Qatar National Bank (Q.P.S.C.) v. Republic of South Sudan and Bank of South Sudan, ICSID Case No. ARB/20/40

Background to the dispute

In 2018, Qatar National Bank (QNB, claimant) entered into a facility agreement with the Republic of South Sudan and the Bank of South Sudan (respondents) during the latter’s period of economic transition post-independence, extending loan facilities and a first credit facility worth USD 150 million. Under this agreement, QNB provided a credit facility of USD 150 million to finance the importation of strategic goods, such as fuel and medicine, into South Sudan. QNB filed for arbitration on October 6, 2020, alleging mismanagement and breach of repayment under the agreement. In arbitration, QNB requested over USD 366 million, comprised of full repayment of the outstanding principal, interest payments, management fees, and costs of litigation. The respondents asked the tribunal to award them the costs of proceedings, arguing that QNB has created an investment dispute out of a term loan facility dispute. The respondents did not submit some of the later requested documents, leaving the tribunal with claimants’ effectively uncontested evidence. The tribunal ruled that it had jurisdiction, the respondents were in breach, and that economic turmoil was not a defence for that breach.

Jurisdiction

The core basis for this tribunal having jurisdiction stemmed from the facility agreement from 2018, which included an ICSID arbitration clause. However, one of the significant jurisdictional issues was whether the loan constituted a protected investment under the ICSID Convention. The Salini test, used to determine when there is a “protected investment” under the Convention involves a substantial commitment, a certain duration, and a contribution to the host state’s development. The tribunal found that the cross-border loan, intended to finance the import of essential goods into South Sudan, satisfied these criteria. As such, the dispute qualified for ICSID arbitration under the Convention.

The state’s consent to arbitration was deemed valid, including its acceptance of ICSID jurisdiction through the terms of the facility agreement. Importantly, the tribunal also accepted that the Bank of South Sudan, though not designated as a constituent subdivision or agency of the state at ICSID, was bound by South Sudan’s approval of the arbitration clause and by its integral role in the agreement. The tribunal concluded that all jurisdictional prerequisites were satisfied, allowing the case to proceed to the merits of the dispute.

Merits and defences

The substantive case at hand was QNB’s allegation that the Republic of South Sudan and the Bank of South Sudan (BSS) committed multiple breaches of their obligations under the 2018 agreement. The agreement outlined detailed repayment terms, interest provisions, a management fee, and an ICSID arbitration clause. It also included a waiver of sovereign immunity, binding both the Republic and its central bank, and establishing their joint and several liability for repayment obligations.

QNB alleged—and the tribunal later ruled thusly—that the respondents failed to fulfill their core contractual obligations, including repayment of the principal, interest, and management fees. According to the facility agreement, South Sudan and BSS were jointly and severally responsible for repayment under clearly stipulated timelines and conditions. When these payments became due, QNB issued notices and demands for payment, none of which were met with compliance or communication from the respondents.

The tribunal decided that nonpayment of the debt obligations under the facility agreement constituted a clear breach. The tribunal emphasized that no valid legal justification had been presented by the respondents, nor was any sufficient defence raised at any stage of the proceedings. Even though South Sudan was dealing with the aftermath of a civil war, the tribunal held that such circumstances do not excuse non-performance under a binding international financial contract.

Furthermore, the respondents’ failure to participate in the later stages of arbitration was not treated as a defence but as a procedural choice. The claimants filed the requested memorandum explaining their document submissions, as well as an updated submission on costs, but the respondents did not do the same. The tribunal proceeded to assess the case based on the uncontested evidence and contract terms. It found that the agreement had been validly executed, with both parties fully understanding and accepting their obligations. The agreement contained a “waiver of sovereign immunity” clause, explicitly stating that both South Sudan and BSS would not claim immunity from suit or execution. This waiver reinforced their binding commitment to repay.

In evaluating the evidence, the tribunal found neither any indication that QNB had ever waived its right to full and immediate repayment, nor that the loan terms had been altered or suspended by mutual agreement. In fact, the claimant’s actions consistently adhered to the agreed terms, including the imposition of default interest as outlined in the contract. The respondents do not argue that they have not repaid the loan. Instead, they argue that the facility agreement had not been breached, and that the claimant was unjustified in seeking an accelerated payment schedule because their nonpayment was justified. The tribunal also notes that the facility agreement contained no force majeure clause that might sufficiently absolve the respondents of liability under English law (the governing law of the facility agreement) in the case of internal economic or political disruptions. The facility agreement had only three instances in which the respondents had justified nonpayment: administrative or technical error, a disruption event, or if the payment was made within 3 days of the due date. Extended economic hardship did not constitute a disruption event so as to justify continued nonpayment.

Calculation of damages

The damages in Qatar National Bank (Q.P.S.C.) v. Republic of South Sudan and BSS were not only significant in size but also in their legal and financial implications. By awarding the full amount claimed, the tribunal focused on the principle that sovereign borrowers are bound by the same standards of contractual performance as private entities, especially in international commercial transactions. This ruling demonstrates the primacy in arbitration of financial contracts, even in contexts involving states experiencing and rebuilding from complex political and economic challenges.

The tribunal made a point of addressing the nature and clarity of the damages calculation, which was based directly on the terms set out in the facility agreement. Importantly, QNB had included detailed financial models and interest calculations, which were not contested due to the respondents’ failure to appear. The tribunal independently verified these figures and found them to be in accordance with standard commercial lending practices.

The award also has precedent-setting implications. By confirming joint and several liability, the tribunal effectively removed the possibility of either respondent deflecting responsibility onto the other. This structure ensures that QNB can pursue enforcement wherever assets may be located, increasing the likelihood of eventual recovery. Moreover, the tribunal’s decision to deny interest on legal costs avoids punitive damages while still protecting the claimant’s right to full recovery of what was contractually due.

In summary

The award is remarkable due to its volume, but it also highlights the tribunal’s hesitancy to focus on inequity. Economic duress, while not typically an acceptable defence in any breach of contract case, is particularly poignant in a government context. The case thus emphasizes the importance of the contract’s applicable law and the availability of defences for non-performance. The damages exceed the original costs of the loan, which the South Sudanese government now must acquire at the cost of its citizens’ access to typical government functions.

Author

Abigail Banks-Hehnberger is a former ELP Intern with the Investment team and a current University of Michigan law student.

Note

The tribunal was composed of Dr. Ucheora Onwuamaegbu (Nigeria and United Kingdom, President), Peter Rees KC (United Kingdom, arbitrator, appointed by the claimant), and Professor Hélène Ruiz Fabri (France, arbitrator, appointed by the respondents).