Papers Relating to the Foreign Relations of the United States, 1925, Volume II

838.51/1776

The Secretary of State to the French Ambassador (Daeschner)

Washington, May 7, 1925.

Excellency: I have the honor to refer to your Embassy’s notes of September 5, 1924,¹³ and March 31, 1925,¹⁴ in relation to the desire of your Government that the Government of the United States should endeavor to induce the Haitian Government to reconsider its refusal to accept the proposition of the bank of the Union Parisienne to arbitrate the question whether the bonds issued by virtue of the loan contract of September 9, 1910 between the Government of Haiti and the representatives of four banking institutions are payable in gold.

In your Embassy’s note of March 31, 1925, it is stated “there is no necessity of finding in whose behalf the Union Parisienne is acting when it lays its claim before the Haitian Government. The Union Parisienne acts in its capacity as issuing bank, party to the contract. In so doing, it serves its own interests; the commission provided in its favor by the contract necessarily increases when it is admitted that the service of the loan must be effected in gold”.

The loan contract in question provides that the bank of the Union Parisienne shall act as the fiscal agent of the Haitian Government for the service of the loan and shall receive a commission upon the amounts expended by the Haitian Government in such service. Therefore it is entirely correct, as stated in your Embassy’s note last mentioned, to say that the material interests of the bank would be subserved by the great increase in the amount which the Haitian Government would be obliged to pay should it be determined that the loan is payable in gold. However, it seems to be an unusual procedure and entirely outside the generally accepted view of an agent’s rights and duties for an agent to seek to compel his principal to increase his expenditures in order that the agent’s commission may correspondingly increase and the Government of the United States is unable to believe that a question of this nature was contemplated in the minds of the contracting parties when they entered into the agreement for arbitration provided in Article 30 of the loan contract with respect to matters arising regarding the performance or execution of the contract. This article provides as follows:

“The controversies which may arise regarding the execution of the present contract shall be submitted at Paris to two arbitrators, namely, one by the Haitian Government, the other by the Bankers, and who must render their decision within two months. Should they not agree, the said arbitrators shall name a third to cast a deciding vote. If they cannot agree upon the appointment of the third arbitrator, this third arbitrator shall be appointed at the request of the arbitrators, or at the request of the most diligent party¹⁵ by the Court of Arbitration at The Hague.”

It therefore appears that Article 30 of the loan contract contemplates the submission to arbitration of controversies only regarding the execution of the contract. With respect to this provision as bearing upon the present request of the bank of the Union Parisienne, it may be said that it would seem that this bank, which, as stated, is the fiscal agent of the Haitian Government under the contract, should regard the contract as executed so far as concerns the question of the repayment of the loan when the Haitian Government delivers to it an amount in French francs sufficient to pay the bonds at their face value in such francs, in addition to the commission to which the bank is entitled on such payment. Moreover, it seems clear to me that in making such request the bank is in reality acting as the agent of the bondholders who are not parties to the loan contract and therefore have no standing thereunder to request arbitration of the question under consideration. In this view of the matter it appears to me that the bank is going entirely outside of its province under the loan contract and is presenting a request which the Haitian Government is fully within its rights in rejecting as without any warrant.

In view of the foregoing it would not appear essential to enter into further discussion of the matter but there are additional reasons which may be adduced to support the action of the Haitian Government in refusing the request of the bank.

As above stated the loan contract was made between the Government of Haiti and four bankers who appear to have been treated as a unit throughout various provisions of the contract. Thus in Article XXIV of the contract the bankers undertake to accept the bonds of the loan of 1910 and to pay the Haitian Government therefor forty-seven million francs and in Article XXVI of the contract the bankers reserve the right to issue the loan by public subscription or otherwise. In Article XXIX the bankers are given a preferential right to future loans for a period of twelve years. In all these articles the bankers appear to be treated as a unit, as do they also in Article XXX which relates to the question of arbitration.

In view of the last mentioned provisions of the loan contract it would seem to have been the intention of the parties that all of the bankers must act in order to make an effective request for arbitration and not merely one of them as in the case as presented by you. Should the Government of Haiti grant the request of the bank of the Union Parisienne and enter into an arbitration with it on the question presented, it might well be argued that any award rendered would be void since all persons interested in the subject matter of the controversy had not joined in the submission to arbitration.

