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  • Series: Frankfurt Investment and Economic Law series x
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Charles N. Brower and Alexandra Goetz-Charlier

Global stability is a key objective of the global financial system. Against this background, disputes between international private creditors and States arising during currency and sovereign debt crises are increasingly resolved through ISDS. This chapter investigates the relationship, both complementary and conflictual, between international investment law and the global financial system. The financial literature tells us that it would be simplistic, if not erroneous, to view financial crises through the measure of default versus non-default. Empirical studies evidence that, over the course of a crisis, States may not be cooperative with creditors, or even with the institutions of the global financial system, at the risk of jeopardising global stability. Thus, ISDS complements the global financial system by providing private international creditors with a judicial forum for the resolution of such disputes. On the other hand, ISDS has, on multiple occasions, interfered with this system which greatly influenced contemporary treaty practice. Keywords: global financial system, international investment arbitration, IMF, sovereign debt, State’s coercive behaviours; financial crisis

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Matthias Goldmann

The chapter analyses conflicts between investment law and other fields of financial regulation, namely sovereign debt, bank regulation, and monetary law. International (and domestic) economic law had long been based on the theory of functional separation, according to which each segment of economic law and policy should pursue its objectives irrespective of the other segments. However, the financial crisis has cast serious doubts on this approach, revealing their interdependence. Applying a deliberative approach to the interpretation of international law, the existing legal framework is capable of taking such interdependence into account and of reaching more holistic solutions. The chapter discusses three examples – holdout litigation in case of sovereign debt restructurings, bail-ins in case of bank insolvencies, and unconventional monetary policies – to demonstrate and test the deliberative approach. Keywords: international investment law, financial regulation, deliberation, monetary policy, sovereign debt, legal interpretation

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Hayk Kupelyants

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

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Christoph Ohler

The chapter argues that the introduction of collective action clauses (CAC) in sovereign bond issues helps close a lacunua in state insolvency law. In the euro-area this step was made with the establishment of the European Stability Mechanism. These CACs do not form part of public international law but of domestic civil law. This means, however, that they can be tested under the standards of international investment law. It is suggested that the existing CACs are compatible with these standards as they are of procedural nature only and do not affect the substantive legal position of the private creditors. This could even be assumed if, as in the case of Greece, CACs were introduced with retroactive effect, pursuing the legitimate purpose of international financial stability. Keywords: Collective Action Clauses, financial stability, Greece, Greek Bondholder Act, international insolvency law

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Yanying Li

In October 2014, the Executive Board of the International Monetary Fund approved the staff paper on ‘Strengthening the Contractual Framework to Address Collective Action Problems in Sovereign Debt Restructuring’. Among other things, that paper is in favour of a single Collective Action Clause (CAC) with a menu of voting procedures, including (1) a series-by-series voting procedure, (2) a two-limb aggregated voting procedure, and (3) a single-limb voting procedure with the possibility for ‘sub-aggregation’. The single-limb voting procedure in option (3) will enable contract terms to be amended on the basis of a single vote across all affected instruments, thereby disallowing a creditor or a group of creditors from obtaining a blocking position in a particular series. In the view of the author, the single-limb voting procedure resembles the cram-down procedure in US municipality bankruptcy law, with one missing element. Whereas the cram-down procedure contains a safeguard provision that ensures minimum protection for each impaired dissent creditor class through the prohibition of unfair discrimination and fair and equitable treatment principle, the single-limb voting procedure is silent about creditor protection in this context. In searching for a safeguard provision for the single-limb voting procedure, the author discovers the similarities between the safeguard provision for cram-down procedures and the fair and equitable treatment principle under investment treaties, and argues that investment arbitration could serve as an appropriate forum to develop a safeguard provision for the single-limb voting procedure. Keywords: sovereign debt, collective action clause, investment arbitration, cram-down

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Marie Sudreau

This chapter assesses the legal regime of sovereign debt restructuring at international level. It proceeds from the assumption that issues of sovereign debt, as well as cross-border lending and borrowing, are insufficiently regulated. Regulation so far has mostly come from the domestic law chosen on a contractual basis; however, more recently, ‘Principles on Responsible Sovereign Lending and Borrowing’ have been elaborated at the international level, viz. by UNCTAD (Principles). The chapter discusses the relationship between these Principles and investment arbitral proceedings. It highlights essential themes of these Principles offers and clarifies how they approach questions of sovereign debt. It then considers ways of integrating the Principles into arbitral decisions, arguing that, despite certain tensions, an integration is possible in principle. Keywords: sovereign debt regulation, responsible sovereign lending and borrowing, bilateral investment treaties, investment treaty arbitration, UNCTAD principles

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Maurice Mendelson QC and Martins Paparinskis

This chapter considers the legal issues which may arise from bail-ins of depositors of banks from the perspective of international investment treaty law. It addresses the question whether investment protection rules, particularly the right to compensation for expropriation, might be relied on by foreign investors affected by bail-ins, dealing in turn with certain preliminary issues of applicability of investment treaties, then focusing on legal and factual aspects of expropriation and bail-ins, and finally giving a brief overview of the possible relevance of other investment protection obligations. It is not the purpose of this chapter to provide definitive answers, but rather, to identify some of the multifarious thorny legal questions that could arise. Keywords: bail-in, international investment law, international financial law, expropriation, compensation, fair and equitable treatment

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Anna De Luca

This chapter highlights the relevance of investment law as a potential limit to State measures for securing financial stability, as well as the features of investment disputes brought in response to bank rescue measures. Contrary to what occurs in a typical investment case, in arbitration proceedings brought against rescue measures it is by no means certain whether the claimants actually suffered losses. The chapter begins by asking whether economic loss is a necessary element of a BIT breach (section II). Having concluded in the affirmative, the analysis turns to questions of causation proper, which is first addressed in general terms (section III), and then with a particular focus on intervening causes potential breaking the causal link between State conduct and economic loss (section IV). The final section (section V) concludes and highlights the possible relevance of newly emerging prudential standards on bank resolution and recovery for investment disputes. Keywords: investment arbitration, financial stability, bank rescue measures, economic losses, causation, newly emerging prudential standards

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Phoebus Athanassiou

This chapter addresses questions of bail-ins and international investment law. More specifically, it pursues two aims. It seeks, on the one hand, to determine the conditions subject to which depositors adversely affected by national bail-in measures can rely on international investment law as a source of legal constraints to the exercise of statutory resolution powers. On the other hand, it assesses the relevance and relative weight of the causal link between losses suffered by depositors and the actions of the competent national authority in the run-up to the taking of national bank rescue measures. Keywords: bail-in, bilateral investment treaty, international investment law, no creditor worse off principle, causation