Arbitration as a Means of Resolving Sovereign Debt Disputes

In September 2006, a group of Italian holders of Argentine defaulted debt submitted a request for arbitration to the International Centre for Settlement of Investment Disputes (ICSID), claiming that Argentina's actions in connection with debt issued by it and held by the Italian claimants breached Argentina's obligations under a bilateral investment treaty (BIT) between Argentina and Italy. Although arbitration of sovereign debt disputes is not unprecedented, it is unusual. Contracts with sovereign debtors typically provide, not for arbitration of disputes, but rather submission to the jurisdiction of courts of the creditors' choosing. This article considers several questions. The narrow question, which is implicated by the Italian bondholders' claim, is whether ICSID has jurisdiction to resolve a dispute brought by holders of defaulted sovereign debt pursuant to a BIT. The more general question, however, is why the Italian bondholders are attempting to invoke arbitration rather than litigating the dispute in New York court. This article suggests that in the sovereign debt context, arbitration is potentially a more attractive dispute resolution mechanism than litigation. The persistent absence of arbitration clauses from sovereign debt contracts may be attributable to the lock-in effects of standardized contract terms, and not to the relative merits of arbitration versus litigation