First, I would like to thank Opinio Juris and the Yale Journal of International Law for hosting this symposium and providing the opportunity to discuss my recent article, Who is the “Sovereign” in Sovereign Debt? Reinterpreting a Rule-of-Law Framework from the Early Twentieth Century. I would also like to thank Tai-Heng Cheng and Mark Weisburd for their thoughtful comments on the piece. Given that their comments raise overlapping themes, I address them jointly in this response.
I structured the article in three sections, which deal with the potential non-continuity of sovereign debt as questions of doctrine, economic feasibility, and political possibility, respectively. Perhaps more importantly, I position my discussion of sovereign debt continuity within the larger framework of asking about legitimate sovereignty, where I think it belongs. While the comments focus on the first doctrinal section, and my response here follows suit, I would welcome discussion on the other issues as well. I should also clarify that I do not intend the article to be a defense of U.S. Chief Justice William Howard Taft’s doctrinal approach in the 1923 Tinoco arbitration between Great Britain and Costa Rica. Nor do I intend to propose the award as a definitive solution to the problems of identifying illegitimate sovereign debt. Rather, I see the discussion of Taft as responding to the current hostility expressed toward weakening a strict rule of sovereign debt continuity. I hope that explicating and contextualizing this historical alternative will help to re-open what is too often considered a closed question.
Now to the comments:
Tai-Heng Cheng argues that the Taft arbitration cannot be precedent for the odious debt doctrine, at least as formulated by Alexander Sack, for two reasons. First, he highlights that private arbitrations such as this may have persuasive or secondary authority as international law but are not strictly precedential. Second, he emphasizes that the facts of the Tinoco arbitration involve regime change rather than state succession, which is the focus of Sack’s odious debt doctrine.
On the issue of what constitutes strict or technical precedent, Tai-Heng is certainly correct. Nonetheless, international legal treatises persist in citing the Tinoco arbitration as the main case for the idea that sovereign recognition in international law depends on a government having “effective control” over a territory and its people. Of course, these treatises themselves do not carry strict precedential weight (as do few things in international law), but they do point to the very high standing of Taft’s award as a source of international authority. This raises interesting empirical questions about how one portion of a finding can achieve the status of pseudo-precedent while other portions, which ground the actual award for Costa Rica, lapse into semi-obscurity for decades. Such a broad empirical question is beyond the scope of my article (not to mention this response). However, it does suggest that the embrace of the Tinoco finding on the part of mainstream jurists is only partially complete. Even if the ‘effective control’ element of the case formulates or clarifies pre-existing international law on sovereign recognition (thus explaining its higher status), the simultaneous dissociation of a government’s recognition from its absolute right to bind future generations is not – or should not be – easily ignored.
As to the second question of whether Taft’s award can even be pseudo-precedent for odious debt cancellation, given its different factual context, this depends on what one means by ‘odious debt.’ Although Alexander Sack’s formulation is conventionally understood to be *the* doctrine, there is no particularly good reason that this should be the case. Certainly Taft himself (writing in 1923) would not have had recourse to ‘the doctrine’ as formulated by Sack in 1927 or indeed to any clear pre-existing international notion of what should define ‘odiousness.’ Indeed, part of my argument is that any characterization of legitimacy or illegitimacy in state obligations necessarily implies (and reinforces) a corresponding conception of what constitutes valid sovereignty and valid sovereign action. Similarly, adopting a particular conception of legitimate sovereignty suggests that (1) sovereign contracts that violate this vision are not ‘sovereign contracts’ properly so called; and thus (2) such contracts are ‘odious’ under that particular conception of sovereignty and therefore do not extend beyond the downfall of the regime. Taft’s finding insists that even if a government has control of a territory and its people – as did the Tinoco regime in Costa Rica – that government must still comply with its own internal laws and adhere to a legitimate government purpose in entering into sovereign obligations. This counters what I call a strictly ‘statist’ or absolutist conception of sovereignty in sovereign debt, which would allow any government defined by ‘effective control’ to bind future generations, even while disregarding internal legal mechanisms or the requirement of valid government purpose; such a framework would deny the possibility of ‘odiousness’ on any characterization.
