Encouragement and Reciprocal Protection of Investments, July 22, 1985, S. TREATY DOC. 99-18 (1986).
[FN121]. For a spirited defense of this view, see Prosper Weil, dissenting in Tokios Tokelés v. Ukraine, who lucidly lays out the philosophical case for separating consent from the requirements of Article 25 (see, in particular, paragraphs 28-30). Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Jurisdiction (Apr. 29, 2004) ("the silence of the Convention ... does not leave the matter to the discretion of the parties" (para. 19)). In that case, the core question was whether jurisdiction under Article 25 existed for a dispute between the Ukraine and a Ukrainian national. See Markus Burgstaller, Nationality of Corporate Investors and International Claims Against the Investor's Own State, 7 J. WORLD INVESTMENT & TRADE 857 (2006).
[FN122]. Joy Mining Jurisdiction Award, supra note 50, paras. 49, 50.
[FN123]. Sacerdoti, supra note 76, at 308.
[FN124]. Fedax Jurisdiction Decision, supra note 63, para. 41; see CSOB Jurisdiction Decision, supra note 66, para. 88.
[FN125]. As I argued above, see supra text accompanying notes 104-09, the notes in the Fedax case would almost certainly fail the territorial link required under Article 25.
[FN126]. SGS-Philippines Jurisdiction Award, supra note 50, paras. 57, 99- 112. In an obiter dictum (paragraph 10) the SGS-Philippines tribunal appeared to object to the "very broad definition of territoriality" in the Fedax Jurisdiction Decision, supra note 63.
[FN127]. SGS-Pakistan Jurisdiction Decision, supra note 47, paras. 75-77, 136.
[FN128]. The argument that money is fungible and that the proceeds from the sovereign bonds could therefore free financial resources in the host country for other uses is to no avail; such a reading is at odds with the plain meaning of "in the territory."
[FN129]. ICSID awards are equivalent to final judgment in ICSID member countries. See ICSID Convention, supra note 28, Arts. 53-55.
[FN130]. For a general discussion of such conflicts, see Vaughan Lowe, Overlapping Jurisdiction in International Tribunals, 1999 AUSTRALIAN Y.B. INT'L L. 191.
[FN131]. The exception to this general rule is Brazilian bonds, some of which incorporate UNCITRAL arbitration clauses. So far, holdout litigation has almost invariably been undertaken in domestic courts. The reasons are manifold. For one, sovereign bonds are complex financial transactions governed by municipal law. Moreover, sovereign bonds with arbitration clauses (ICSID or otherwise) could implicitly recognize the possibility of eventual default and thereby negatively affect their marketability; the inclusion of arbitration clauses is therefore generally avoided, leaving domestic courts the forum of choice. Finally, sovereign bonds are "conservative" financial instruments whose contractual terms display tremendous inertia against change (for example, to include arbitration clauses).
[FN132]. SCHREUER, supra note 50, at 127-34.
[FN133]. BORCHARD & WYNNE, supra note 55, at 115; F. V. García-Amador, Second Report on State Responsibility, [1957] 2 Y.B. INT'L L. COMM'N 104, 117, UN Doc. A/CN.4/106. In negotiations for the multilateral agreement on investment, there was also strong support for this proposition. Organisation for Economic Co-operation and Development, Multilateral Agreement on Investment: Commentary to the Consolidated Text, at 23-24 (1998). The draft agreement, along with the commentary, is available on the OECD Web site, < http://www.oecd.org>.
[FN134]. Umbrella clauses contain the host state's general commitment to honor all contractual undertakings. A treaty violation goes hand-in-hand with the contractual breach. Christoph Schreuer, Travelling the BIT Route: Of Waiting Periods, Umbrella Clauses and Forks in the Road, 5 J. WORLD INVESTMENT & TRADE 231 (2004), treats umbrella clauses in detail.
[FN135]. This question attracted much attention recently. See Emmanuel Gaillard, Investment Treaty Arbitration and Jurisdiction over Contract Claims-- the SGS Cases Considered, in LEADING CASES, supra note 2, at 325; Christoph Schreuer, Investment Treaty Arbitration and Jurisdiction over Contract Claims-- the Vivendi I Case Considered, in LEADING CASES, supra note 2, at 281; Yuval Shany, Contract Claims vs. Treaty Claims: Mapping Conflicts Between ICSID Decisions on Multisourced Investment Claims, 99 AJIL 835 (2005).
