The Pari Passu Clause in Sovereign Bond Contracts: Evolution or Intelligent Design?

In 1893, Robert Wiedersheim published a book on human anatomy that claimed to identify eighty-six human organs that had been rendered functionless by the process of evolution. A century of subsequent research has confirmed Wiedersheim’s findings for some organs and has overturned others. It is now widely agreed that some parts of the body, such as the coccyx (the tailbone), are functionless but relatively harmless. Others, like third molars (wisdom teeth), no longer serve a useful purpose and in some cases have become harmful and need to be surgically removed. Still others have turned out to play important roles in the body, such as the thymus gland, which helps to regulate the immune system.

Much of the recent debate surrounding the pari passu clause in sovereign bonds has concluded that it is at best a coccyx and essentially meaningless, and at worst, a set of wisdom teeth that introduces unnecessary litigation risk and needs to be surgically removed from future sovereign bond contracts (such is the position taken in the monograph by Mitu Gulati and Robert E. Scott, which served as the starting point for this symposium). By contrast, in this Article I will argue that the clause is more aptly likened to the thymus gland—a clause whose meaning is not well understood and whose origin is perhaps lost in history, but that nonetheless fulfills a potentially important role that is likely to expand further in the future.

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