The chapter examines the right of States to unilaterally modify their debt obligations in the context of sovereign debt restructurings. Drawing on the national case law on the unilateral modifications of domestic debt, the chapter argues that the States entering into sovereign bonds act in a private capacity and have limited police powers to modify the private obligations in a unilateral manner. The chapter also considers the powers of the State to modify private-to-private debt obligations and the debt entered into by quasi-public entities. Keywords: sovereign debt restructurings, domestic debt
Hayk Kupelyants and Sylvain Bollée
This case arises out of a controversy between Dallah Real Estate & Tourism Holding Co (‘Dallah’) and the Government of Pakistan regarding the validity of an ICC arbitration commenced by Dallah in 1998. Dallah was a Saudi Arabian company that provided services to pilgrims travelling to Saudi Arabia. In 1995, Dallah signed a Memorandum of Understanding with the President of the Islamic Republic of Pakistan, whereby Dallah agreed to build housing for Pakistani pilgrims. In January 1996, the President of Pakistan then established an Awami Hajj Trust (‘Trust’), whose principal objective was to facilitate activities related to the pilgrimage. In the same year, the Trust and Dallah concluded a contract for the construction of housing for 45,000 Pakistani pilgrims. The contract referred to the terms that had been previously negotiated with the Government and also contained an arbitration clause, under which the parties agreed to refer all disputes to ICC arbitration in Paris. However, the Government of Pakistan was not a party to this contract. In November 1996, the Trust ceased to exist and the contract was never really executed. As a result, in 1998 Dallah initiated an arbitral proceeding against the Government of Pakistan before the ICC. The tribunal sided with Dallah awarding approximately US$20 million in damages and legal costs. Sitting in Paris, the tribunal composed of distinguished arbitrators (Lord Michael Mustill, Nassim Hasan Shah and Ghaleb Mahmassani) delivered three awards – on jurisdiction, applicable law and on the merits.