Market Practice and the Evolution of Foreign Sovereign Immunity

The twentieth century witnessed a “tectonic” shift in international law, from absolute to restrictive theories of sovereign immunity. As conventionally understood, however, this transformation represented only a change in default rule. Under absolute immunity, courts could not hear lawsuits and enforce judgments against a foreign sovereign without its consent. Under restrictive immunity, foreign sovereigns were not immune to their commercial acts, regardless of consent. Using a two‐century dataset of loan contracts, we show that market practice undermines this conventional understanding. For centuries, loan contracts were structured as if the rules of sovereign immunity could not be changed by contract. In the 1970s, however, market practice changed, seemingly in response to the codification of sovereign immunity law in the United States and United Kingdom. We explore why market practice conflicts with the conventional understanding of sovereign immunity, and we examine the association between codification and the structure of sovereign loan contracts.     

Origin Myths,Contracts, and the Hunt for Pari Passu

We use interviews with corporate lawyers and a data set of contracts to explore an elite area of legal practice: sovereign bond lending. Sovereign debt lawyers work at prestigious global law firms, yet the contracts they produce include some terms that defy explanation. Lawyers often account for the existence of these terms through origin myths. Focusing on one contract term, the pari passu clause, we explore two puzzling aspects of these myths. First, we demonstrate that the myths are inaccurate as to both the clause's origin and the role of lawyers in contract drafting. Second, the myths often are unflattering, inaccurately portraying lawyers as engaged in little more than rote copying. We probe this disjuncture between the myths and lawyers' actual practices and explore why contracts origin myths might hold such appeal for this elite segment of the bar.     

Innovation after the revolution: foreign sovereign bond contracts since 2003

The first 150 words of the full text of this article appear below. Key points

• In 2003, under official pressure, amendment provisionsin standard form New York law sovereign bond contracts shiftedto resemble English law boilerplate.
• Market participants andofficials expected contracts in New York and London to convergearound a common formulation.
• Contrary to expectations, theshift away from old boilerplate did not lead to convergencearound new boilerplate.
• Issuers in London, and to a lesserdegree in New York, are experimenting with diverse terms andinstitutional arrangements.
• Amendment provisions in recentissues have used hybrid formulations, permitting holders tovote in person or by written consent, with different approvalthresholds.
• More issuers are using trust structures.
• Creditorcommittees are making a qualified comeback, though the adoptionand formulation of committee provisons does not appear to trackissuers' credit quality.
• Not all issuers agree to pay committeeexpenses.
• Some issuers have agreed to require unanimous creditorconsent to amend litigation-related terms, . . . [Full Text of this Article]