Originally from Dispute Resolution Journal

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Because controversies often arise between creditor and debtor nations about repayment of government or commercial loans, a systematic method has been developed to resolve such conflicts. The Club of Paris is the forum in which sovereign debt problems are resolved and the Club of London is where the controversies between private commercial banks and sovereign countries are resolved. Here’s how it works.

The expansion of free trade and economic growth in the Less Developed Countries (LDCs) is radically altering the political economy of the world. Among the changes witnessed over the past decade has been the significant transition in conciliation of international commercial disputes. Joint conciliation and dispute review boards are beginning to come into use to resolve disputes that once were the purview of less peaceful means of resolving disputes or of arbitration or mediation.1 The lack of effective enforcement mechanisms for peaceful international dispute resolution has been a serious constraint in disputes between countries, and people or firms from different countries.

The purpose of this article is to examine the dispute resolution procedures that have well served the parties in international financial disputes for almost four decades. The Club of Paris and the Club of London are the forums devised by the parties to resolve disputes between creditor and debtor countries (Club of Paris) and between commercial banks in creditor and debtor countries (Club of London). They are case studies in effective dispute resolution and a specialized form of mediation. The success of the clubs provides some useful insights into the motivations for
peaceful settlement of international disputes and the nature of the enforcement difficulties frequently faced in this arena.