tion; the second was advanced by Argentina, and the reasons for it. were explained by Dr. Drago in substantially the same language as that which he employed in his paper on "State Loans in Their Relation to International Policy," which appeared in the July (1907) number of this JOURNAL. The arguments of Venezuela were the same as those which she advanced repeatedly in her diplomatic correspondence with Germany, Great Britain, and Italy respecting the claims of their respective subjects against her. Common cause was made on these two points by eight of the Latin American states when the convention in its revised form came before the full conference for adoption. Argentina, Colombia, Ecuador, Guatemala, Nicaragua, Paraguay, Peru, and Uruguay voted for the convention, but made the two reservations. Venezuela abstained from voting because her delegation could only subscribe to the first paragraph of the convention, viz, the agreement not to use force for the recovery of contractual debts.

Forty-four states took part in the final vote of the full conference. Thirty-nine voted in favor of the convention; ten of these made reservations. Five abstained from voting - Belgium and Roumania, because the convention made no reservation in case the "vital interests" of a state were concerned; Switzerland and Venezuela, because they considered that their national laws gave adequate protection and remedies to foreigners; and Sweden, without advancing. any reason.

Such is the history of the first convention involving obligatory arbitration adopted by a Hague conference and recommended to the states of the world for ratification. It had its origin in the famous instruction of December 29, 1902, written by Dr. Luis Drago, and though it fails to embody what he sought, it is not too much to say that it was largely due to his sympathy with the general proposition and to his influence upon several of the Latin American delegations in the Second Hague Conference that they did not abstain from voting for the adoption of the convention. The ratification of the present convention by the forty-four powers who took part in the Second Hague Conference will undoubtedly mark an important advance in the history of international arbitration.

66

CONSTRUCTION OF THE TERM DETTES CONTRACTUELLES

was

Before the subcommittee the term "dettes contractuelles considered "too vague" by Dr. Drago and the delegate of Servia, M. Milovanovitch. They wanted to know if it would apply to disputes arising from contracts to which two states were the direct parties as well as from contracts to which a state and the subjects of another state were parties. General Porter answered that "the distinction has little importance here." He might have answered that the language of the convention was not susceptible of the former construction. They wanted to know, too, if the term would apply to the claims arising from the public bonds of a state held by the subjects of another state. Dr. Drago believed that it would apply and desired that an exception should be made in express terms, because, as he contended, claims arising from the external debt of a state should never under any circumstances, at least so far as the states of the Americas were concerned, be recoverable by armed force. It would probably have pleased Dr. Drago to have had a declaration or reservation made in the convention on contract debts somewhat similar to the one made by the United States in both the first and second Hague conventions for the peaceful adjustment of international differences, which reads:

Nothing contained in this convention shall be so construed as to require the United States of America to depart from its traditional policy of not entering upon, interfering with, or entangling itself in the political questions or internal administration of any foreign state, nor shall anything contained in the said convention be so construed as to require the relinquishment, by the United States of America, of its traditional attitude toward purely American questions.

M. Milovanovitch, on the other hand, sought, in order to avoid. any misunderstanding, to have substituted for the words "de dettes contractuelles" the words "provenant de dettes publiques ou autres dettes contractuelles." It is difficult to see in what respect these words would have been an improvement. If the right to sue the government in respect to the interest or principal of the bonds is given generally by statute or specifically in the case of particular bonds, there is certainly no sound reason for not denominating the

legal relation established between the government and the bondholder as one of contract, even though the right to sue is qualified by a special procedure, a limited right of appeal, etc. It was asserted by M. Milovanovitch that states never make themselves suable in respect to the bonds they issue. If this were so, what then would be the legal relation established between the government and the bondholder? Having regard to the precise use of juridical language, could it be said that there is any legal relation between them? It would seem merely a moral obligation on the part of the state. Bonds of this character, then, could not come within the terms of the present convention; a dispute arising between states in respect to such bonds would be determined by the regular principles of international law and practice.

However, the fact is that the right to sue on the bonds issued by states is generally allowed. Action in contract to recover principal or interest, due and unpaid, may be brought on the United States bonds in the Court of Claims, or a mandamus may issue to the Secretary of the Treasury, under existing law, to compel him to pay the interest on United States bonds due and unpaid.

