31 MAY 2022 | WWW.LAWYER-MONTHLY.COM ARBITRATION, RUSSIAN SANCTIONS AND THE SPECTRE OF SOVEREIGN DEFAULT hedge funds and asset managers such as Invesco and PIMCO, that are denominated in dollars and euros, altogether worth around $40 billion – and much of the debt was registered in the UK and is governed by English law. Whilst disputes could therefore be submitted to the English courts (as was the case with some claims against Argentina before the New York courts), it is also possible that such claims could be filed in the context of investor-state arbitration (as was also the case for a number of sovereign debt claims against Argentina). For example, following ICSID arbitration under the Italy-Argentina BIT, in 2016 Argentina reached an agreement with about 50,000 Italian creditors holding $900 million in defaulted bonds to settle the creditors’ claims. Other high-profile examples include a series of ICSID claims by banks against Croatia and Montenegro arising from the Swiss central bank’s decision to abandon exchange rate controls in 2015, and losses incurred from subsequent legislation compelling the conversion of franc-denominated loans into euros. In a similar vein, in an ICSID arbitration under the Germany-Sri Lanka BIT, a tribunal found that Sri Lanka had breached its obligations under the BIT not to expropriate Deutsche Bank’s investments (arising from the suspension of payments under, and termination of, an oil hedging agreement) and awarded damages in the region of $60 million plus interest, and $8 million in respect of legal fees. To conclude, Russia’s illegal invasion of Ukraine has led to a historic wave of sanctions which impact businesses and supply chains around the world. We can expect that claims (including both investorstate and commercial arbitration claims) will be brought both by Russian businesses against foreign counterparts who cease performance of their obligations, and by foreign companies against Russia and Russian state entities – particularly in light of an impending sovereign default. claims such as those previously levied against Argentina. Russia recently faced two payment deadlines on bonds sold to foreign investors with a combined interest of nearly $650 million. Under the terms of the bond contracts, Russia was supposed to have made the payments in dollars. However, citing the severe sanctions preventing it from accessing its more than $600 billion in foreign exchange reserves, Russia made the payments in roubles. As a result, credit-rating agency S&P Global announced on 9 April 2022 that Russia is now in a “selective default” (when a borrower defaults on a specific payment but makes others on time) with a full default increasingly likely. Russia has fifteen bonds outstanding, including those held by major Russia was supposed to have made the payments in dollars. However, citing the severe sanctions preventing it from accessing its more than $600 billion in foreign exchange reserves, Russia made the payments in roubles. Vail Dispute Resolution is an innovative disputes practice founded by Tomas Vail in 2019. From its London headquarters, the firm provides highquality disputes advice at an affordable cost, allowing for greater flexibility and bespoke solutions for each matter – including fixed fees and alternative funding solutions where appropriate.
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