Litigation has been the preferred dispute resolution method in loan agreements in international project finance. However, it has proven inflexible, failing to account for the particularities of each project and the allocation of risks between lenders and borrowers. This article considers the use of arbitration as an alternative. Being a creature of consent and contract, it provides invaluable support where litigation would otherwise fail: first, where a currency risk exists, and second, in multiparty proceedings where the borrower's default is the direct result of the off-taker's failure to meet its obligations under the off-take agreement. Outside those situations, the use of unilateral dispute resolution provisions is recommended, allowing lenders to assess which dispute resolution method would be better-suited once a dispute has arisen. In this context, the article puts forward drafting recommendations, enabling the unilateral clause to withstand any potential challenges to its validity by borrowers. The article further addresses the objections raised against the suitability of international arbitration as a means to solve disputes under international loan agreements, such as its dependency on the cooperation of local courts. It also provides lenders with a useful toolkit to ease the enforcement of arbitral awards, such as the availability of political risk insurance and seeking compensation for the expropriation of arbitral awards.
Journal of International Arbitration