[FN136]. (U.S. v. Venez.), 9 R.I.A.A. 213 (1903). The ad hoc committee in the Vivendi Annulment Decision, for example, relied on this finding. Compañia de Aquas del Aconquija, S.A. v. Argentine Republic, ICSID Case No. ARB/97/3, Annulment (July 3, 2002) [hereinafter Vivendi Annulment Decision].
[FN137]. Joy Mining Jurisdiction Award, supra note 50, para. 59. The Historical Salvors Jurisdiction Award, supra note 50, paras. 119-29, introduced the related concept of "readily recognizable" investment into ICSID case law.
[FN138]. Joy Mining Jurisdiction Award, supra note 50, para. 59.
[FN139]. An unexplored question is the possibility of investors forbearing (waiving) ICSID arbitration by agreeing to the exclusive jurisdiction of national courts. Space constraints do not allow further exploration here. In Aguas del Tunari v. Bolivia S.A., ICSID Case No. ARB/02/3, Respondent's Objections to Jurisdiction (Oct. 21, 2005), the tribunal recognized the possibility of waiving ICSID arbitration for the first time. The mixed commission in Woodruff presented an interesting analysis specifically concerning sovereign bonds.
[FN140]. SGS-Philippines Jurisdiction Award, supra note 50, para. 134; see id., paras. 149-53 (surveying arbitral practice).
[FN141]. For insightful analysis of the hierarchy between the two modes of consent, see, in particular, Zachary Douglas, The Hybrid Foundations of Investment Treaty Arbitration, 2003 BRIT. Y.B. INT'L L. 151, 248. His view is controversial. For example, the SGS-Philippines tribunal suggested that a BIT and a contract governed by national law are on a different footing. SGS-Philippines Jurisdiction Award, supra note 50, para. 142.
[FN142]. Southern Pacific Properties Ltd. v. Egypt, Jurisdiction, ICSID Case No. ARB/84/3, para. 83 (Apr. 14, 1988), 3 ICSID REP. 131 (1995). Similarly, in the SGS-Philippines Jurisdiction Award, supra note 50, para. 141, the tribunal relied on generalia specialibus non derogant to give precedence to the parties' contractual choice of forum for contractual causes of action.
[FN143]. SGS-Philippines Jurisdiction Award, supra note 50, para. 141. Antonio Crivellaro stressed in his dissent (paragraphs 9-10) that since the BIT only offers arbitration, there is no arbitration agreement until the investor initiates arbitration.
[FN144]. See supra note 14.
[FN145]. The fair and equitable treatment standard is examined in greater detail infra text accompanying notes 212-42.
[FN146]. Douglas, supra note 141, at 243.
[FN147]. Id. at 248 (emphasizing the importance of upholding the collective will of both parties, in view of ensuring continued broad support for investment treaty arbitration).
[FN148]. SGS-Philippines Jurisdiction Award, supra note 50, para. 141.
[FN149]. Telenor Mobile Communications A.S. v. Hungary, ICSID Case No. ARB/04/15, Award, para. 95 (Sept. 13, 2006).
[FN150]. On responsibility for debt generally, see AUGUST REINISCH, STATE RESPONSIBILITY FOR DEBTS: INTERNATIONAL LAW ASPECTS OF EXTERNAL DEBT AND DEBT RESTRUCTURING (1995).
[FN151]. It is important to keep in mind that these treatment standards differ across BITs.
[FN152]. International law is part of the general system of law. See Statute of the International Court of Justice, Art. 38(1), at . The most important doctrinal contribution is by HERSCH LAUTERPACHT, PRIVATE LAW SOURCES AND ANALOGIES OF INTERNATIONAL LAW: WITH SPECIAL REFERENCE TO INTERNATIONAL ARBITRATION (1927).
[FN153]. Certain Norwegian Loans (Fr. v. Nor.), 1957 ICJ REP. 9, 37 (July 6) (Lauterpacht, J., sep. op.).
