Originally from American Review of International Arbitration - ARIA

This article argues that international sovereign debt arbitration should incorporate elements and best practices from both commercial and investment arbitration and should be promoted as a viable judicial mechanism for debt-related disputes. This will, of course, allow for a process of negotiation and perhaps mediation, but only on the basis of prior agreement and full party equality. Where the parties fail to reach an outcome, the parties may jointly agree that the dispute be submitted to binding arbitration. Unlike the scholarship on this issue, this article argues that the sovereign nature of one of the parties  requires that international law, which also includes human rights, be designated as the governing law of their disputed claims. Hence, there should be no room for fragmentation (as is otherwise the case with investment claims). Moreover, contractual claims should carry no greater gravity over treaty-based or customary law-related claims and principles. It is also argued that both parties should be free to make their own claims and counter-claims and that the tribunal should possess both express and implicit authority to rule on its own jurisdiction (kompetenz-kompetenz), which includes also the authority to examine the existence and validity of the claims under international law. This is an ideal opportunity for the international community to take a stand on odious, illegal, and unlawful debts by defining them in the statute of a sovereign debt tribunal—as no creditor or developed state will leave such a task to a pool of arbitrators. A debt tribunal that does not possess the authority to determine the origin of a debt is hardly legitimized to demand that a debtor pay its “debt.” In equal measure, a debt tribunal that fragments the obligation to repay a “debt” (especially when this is refuted) from the state’s core obligations to its people and third parties is creating chaos and is not entrenched in international law.