The loan contract in question is presumed to have come into effect so far as the Government of Haiti is concerned by the law of ratification which was passed by the Haitian legislature and which incorporates the loan contract. In this connection it may be observed that Article 69 of the Haitian Constitution of 1889 which was in force in 1910 when the loan contract was made and the law of ratification passed provides as follows:

“The legislative power enacts laws on all subjects of public interest.

“The initiative of legislation belongs to each Chamber and to the Executive power.

“Nevertheless, the appropriation laws and laws concerning the assessment, distribution, and manner of payment of taxes, creation of revenue or increase of the expenses of the Government shall be first voted by the Chamber of Representatives.”

In view of these Constitutional provisions, it seems to follow that the loan contract is a part of the law of ratification and that otherwise the contract would be invalid because it affects a subject of public interest, increases the expenses of the Government and therefore its provisions could only become binding upon the Haitian Government if enacted into law by legislation originating in the House of Representatives.

Furthermore, Article 70 of the Haitian Constitution of 1899 [1889] provides that “the authoritative interpretation of the laws belongs to the Legislative power alone. That interpretation shall be given in the shape of a law” and Article 35 of the Constitution provides “that the three powers, the legislative, the executive and the judicial are independent from each other in the exercise of their own functions, which they perform separately. Neither of them can delegate its faculties, nor go beyond the limits ascribed to it.”

Reading together the provisions of Articles 35 and 70 of the Constitution, it would appear that the provisions of such articles would prohibit the delegation to arbitrators of the construction of the law of ratification which incorporates the loan contract in question, and would have constituted an insurmountable obstacle to any attempt of the Haitian Government to bind itself in 1910 to submit to arbitration the interpretation of any of its laws. In this view of the matter it would seem that the arbitration clause of the loan contract so far as it relates to the interpretation of the contract and not merely to matters of detail in the execution thereof was void as beyond the powers of the representatives of the Haitian Government who entered into the contract.

Finally I beg to invite your attention to the fact that in a note of November 4, 1918¹⁶ your Embassy forwarded to the Department a communication addressed to it by the Bank of the Union Parisienne and requested that, the facts therein set forth having been brought to the knowledge of the Government of the United States, this Government would endeavor to bring about appropriate measures leading to a solution acceptable to the French bondholders of the loan of 1910. In the communication from the bank transmitted by the Embassy occurs the following language:

“According to a note delivered by the National Bank of the Republic of Haiti a copy of which will be found herewith, enclosure 3, the proceeds of the customs duties set apart for the 5 percent gold loan of 1910 of the Republic of Haiti since September 1915 aggregates up to March 1918 $2,058,251., of which there was applied to the service of the loan in March 1916 not more than $164,000 so that there would remain a difference for settlement of $1,894,251.

“At the present rate of exchange this sum would represent in francs an amount sufficient to pay all of the outstanding coupons.”

It seems difficult to escape the conclusion that in transmitting to the Department the note last mentioned with the enclosed letter from the bank, which was done as stated in the note by the direction of your Government, the French Government and the bank must be considered as having acknowledged thereby that the 1910 loan of the Republic of Haiti was payable at the current rate of the franc and not in gold and I am therefore constrained to point out that the present position of your Government and of the bank in asking for arbitration on the point of the currency in which the loan is payable is inconsistent with the position as taken in the note of November 4, 1918. I may add that, relying upon that position, which seemed to it, as it does to the Government of the United States, to be entirely sound, the Haitian Government proceeded with its refunding arrangements accordingly, and that any action which would result in establishing that the Haitian Government was in error on this point would have a disastrous effect upon the financial and economic condition of the Republic of Haiti and would operate to counteract in great measure, the advance it has made in material prosperity in the past few years. To such a result, I am sure, your Government is far from wishing to contribute.

I am sure that you will understand that entertaining the views which are above expressed, I am unable to accede to your request for the exercise of efforts to induce the Haitian Government to accept the proposition for arbitration put forward by the Bank of the Union Parisienne.

Accept [etc.]

Frank B. Kellogg

13. Foreign Relations, 1924, vol. ii, p. 296.
14. Supra.
15. i. e., the party most nearly ready.
16. Not printed.