Unclean Hands: Responding to ‘Spoils Don’t go to the Aggressor’

Alexander Nye

Vol. 44 Associate Editor

On February 24, 2022, Russia announced a “special military operation” to “demilitarize” Ukraine.[1] Russia initially planned to capture Kyiv immediately and gain control over the country.[2] However, after this strategy failed, Moscow switched focus to annexing portions of Ukraine.[3] If Russia had succeeded in controlling the entire country, what would have happened to the significant debts Ukraine incurred to fund its defense against Russian encroachment? An application of the War Debts doctrine, a long-held international law doctrine, would conclude that Russia could repudiate them.[4] Gulati and Weidemaier recently described the doctrine as antiquated and proposed a reform.[5] The goal of this blog is to more fully articulate an international law justification for their proposal. This blog post seeks to (i) explain the War Debts doctrine, (ii) describe the proposed reform, (iii) explain how the reformed should be justified in public international law using the unclean hands doctrine, and (iv) touch on some of the problems associated with this approach. I. The current War Debts doctrine Under the War Debts doctrine, a conquering state is not legally required to pay debts that the conquered state accrued to fund war against the conquering state.[6] The implication of the doctrine is that a “creditor who advances money to a belligerent during a war to some extent adventures his money on the faith of the borrower’s success.”[7] Though the doctrine was first formally articulated by conquering European states in the late 19th century, even then, Hans Cahn wrote that the repudiation of war debts by a conquering state “would have to be considered as conforming with international law and as justifiable, if the exclusion corresponds equally to certain moral principles which are confirmed by well-established traditions of international practice.”[8] While the international community would condemn a state for disavowing all debts of a country it had conquered, finding that state in violation of international law, this international morality typically permits a state to repudiate war debts. Importantly, states developed this doctrine when war was a legal means of conflict resolution.[9] In that context, the victorious state was always in the right and its people did not receive the benefits of the war debts attributable to the conquered territory. [10] Moreover, the victorious state’s people were harmed by the same debts that they would have had to assume them without the doctrine. Debts “not related to the benefit received by the local population” were therefore odious debts and victors would likely repudiate them.[11] II. Gulati and Weidemaier’s proposed reform to the War Debts doctrine: The Spoils Don’t Go to the Aggressor doctrine Gulati and Weidemaier propose that “[w]hen an aggressor launches an unprovoked attack … the aggressor should bear the cost of the victim’s self-defense and those who funded it should be the ones at risk.”[12] They argue that the traditional War Debts doctrine is antiquated, and incentivizes lenders to invest in the debt of stronger countries in a conflict, regardless of whether those countries had a right to use force.[13] This doesn’t reflect current international law, under which aggression is illegal.[14] Instead, they support a reformed doctrine that incentivizes support for countries exercising their right to use force in self-defense under international law, rather than always favoring the state more likely to win the conflict.[15] As they point out, it’s likely that, as is the case with Ukraine, a country exercising self-defense will need more outside financial assistance than the aggressor.[16] This makes the facially neutral War Debts doctrine an instrument that in practice financially supports powerful invaders.[17] They argue this reform would better internalize the costs of misbehavior and deter aggression.[18] Applied to a world where Ukraine was taken over by Russia, this reformed doctrine would see Russia assume all of Ukraine’s debts, including those supporting the defense against Russia. III. A reformed war debts doctrine is justified in international law under unclean hands Unclean hands is a well-known equitable doctrine in common law systems,[19] and pieces of it are recognized in other legal systems.[20] One scholar describes unclean hands in international law as “the proposition that a state that has engaged in unlawful conduct may be denied legal standing to complain of ‘corresponding illegalities on the part of other States, especially if these were consequential on or were embarked upon in order to counter its own illegality.”[21] Many legal systems see unclean hands as a general principle of law, [22] which would make it applicable to a Russian assertion of the War Debts doctrine.  Like the War Debts doctrine, unclean hands has been accepted by a foundational tribunal for international law. [23] Notably, in the Yukos arbitration, Russia itself attempted to persuade the tribunal that both doctrines existed “as a general principle of international law which would bar a claim by an investor.”[24] Thus, there is strong support for the proposition that the doctrine of unclean hands is binding and applicable here. Like unclean hands, the War Debts doctrine is an equitable doctrine.