Chabot and Gulati on Pari Passu

Benjamin Remy Chabot and Mitu Gulati have posted "Santa Anna and His Black Eagle: The Origins of Pari Passu?" on srrn.  Cribbing now from their abstract:

One of the most debated issues in international finance is the meaning of the pari passu clause in sovereign bonds. The clause is ubiquitous; it is in almost every single foreign-law sovereign bond out there. Yet, almost no one seems to agree on its meaning.  One way to cut the Gordian knot is to track down the origins of the clause.  Modern lawyers may have simply copied the clause from the documents of their predecessors without understanding its meaning.  But surely the people who first drafted the clause knew what it meant.  Four enterprising students at Duke Law School may have found the very first sovereign bond to contain a pari passu type provision; General Santa Anna's Black Eagle. This Essay tells the story of that bond and its equal treatment clause.

This is a really interesting work of legal history, which goes back to look for the origins of the pari passu clause (which puts bond holders on an equal footing with other creditors).  I'm interested in how this term seems to migrate into the sovereign bonds and then just hangs around.  Wow, this is testimony to the power of precedent.  I think this paper points in a couple of different directions -- first it says something to legal historians about how ideas migrate; second, and of relevance to people beyond the legal history community, it may give us some sense of how to interpret the clause today.

But, really, the best part of the article is where they tell us about J.R.R. Tolkien's summer job as a tutor.

Comments

[Matt]

It does sound interesting, but a few somewhat annoying points. "One way to cut the Gordian knot" is surely a funny phrase. Shouldn't it but "undue" or "untie"? Cutting the knot is one way to undue it, and there's no need to think about how to cut it- you just get your sword out and hack the thing in half. I fear this is another law professor's misuse and deformation of a metaphor, like the gross misuse of "split the baby". More substantively, is there very good reason to think that, at least in general, the claim that "surely the people who first drafted the clause knew what it meant." is true? Maybe it is, but it sure seems like a big assumption to make in the first case. I would guess that _they especially_ didn't know what it would mean, as they didn't have a bunch of experience, like we now do. Finally, is there any reason to think that even if we could find out what the "people who first drafted the clause" meant by it, that this would tell us what _we_ do or should mean by it? That also seems like quite a bit leap, and one I'd be hesitant to make. Anyway, maybe all of these things (except the unlovely Gordian knot bit) are all fine in the actual paper, but I do think they should make us worry a bit.

[anon]

Alexander the Great cut the Gordian Knot with one swing of his mighty sword, rather than untying it. That was the whole point of the story!
Sort of like Kirk and the Kobayashi Maru!
As for original intent v. original meaning, we need to read the paper. It is certainly true that the phrase "surely the people who first drafted the clause knew what it meant" is sort of problematic.
These drafters may have known what "they" (the drafters) intended to convey, but that is different from saying they knew whether that meaning was understood in the same way generally (absent evidence of same).
Also, these drafters may have had in mind a purpose rather than a specific meaning. And, the linguistic meaning of these words may have meant one thing at that time to these persons, but the words may have taken on some other meaning(s) today.
There is sometimes a failure of legal history to explain modern iterations of ancient concepts. After all, nothing much in human relations is truly new, but we understand certain relations and concepts in "new" ways frequently, it seems.