Sovereign Bonds and the Struggle to Define Article 25 of ICSID

March 11, 2012

On 4 August 2011, a tribunal of the In-ternational Centre for Settlement of Invest-ment Disputes (“ICSID”)handed down what was arguably the most controversial decision of the year. In Abaclat and Others (Case Formerly known as Giovanna a Bec -cara and Others) v. Argentine Republic, the tribunal ruled 2-1 that despite silence on whether mass claims in a sovereign bond dispute were permissible under the ICSID Convention, ICSID Arbitration Rules, and the Argentina-Italy Bilateral Investment Treaty (“BIT”), there were not impediments to asserting jurisdiction. A strongly worded dissent issued on 28 October 2011 argued that jurisdiction did not lie in Abaclat because, among other things,the sovereign bonds in question were not investments actionable before ICSID, and Argentina did not consent to a mass claim. 

While the mass-claims ruling is unprecedented, the decision to admit sovereign bonds may prove to be the most significant aspect of Abaclat for the future of ICSID because of the type of financial instrument involved. Sovereign-debt crises give rise to an issue previously taken for granted: a state’s ability to pay. The Abaclat decision comes amid a series of ICSID rulings that constrain the policy space states have to rule for the public good in crises, exemplifying what one commentator has characterized as the “titanic struggle” on the future of investment law.