[25] Gulati and Weidemaier’s proposed reform is about modifying a doctrine rooted in equity (the War Debts doctrine) so that it better corresponds to the principles of equity. They find the doctrine problematic because it’s indifferent to whether states invoke it as part of an act of aggression, and in addition it is biased in favor of countries with more military and financial power. Instead, they propose a doctrine that is agnostic to power, and is instead sensitive to violations of international law through acts of aggression.[26] Though intended as an equitable doctrine, the War Debts doctrine[27] no longer maps onto what is equitable in a world governed by the U.N. Charter, and the it should be modified accordingly. Unclean hands can resolve the problems caused to the War Debts doctrine as result of a change the change in the legal validity of war.[28] This is because unclean hands works by denying a party the fruits of their illegal conduct, providing a deterrent to that illegal conduct. In line with the reformed doctrine, this directly internalizes the costs of misbehavior and deters aggression. In a situation where Russia took over Ukraine and repudiated Ukraine’s war debts, Ukraine’s creditors could utilize the principle of unclean hands to pursue compensation. Ukraine’s former creditors could claim payment from Russia, which they assumed upon taking over the country. Russia, invoking the War Debts doctrine, could then assert its right to discharge or repudiate Ukraine’s war debts against those creditors. At that point, the creditors could raise the unclean hands doctrine as an exception to Russia’s War Debts doctrine defense. They could argue Russia’s claim should fail because the equitable relief that the victorious state (Russia) claimed (the discharge of war debts) was obtained through an illegal act (aggression, a violation of the prohibition of the use of force, etc.).[29] IV. Problems with a reformed War Debts doctrine built on unclean hands There are several potential weaknesses to this reform, which are beyond the scope of this paper, but are  important considerations. First, the unclean hands approach could create uncertainty by making creditors and states unsure of what debts will be repudiated.[30] However, that uncertainty is limited to the questions of whether the debts were contracted by the predecessor state in preparation for, or the prosecution of, a war, and whether the victor committed the crime of aggression or not. This could lead to expensive legal disputes after a conflict, but it could also increase the cost of credit for countries which sovereign lenders believe may pursue aggressive war. Another objection could be that of moral hazard[31] The reformed doctrine could be an incentive for a state to borrow excessively during a losing war, dumping the debt on the victor with the knowledge that their allies would support accusations of aggression and reject any War Debts claims. Hopefully, States taking this approach would be seen as violating a duty of good faith in domestic courts and would not be allowed to successfully deploy the reformed doctrine.[32] That being said, there do not seem to be historical examples of states accruing debt for the purpose of burdening the inevitable victor in a conflict. Finally, there is the problem of identifying aggression and the aggressor. Formal ways of labeling conduct as aggression don’t seem realistic, considering Russia’s veto power in the Security Council.[33] Moreover, the Security Council and the ICJ have never made the legal determination that a State committed an illegal act of aggression.[34] Generally, the international community, at best, reaches legal consensus on a state’s actions constituting aggression after the conflict has ended,[35] meaning it may be difficult for creditors to rely on the reformed doctrine when granting loans to parties at war. Gulati and Weidemaier have been able to shine a light on the fact that the War Debts doctrine still hasn’t adjusted for the prohibition on the use of force set out in the U.N. Charter. Hopefully, unclean hands can be a useful legal basis to bring the doctrine into the twenty-first century.

[1] Andrew Osborn & Polina Nikolskaya, Russia’s Putin authorises ‘special military operation’ against Ukraine, Reuters, Feb. 24, 2022, https://www.reuters.com/world/europe/russias-putin-authorises-military-operations-donbass-domestic-media-2022-02-24; Julian E. Barnes, Michael Crowley, & Eric Schmitt, Russia Positioning Helicopters, in Possible Sign of Ukraine Plans, N.Y. Times, Jan. 10, 2022, https://www.nytimes.com/2022/01/10/us/politics/russia-ukraine-helicopters.html. [2] Tim Lister, Pushed back from Kyiv, what’s Russia’s military strategy now?, CNN (Apr. 21, 2022, 10:34 AM), https://www.cnn.com/2022/04/20/europe/russia-ukraine-strategy-donbas-analysis-cmd-intl/index.html; Osborn, supra note 1. . [3] Andrew E. Kramer et al, Ukraine Fights to Reclaim Territory as Russia Holds Annexation Referendums, N.Y. Times, Sept. 4, 2022, https://www.nytimes.com/2022/09/24/world/europe/annexation-fighting-war-russia-war-ukraine.html. [4] Mark Weidemaier & Mitu Gulati, Spoils Don’t go to the Aggressor, Credit Slips (Mar. 19, 2022, 7:59 PM), https://www.creditslips.org/creditslips/2022/03/spoils-dont-go-to-the-aggressor.html. [5] Id. [6] See Tai-Heng Cheng, Renegotiating the Odious Debt Doctrine, L. & Contemp. Probs., Summer 2007, at 7; Hans J. Cahn, The Responsibility of the Successor State for War Debts, 44 Am. J. Intl’l L. 477, 477 (1950). [7] John Fischer Williams, International