Investment arbitration for debt disputes: undermining human rights compliance?

In the absence of an international framework to regulate sovereign debt restructuring, investment arbitration has recently been seen as a potential forum for holdout creditors and vulture funds to seek to enforce sovereign debt instruments. However, the system of investment arbitration was not designed to enforce financial obligations, and even less to provide an avenue for the claims of speculative hedge funds and non-cooperative creditors. To date, however, most investment tribunals have found jurisdiction over sovereign debt disputes. Notwithstanding a few arbitration decisions, the consideration of human rights issues in international investment arbitration has so far remained rather on the periphery of the international investment law regime. Given the deep and broad human rights implications of debt crises, the report of the Independent Expert argues that it would be a dangerous development if bilateral investment treaties became a forum for solving sovereign debt disputes. While the international community is making great efforts to prevent or minimize holdout litigation, investment arbitration may open a new door for such creditors to deploy disruptive strategies. The current system of investment arbitration may therefore impair economic recovery and undermine State funding for public services and State institutions that give effect to economic, social, cultural rights and the protection of civil and political rights.