[FN154]. For general international law, see Article 25 (state of necessity) of the International Law Commission's Articles on Responsibility of States for Internationally Wrongful Acts, in Report of the International Law Commission on the Work of Its Fifty-third Session, UN GAOR, 56th Sess., Supp. No. 10, at 43, UN Doc. A/56/10 (2001), reprinted in JAMES CRAWFORD, THE INTERNATIONAL LAW COMMISSION'S ARTICLES ON STATE RESPONSIBILITY: INTRODUCTION, TEXT AND COMMENTARIES (2002). The tribunal in the CMS Award, supra note 38, paras. 214- 27, 304-89, dismissed Argentina's state of necessity defense despite a serious financial crisis. The tribunal in LG&E Energy Corp. reached the opposite conclusion on identical facts; for a critique of this divergence, see Schill and Waibel, supra note 38.
[FN155]. In truth, the existing universe of BITs displays many different shades of treatment standards.
[FN156]. A good example of this approach is Noble Ventures Inc. v. Romania, ICSID Case No. ARB/01/11, Award (Oct. 12, 2005), at , in which the tribunal's definition of the arbitrary treatment standard is guided by a commonality of municipal law. For further discussion see infra text accompanying notes 227-29.
[FN157]. It is not my aim here to present a comprehensive treatment of the case law relating to these standards.
[FN158]. Some BITs include specific debt-restructuring annexes that limit treatment obligations on public debt to MFN and national treatment. See supra note 116.
[FN159]. To assure participating bondholders that nonparticipating creditors would not receive more favorable treatment, the Argentine bond exchange included a most-favored-creditor clause. This clause grants participating bondholders the right to compensation, either in cash or kind, that is substantially similar to that received by nonparticipating creditors in any future exchange offer.
[FN160]. "Haircut" is the technical term for the write-off from net present value in a debt restructuring.
[FN161]. The potential unraveling of the BIT's treaty bargain echoes the argument developed in the earlier section on preserving the unity of the contractual bargain. See supra notes 146-49 and accompanying text. Analysis of this issue is in its infancy. Likewise, if one construes MFN clauses in complex BITs (or free trade agreements) as absolute prohibitions of differentiated treatment according to nationality, the door is open for choosing specific substantive rights and obligations created by those BITS, thereby undermining the contractual bargain. A detailed discussion is beyond the scope of this article.
[FN162]. See U.S.-Uruguay BIT, supra note 116, Annex G (concerning sovereign debt restructuring).
[FN163]. See the U.S.-Australia Free Trade Agreement, supra note 116, which provides solely for domestic dispute settlement.
[FN164]. See Rudolf Dolzer & Terry Myers, After Tecmed: Most-Favored Nation Clauses in Investment Protection Agreements, 19 ICSID REV. 49 (2005); Dana H. Freyer & David Herlihy, Most-Favored-Nation Treatment and Dispute Settlement in Investment Arbitration: Just How "Favored" Is "Most-Favored"? 20 ICSID REV. 58 (2005); Ruth Teitelbaum, Who's Afraid of Maffezini? Recent Developments in the Interpretation of Most Favored Nation Clauses, 22 J. INT'L ARBITRATION 225 (2005). The case law is discussed in Emmanuel Gaillard, Establishing Jurisdiction Through a Most-Favored-Nation Clause, N.Y. L.J., June 2, 2005, at 3.
[FN165]. Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Award (Nov. 13, 2000) [hereinafter Maffezini Award].
[FN166]. That is, recourse to arbitration only once domestic remedies prove unsuccessful. See Christoph Schreuer, Calvo's Grandchildren: The Return of Local Remedies in Investment Arbitration, 4 L. & PRAC. INT'L CTS. & TRIBUNALS 1 (2005).
[FN167]. Once a particular mode of adjudication is chosen, the other is no longer available.