Law and International Financial Obligations Arising from Contract, in 2 Bibliotheca Visseriana Dissertationvm Ivs Internationale Illvstrantivm 1, 55 (Tomvs Secvndvs ed., 1924). [8] Cahn supra note 6, at 478–80. [9] See generally Oona A. Hathaway & Scott J. Shapiro, The Internationalists 101-31 (2018) (discussing international law’s laissez-faire position towards the initiation of war before the inter-war period). There are more modern articulations of the war debts doctrine in several conventions and draft conventions, but they have not been widely adopted. See Vienna Convention on Succession of States in Respect of State Property, Archives and Debts, opened for signature April 1, 1983, 22 I.L.M 306, 1946 U.N.T.S. 3; see also Mohammed Bedjaoui, Ninth Rep. on Succession of States in Respect of Matters Other Than Treaties 74, U.N. Doc. A/CN.4/301 & Add.1, reprinted in [1977] 2 Y.B. Int’l L. Comm’n 45 (Part I). [10] Summary Records of the 1426th Meeting, [1977] 1 Y.B. Int’l L. Comm’n ¶156, U.N. Doc. A/CN.4/SER.A/1977 [hereinafter U.N. Int’l Law Comm’n Yearbook 1426th Meeting]. [11] Jeff King, The Doctrine of Odious Debt in International Law: A Restatement 64 (2016). [12] Weidemaier, supra note 4. [13] Id. [14] Arthur Ripstein, Book Review, 13 Crim. L. & Phil. 205, 210-12 (reviewing Oona A. Hathaway & Scott J. Shapiro, The Internationalists (2018)). [15] Weidemaier, supra note 4. [16] Id. [17] Id. [18] Id. [19] Ori J. Herstein, A normative theory of the clean hands defense, 17 Legal Theory 171, 171 (2011); Gerald Fitzmaurice, The General Principles of International Law Considered from the Standpoint of the Rule of Law, 92 Collected Courses Hague Acad. Int’l L. 1, 119 (1957) [20] T. Leigh Anenson, Treating Equity like Law: A Post-Merger Justification of Unclean Hands, 45 Am. Bus. L.J. 455, 478 (2008). [21] Catharine Titi, The Function of Equity in International Law 175 (2021) (quoting Gerald Fitzmaurice, The General Principles of International Law Considered from the Standpoint of the Rule of Law, 92 Recueil des Cours 1, 119 (1957)). [22] Stephen M. Schwebel, Clean Hands, Principle ¶¶ 1-4, Max Planck Encyclopedia of Public International Law (database March 2013); Ori Pomson, The Clean Hands Doctrine in the Yukos Awards: A Response to Patrick Dumberry, 18 J. World Inv. & Trade 712, 728–29 (2017). [23] See King, supra note 11 at 67 (showing that the British-American Claims Commission supported an application of the war debts doctrine);  see Diversion of Water from Meuse (Neth. v. Belg.), Judgment, 1937 P.C.I.J. (ser. A/B) No. 70, at 25 (June 28) (showing that the PCIJ supported an application of the unclean hands doctrine). [24] Pomson, supra note 22 at 713–14. [25] Cahn supra note 6, at 478–80. [26] Weidemaier, supra note 4. [27] See Weidemaier, supra note 4; see also Cahn supra note 6, at 478–80. [28] See Ripstein supra note 14. [29] Charter of the United Nations and Statute of the International Court of Justice, art. 2, June 26, 1945, 59 Stat. 1031, T.S. No. 993, 3 Bevans 1153; Arthur Ripstein supra note 14. The impact of this doctrine is dependent on the creditors having standing and a judiciable claim. A domestic court would have to decide, given the exceptional nature of the breaches of international law, whether Russia’s repudiation was justiciable under the acts of state doctrine. This would be similar to some arguments Ukraine raised in English courts against enforcing debts Russia leant to Ukraine in the run-up to the Maidan Revolution. See Ukraine v. L. Debenture Tr. Corp. plc (2018) 2 C.L.C. 627, 627-77 [30] See  Lee C. Buchheit, G. Mitu Gulati & Robert B. Thompson, The Dilemma of Odious Debts, 56 Duke L.J. 1201, 1225 (2007) (discussing how identifying partiuclar debts as odious debts, which war debts are a sub-type of, is incredibly difficult and not particularly administrable; it is not certain as to whether the debt is odious or the regime odious). [31] This is a weakness shared with some odious debt proposals. See generally, Tom Ginsburg & Thomas S. Ulen, Odious Debt, Odious Credit, Economic Development, and Democratization, L. & Contemp. Probs., Summer 2007, at 133. [32] See 30A C.J.S. Equity § 111 (2022) (showing that court, in deciding whether to accept an unclean hands defense should inquire into facts concerning whether the party wishing to use the doctrine is acting in good faith). [33] See, e.g., Jennifer Trahan, Aggression and the Veto, Opinio Juris (Feb. 28, 2022), http://opiniojuris.org/2022/02/28/aggression-and-the-veto (describing the problems of the Security Council); see also, e.g., Jennifer Trahan, A Reminder of the Importance of the Crime of Aggression: Considering the Situation of Russia and Ukraine, Opinio Juris (Feb. 4, 2022), http://opiniojuris.org/2022/02/04/a-reminder-of-the-importance-of-the-crime-of-aggression-considering-the-situation-of-russia-and-ukraine (describing the problems of the International Criminal Court). [34] See Claus Kreß, Aggression, in The Oxford Handbook of the International Law of Global Security 232, 253 (Robin Geiß & Nils Melzer eds., 2021). [35] Id. ; Mikaela Ediger, Prosecuting the Crime of Aggression at the International Criminal Court: Lessons from the Tokyo Tribunal, 51 N.Y.U. J. Int’l L. & Pol. 179, 179 (2018) (noting that the last time aggression was formally prosecuted, as of 2018, was the International Military Tribunal for the Far East in the 1940s). The views expressed in this post represent the views of the post’s author only.