Abstract

Chinese offshore U.S. Dollar debt is often accompanied by a statement or assurance provided to creditors relating to the debtor commonly referred to as a comfort letter.
However, the enforceability of comfort letters is a legal enigma; designed to induce a transaction but simultaneously lacking a formal guarantee. In the event of default, foreign investors may face hurdles with respect to enforcement of comfort letters in the People’s Republic of China’s courts (or enforcing judgements obtained in for example Hong Kong Special Administrative Region courts) which may incentivize filing arbitration claims pursuant to an investment treaty.
The investors would claim Chinese governmental action (i.e., directing PRC courts not to enforce based on State interests or defending public order) damaged the foreign investor’s economic interests thereby violating the investment guarantees contained in the treaty. In response to such claims, China could argue that doing so was required to defend her essential security interests thereby defeating the investors’ claims if accepted by the tribunal pursuant to an essential security exception in the investment-treaty. What is essential security in a changing world? Three primary factors are driving the re-conceptualization of security. (a) emerging threats are increasingly ‘virtual’ or stem from dual-use technology; (b) U.S.-China rivalry and the connection between economic, ideological and technology threats; and (c) a growing belief that ‘essential security’ is interconnected with the well-being and health of a population – ‘human security’ (analogous to an emphasis on Environmental, Social and Governance in corporate governance).
In addition, China’s unique governance as well as moral-hazard are significant factors that will impact the understanding of ‘security’ in the context of comfort letters.
The slope is slippery and good-faith will be important in interpreting the security exception..

Adv. Joel Slawotsky is a former law clerk to the Hon. Charles H. Tenney, (U.S.D.J., S.D.N.Y.) and AV peer-review rated (pre-eminent rating) litigator at Dentons. Joel teaches at the IDC Herzliya, Israel, where his primary areas of research and teaching focus on corporate and economic governance; international economic law; national security and global governance. He has taught, lectured, and presented at conferences in Asia, Europe, and both North and South America. Joel has published over 50 journal articles and book chapters. Recent publication venues include the Chinese Journal of International Law (SSCI); Hong Kong Law Journal (SSCI); Chinese Journal of Comparative Law (ESCI); Georgetown Journal of International Law; Journal of World Trade (SSCI); Tsinghua China Law Review (ESCI); Fordham International Law Journal; Duke Journal of Comparative and International Law; Virginia Journal of International Law; Review of Banking and Financial Law; Delaware Journal of Corporate Law and U.Penn. Business Law Journal. He may be reached at jslawotsky@idc.ac.il.