[FN168]. See Técnicas Medioambientales Tecmed, S.A. v. Mexico, ICSID Case No. ARB (AF)/00/2, Award, para. 69 (May 29, 2003) [hereinafter Tecmed Award], which applied Maffezini's framework of public policy exceptions and held that the "core matters" of BITs are exempt from the application of the MFN clause. Similarly, in National Grid PLC v. Argentine Republic, Jurisdiction, paras. 86- 93 (June 20, 2006), an UNCITRAL tribunal endorsed Maffezini, pointed out that the MFN clause applied to dispute settlement, but could not grant access to a different type of arbitration. By contrast, Plama Consortium Ltd. v. Bulgaria, Jurisdiction, ICSID Case No. ARB/03/24, Jurisdiction, para. 209 (Feb. 8, 2005), considerably restricted the scope of the MFN clause in procedural matters.
[FN169]. There are precedents for multiple claimants in ICSID case law.
[FN170]. There is no precedent for such procedural bundling under ICSID. It is unclear how ICSID would deal with a large number of parallel bondholder claims. If each bondholder had to pay the registration fee for ICSID arbitration, the costs of arbitration could be prohibitive for all but large bondholders.
[FN171]. It would only be a class in the sense that a large number of bondholders would act together, with their claims being arbitrated as a group. Technically speaking, ICSID has no procedure for U.S.-style class actions. It is also worth noting that, in contrast to the claimants in such actions, a small group of bondholders would not represent the interests of all Argentine bondholders.
[FN172]. ARON BROCHES, SELECTED ESSAYS: WORLD BANK, ICSID, AND OTHER SUBJECTS OF PUBLIC AND PRIVATE INTERNATIONAL LAW 248 (1995).
[FN173]. The question of standing on global bonds (for definition, see supra note 93) surfaced in U.S. sovereign debt litigation but was not resolved on the merits. See Fontana v. Republic of Argentina, 415 F.3d 238 (2d Cir. 2005).
[FN174]. For example, the Argentine Bond Restructuring Agency Plc (ABRA) incorporated in Ireland after the Argentinean default.
[FN175]. If each bondholder had to pay the fees for lodging arbitration under ICSID's Rule 16 individually, this route would become prohibitively expensive. According to ICSID's schedule of fees of July 6, 2005, at , a fee of U.S.$25,000 is "payable to the Center by the party requesting the institution of conciliation or arbitration proceedings under the Convention."
[FN176]. For overviews, see W. Michael Reisman & Robert D. Sloane, Indirect Expropriation and Its Valuation in the BIT Generation, 2004 BRIT. Y.B. INT'L L. 115; Schreuer, supra note 110; August Reinisch, Expropriation, in THE OXFORD HANDBOOK OF INTERNATIONAL INVESTMENT LAW (Peter Muchlinksi et al. eds., forthcoming 2008).
[FN177]. According to Higgins, "Sometimes rights that might seem more naturally to fall under the category of contract rights are treated as property." Rosalyn Higgins, The Taking of Property by the State: Recent Developments in International Law, 176 RECUEIL DES COURS 259, 271 (1982 III). Similarly, Sacerdoti, supra note 76, at 381, notes that "[a]ll rights and interests having an economic content come into play, including immaterial and contractual rights."
[FN178]. Ernst H. Feilchenfeld, Rights and Remedies of Holders of Foreign Bonds, in 2 BONDS AND BONDHOLDERS, RIGHTS AND REMEDIES 130, 203 (Silvester E. Quindry ed., 1934).
[FN179]. Of course, these awards have no binding effect on ICSID tribunals, though they might find the awards' reasoning persuasive or infer state practice. ICSID tribunals have certainly relied on non-ICSID awards in the past. See, for example, the Woodruff case, see supra note 136 and accompanying text. A nexus to physical property, however, seems to be the exception rather than the rule. See Bayindir Insaat Turizm Ticaret VeSanayi A.S. v. Islamic Republic of Pakistan, ICSID Case No. ARB/03/29, Jurisdiction, para. 255 (Nov. 14, 2005).
[FN180]. Starrett Housing Corp. v. Islamic Republic of Iran, 4 Iran-U.S. Cl. Trib. Rep. 122, 156 (1983 III) (emphasis added).
[FN181]. Phelps Dodge International Corp. v. Islamic Republic of Iran, 10 Iran-U.S. Cl. Trib. Rep. 157, 170 (1986 I).
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