International Law
05 November 2019

The International Law of Sovereign Debt Dispute Settlement

A recent PhD thesis in International Law explores an appropriate balance between bondholder protection and respect for a state’s financial policy leeway in the time of sovereign default crisis. Interview on “The International Law of Sovereign Debt Dispute Settlement” with Dr Kei Nakajima.

How did you come to choose sovereign debt dispute settlement as your research topic?

The year that I stared my PhD study – 2013 – witnessed a series of important developments in the topic of my work: newspapers reported the Argentine and Greek financial crises and their aftermaths almost every day. A number of cases were brought before both domestic courts and international tribunals. This state of affairs led me to choose this topic.

Can you describe your thesis questions and the methodology you use to approach them?

Sovereign defaults and debt restructuring raise a wide range of issues so that various approaches are possible. In my study I focused on the dispute settlement phase of sovereign debt crises, and addressed the question of how to regulate the so-called holdout litigation, a legal action by minority creditors who refuse to participate in sovereign debt restructuring, and instead seek to obtain the payment of the face value of bond plus interest.

What are your major findings?

The regulation of holdout is important because it may otherwise adversely affect an orderly implementation of debt restructuring. But at the same time securing remedies for bondholders is also important to keep sovereign bond markets attractive for investors, and thereby keep sovereign financing by way of bond issuance possible and sustainable. So, the question here is how to attain an appropriate balance between bondholder protection and respect for sovereign debt restructuring. In order to show that such balancing can be attained to some extent as the matter of the interpretation of the existing contractual, statutory and treaty provisions, I proposed a regulatory approach to sovereign debt restructuring as the interpretative framework.

Are there cases on which this regulatory approach might help shed a new light?

Each financial crisis has a unique character and the history of sovereign default is described as the history of “this time is different”. However, it is the virtue of international legal studies to try to draw general implications from a limited number of cases having unique characters. My study relies much on the experience of the Argentine and Greek sovereign debt restructuring – both were made amidst historically the largest financial crises. I hope my study may help shed light on future cases – at the time of this interview, Venezuela could potentially be the next battleground.

What could be the social and political implications of your thesis?

My study attempts to show a possible balance between bondholder protection and respect for sovereign debt restructuring within the existing rules. Such a balancing exercise will be inevitable in any future effort to establish a multilateral mechanism for sovereign insolvency, whatever the form could be. My research could hopefully provide some guidance for such an attempt.

What are you doing now?

I have been working as an associate legal officer at the International Court of Justice in The Hague. Pursuing a PhD degree in parallel with having a full-time job was quite challenging but exciting.

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Kei Nakajima defended his PhD thesis in International Law on 7 October 2019. Professor Marcelo Kohen presided the committee, which included Professor Zachary Douglas, thesis director, and Professor Michael Waibel, from the Department of European, International and Comparative Law of the University of Vienna, Austria. 

Full citation of the PhD thesis:
Nakajima, Kei. “The International Law of Sovereign Debt Dispute Settlement.” PhD thesis, Graduate Institute of International and Development Studies, Geneva, 2019.

Find out more about Dr Nakajima on his website >

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Edited by Nathalie Tanner, Research Office.
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