Sovereign defaults before domestic courts

Hayk Kupelyants

OUP, £75


This book provides an exhaustive examination and analysis of sovereign debt litigation, before the English courts and New York courts, focusing specifically on sovereign bonds.

Even for the litigator who does not specialise in sovereign bond litigation, which must be most litigators, this monograph provides a fascinating insight into the huge scale of what is at stake in such litigation, and the very complex and unique issues which arise for the adjudicator as well as states and bond-holders, in addition to examining in depth the litigation tactics that are involved.

At its simplest, on the one hand, there are the many heavy public policy and other considerations which must be taken into account on behalf of the debtor state which are outside of private law – such as human rights issues and comity of nations. On the other hand, there are the private law considerations of the bond holders, increasingly hedge funds (some known as ‘vulture funds’), that stand to win or lose vast sums.

We learn that sovereign debt defaults and restructuring are a pervasive feature of the current international financial system, with states always willing to borrow more than they can afford, but despite the scale of what is at stake – or perhaps because of it –  the law has as yet failed to address them systematically through a set of coherent rules.

The author’s purpose is to set out a legal framework for the litigator of sovereign debts and provide guidance for litigants and adjudicators alike. What makes this work different is that, while addressing the conflicting public and private facets of sovereign debt, it is firmly predicated on the idea that sovereign debt is essentially a commercial activity.

The courts should employ private law tools to determine rights and obligations under sovereign bonds. As the author states, ‘Sovereign debt does not possess the miraculous wave particle-duality of light, which can manifest as a wave and a particle at the same time’.

To this end, the author examines the development of sovereign bond documents and the issues common to all forms of litigation – such as jurisdiction and choice of law, defences to repayment, the challenges to debt restructuring, and enforcement against assets – which present different, complex, as yet unexplored challenges in this context.

If litigation were analogous to transport, then litigation involving payment defaults under the types of contract most litigators deal with in their career would be the equivalent of travel by train. Sovereign debt litigation is akin to space exploration, which is what makes this an interesting read.

It is, no doubt, a must-read for the specialist practitioner and for the general litigator. Not holiday reading though.

Sally Azarmi is the founder of the immigration and international trade and shipping consultancy, Azarmi & Co