This brings us to the most difficult question which might be raised in respect to the proper construction of the term "dettes contractuelles" Suppose a general law, enacted by a legislature in whom is reposed all the residuary powers of a state's sovereignty, should have the effect to annul or substantially modify the contractual rights which a foreign subject enjoyed against such state; would it be proper to consider that such action on the part of a state, taken, it must be assumed as a matter of public exigency, is a breach of its 'contract with the foreign subject? For example, it has been repeatedly held in the United States Court of Claims that "the United States as a contractor is not responsible for the United States as a lawgiver." Thus it was said in Deming's Case. Here the claimant contracted to furnish the United States certain supplies, and Congress later imposed an additional duty on some of the supplies, and also passed a legal-tender act. The effect of both these acts was greatly to increase the cost of the supplies to the claimant and cause him a loss on his contract with the United States. The Court of

Claims said: "Were this action brought against a private citizen, against a body corporate, against a foreign government, it could not possibly be sustained. In this court the United States can be held to no greater liability than other contractors in other courts."

The principle has also been repeatedly applied in the Court of Claims where the act of state was that of an executive officer. The claimants in Jones's Case contracted with the United States, through the Commissioner of Indian Affairs, to survey certain public lands which at the time were protected from Indian attack by United States troops. After the claimants had begun work on the contract it became necessary to withdraw the troops. When this was done by the United States War Department, the Indians swooped down upon the surveyors and caused them much delay and increased expense in the execution of their contract. The claimants sued to recover on the ground that the United States could not change its attitude or its policy in a material degree, without incurring the responsibility of making the claimants just compensation for all additional expenses thereby occasioned. The Court of Claims held: "This position can not be sustained. The two characters which the Government possesses as a contractor and as a sovereign can not be thus fused; nor can the United States while sued in the one character be made liable in damages for its acts done in the other. Whatever acts the Government may do, be they legislative or executive, so long as they be public and general, can not be deemed specially to alter, modify, obstruct, or violate the particular contracts into which it enters with private persons."

Every state in the administration of its national law distinguishesthose governmental acts which give rise to breaches of contract (to which it is party) from those which, however much they may annul or modify such contracts, give rise to no legal damage, i. e., are damnum absque injuria. Every state denies that its public governmental acts can give rise to "dettes contractuelles."

Under the present convention are these distinctions of the national law to be ignored? Is the position to be taken that all acts of a state, which annul or otherwise interfere with the contracts between it and the subjects of a foreign state, may give rise to "dettes contrac

tuelles?" This is undoubtedly the true construction. The term "dettes contractuelles " as used in the national law of states denotes government liability in matters of contract; as used in the present convention it connotes arbitral jurisdiction in international disputes, or at least the absence of force under certain circumstances. The intent of the convention is to refer to international tribunals the very delicate and difficult task of determining the liability of one state to another where the public governmental acts of the one have annulled or modified the contracts which it had with the subjects of the other. But the present convention does not give a jurisdiction to arbitration in the sense that one state may summon another state before an international tribunal to have any controversy between them respecting contract claims determined. No tribunal exists

with authority to entertain such controversies. The powers in dispute must establish by convention, or other agreement, their forum, and they may stipulate expressly the law which the arbitrators shall apply. However, if the arbitrators are untrammelled by such stipulations, they are free to fix, according to their own views, the international standard of state liability for damages suffered by foreigners in respect to their contracts with a state.

In recommending the present convention to the states of the world for ratification the Second Hague Conference has taken a wellmeasured step toward the giving of a definite and unconditional jurisdiction to arbitration. Its ratification and faithful observance should act as an entering wedge to the development of an arbitral jurisdiction. Gradually the present rough arrangement may be improved and its incomplete jurisdiction extended, as the early writs in England extended the jurisdiction of the courts. Gradually the state may be expected to discover that their "national honor" and "vital interests" are not jeopardized by referring their differences to the arbitrament of law. Gradually states, and the society of which they are composed, may be expected to acquire the habit of submitting international disputes to the decision of international tribunals in which they have confidence. Gradually the crude arbitration arrangements of the present may be perfected, and that confidence in the fairness and judicial attitude of the arbitrators which