But doesn’t this broad and contingent approach leave the idea of ‘odiousness’ bereft of a clear definition? And doesn’t it raise the risk of allowing multiple competing visions of ‘odiousness’ to emerge across different forums? Yes to both, and I hope jurists and others will consider this open-endedness an invitation to further discussion. More importantly, I hope the discussion moves beyond the question of how to define (or deny) the existence of a pre-existing odious debt doctrine and addresses more squarely how any treatment of debt continuity rests upon and reinforces a broader political theory. (I should also point out that the problem of competing standards in other legal areas does not necessarily shut down economic activity; it may even help to focus direct attention on the pros and cons of pressing for greater harmonization.)
Mark Weisburd contends, additionally, that Taft’s award is not nearly as far-reaching as I suggest, and that the oil concession finding in particular stands simply for the idea that local law governs a contract if the contract so provides. While this basic formulation is true, the facts of the case invited Taft to decide whether or not the law on the books should be carefully applied to a (dictatorial) government in the same way that it would be applied to a lowly private company. It is unlikely that the Tinoco regime considered itself equally bound by its own laws (or even paid them close attention) in agreeing to this contractual provision. Furthermore, earlier theoretical approaches consider the sovereign government to be ‘above the law,’ even in a law-abiding polity. Had Taft adopted this latter statist or absolutist approach, in which local law and legitimacy are simply shaped and updated by sovereign decree or action, he would have arrived at a different conclusion.
Although I don’t make it sufficiently clear in my article, the potential use of this rule-of-law approach, as I call it, could extend beyond a context in which a government’s law was explicitly applied to that government through the interpretation of a specific contract provision (as in Tinoco). It may be the case that foreign law controls for a contract involving country Z, but the question still arises as to how Z’s government may bind itself and future generations. The foreign court could simply accept the assertions of Z’s government that it acted properly by virtue of its governmental status (statist), insist that only Z’s people acting through representative institutions could enter binding obligations (popular), or attend to Z’s constitutional principles and relevant statutes to determine whether the contract was properly concluded (rule-of-law). It could also, as an additional or separate requirement, require that the contract was entered into for a legitimate government purpose, at least so far as the creditors knew.
It is important to point out that this latter element of legitimate government purpose (an outcome oriented conception of valid sovereign action) is separate from the three other approaches, which focus on the process by which a state’s people relate to its government. I do not mean to interpret Taft’s Royal Bank finding as deriving from a particular Costa Rican legal provision, as Mark seems to suggest. It is quite clear that the Royal Bank award presents a separate and basic requirement for legitimate government purpose in sovereign contracting.
Both Mark and Tai-Heng raise questions about how broadly applicable (or even helpful) my reinterpretation of Taft’s approach might be. Mark highlights the flagrant nature of government wrongdoing in the Royal Bank portion of the Tinoco case, and the unusual ease with which creditors knew of this wrongdoing. Tai-Heng points out that my framing of Taft’s arbitral decision “does not go very far in protecting the oppressed.” I agree, and these shortcomings are part of the reason that I present Taft’s approach with caveats. That said, I think it is an important award to resuscitate for closer contemporary study, perhaps as a minimum standard for sovereign debt continuity. The possibility of incremental doctrinal development in the face of an unchanging text is surely not foreign to jurists. The ideas of ‘legitimate government purpose’ and ‘creditor knowledge’ have developed in international and domestic law, and they need not remain stuck in a 1923 fact pattern or in 1923 international norms. Furthermore, caution and incrementalism may be virtues in formulating international legal frameworks that define sovereign action as good/bad, civilized/uncivilized, or odious/non-odious – particularly when significant capital flows are at stake. And while identifying sovereign state action through rule of law does allow oppressive governments to change the laws at will, it also forces them to enact those changes if they wish their contracts to be internationally binding. If nothing else, this makes the nature of the ruling regime more transparent to the population and provides the general public with clear grounds for identifying and resisting objectionable government policies. And, of course, none of this precludes the option of debt cancellation as a gesture of solidarity, compassion, or justice for an incoming state or regime.