It has been shown that the borrowing of funds, and the issuance of bonds as evidence of the debt, contemplated by General Assembly resolution 1739(XVI) constituted a valid exercise of the powers granted the General Assembly by Article 17 of the Charter. The authors of the Charter clearly intended that the General Assembly should exercise a general competence on budgetary and financial matters necessitated by the varied and important functions which the Organization as a whole was enjoined by the Charter to perform. This construction of Article 17 comports with established legal principle governing the interpretation of treaties; it has been accepted in practice by the General Assembly in the performance of its functions under Article 17, and by the United States Government.

ARRANGEMENTS FOR REPAYMENT PROVIDE ADEQUATE ASSURANCE AGAINST LOSS The legal and political factors which operate to insure payment of the annual installments of principal and interest on the United Nations bonds, or to prevent financial loss to purchasers in the event of default, will now be considered. As is customarily the case in respect of loans floated by political entities, the security characteristic of private transactions is absent. There is no collateral in the commercial sense of that term and the Organization is not subject to suit. Nevertheless, the legal arrangements to secure repayment are adequate to assure repayment. Setoff

As adopted by the Senate, the legislation authorizing the loan to the United Nations contains the following provision:

"There shall be deducted from the annual payment of the assessed share of the United States of the budget of the United Nations an amount equal to the corresponding annual installment of principal and interest due to the United States on account of the loan made pursuant to Section 1."

Implementation of this provision can be arranged with the Secretary General at the time loans are extended or bonds are purchased, pursuant to the Secretary General's authority to "issue such regulations, not inconsistent with the foregoing paragraphs [of resolution 1739 (XVI) and its Annex], and take any and all such further action as may be necessary to carry out the purpose of the above resolution.' (Para. 9, Annex, A/RES/1739(XVI)).

Even in the absence of any express action by the United States at the time loans were extended or bonds purchased, it appears that a decision by the United States to make such a deduction could not be opposed under general principles of international law. The setoff is a common institution in most of the world's legal systems. See Lawson, Common Lawyer Looks at the Civil Law 151-52 (1953); Wolff, Private International Law 234-35, 456-57 (2d ed., 1950); Lee, Introduction to Roman-Dutch Law 275 (4th ed., 1946); Esquival Obergon, Latin-American Commercial Law 305 (1921). It is probable that, if the International Court of Justice were called upon to pronounce on the validity of such action by the United States, it would hold the setoff to be a "general principle of law recognized by civilized nations," and thus a part of the international law which the Court is enjoined by Article 38(1) (c) of its statute to apply.

It is unlikely, however, that the use of a setoff by the United States would be sufficiently disputed to require consideration by the International Court of Justice. The manifest fairness of such a deduction has been described as "but the exercise of the common right, which belongs to every creditor, to apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the debts due to him" (Gratios v. United States, 40 U.S. (15 Pet.) 336, 370 (1841)).

Inclusion of bond repayment in regular budget account

Resolution 1739 (XVI), by which the General Assembly decides to include annually in the regular budget of the United Nations, beginning with the budget for the year 1963, an amount sufficient to pay the interest charges on such bonds and the installments of principal due on the bonds, placed the payment of the bonds in a status in which they will be paid along with the other general expenses of the Organization. The apprehension that Members opposed to certain decisions by the United Nations for the maintenance of peace and security might refuse to pay that part of their assessed contributions which would be used to pay the bond issue is not well-founded. Contributions are assessed against Members in a total amount; the assessment is not subdivided according to the items in the budget of the Organization. It would not be permissible, under established budgetary practices of the United Nations, for a Member state not paying all of its assessed contributions to identify the area of the budget to which its default shall be attributed. Since it is not possible for a Member to earmark a partial

nonpayment of its assessed contribution, the effect of such partial nonpayment would merely be a shortfall in the contributions for that year, the shortfall not being attributable to any specific section of the budget of the Organization.

The failure of Members to pay their assessed contributions creates a situation governed by Article 19 of the Charter, which automatically deprives a Member of its vote in the General Assembly when an arrearage equal to its assessed contributions for the preceding 2 years has been established.

Past repayment record of United Nations

The past practice of the Organization regarding the payment of large financial obligations affords no basis for questioning its determination to meet in full its financial commitments. Under the agreement between the United States and the United Nations, the $65,000,000 headquarters loan was to be repaid in the following installments:

This schedule of repayments has been fully and promptly met by the Organization.

Guarantees in the event of dissolution of the Organization

The preceding discussion has assumed the continued existence of the United Nations. Full inquiry requires that it also be asked what guarantees exist against default in the event that the United Nations were to be dissolved before complete repayment of the bond issue. The normal process for the conclusion of the affairs of an international organization contemplates the settlement of all contractual obligations prior to the distribution of the remaining assets. This was done in the case of the League of Nations, which settled its outstanding contractual obligations upon dissolution. The United States would be in a position to insist that such procedures be followed, not only because of its political leadership within the Organization, but also because the major asset of the Organization is located within U.S. territory. In this connection, it should be noted that the headquarters district may not, under section 22 of the agreement between the United States and the United Nations regarding the headquarters of the United Nations, be disposed of without the consent of the United States. Agreement between the United States and the United Nations regarding the Headquarters of the United Nations, June 26, 1947, TIAS 1676.

THE ADVISORY OPINION REQUESTED FROM THE INTERNATIONAL COURT OF JUSTICE COULD NOT IMPAIR REPAYMENT OF THE LOAN

Terms of reference of request for advisory opinion and bond issue

On December 20, 1961, the General Assembly, by resolution 1731 (XVI), addressed the following question to the International Court of Justice:

"Do the expenditures authorized in General Assembly resolutions 1583 (XV) and 1590(XV) of 20 December 1960, 1595(XV) of 3 April 1961, 1619(XV) of 21 April 1961 and 1633 (XVI) of 30 October 1961 relating to the United Nations operations in the Congo undertaken in pursuance of the Security Council resolutions of 14 July, 22 July and 9 August 1960 and 21 February and 24 November 1961, and General Assembly resolutions 1474(ES-IV) of 20 September 1960 and 1599(XV), 1600 (XV) and 1601 (XV) of 15 April 1961, and the expenditures authorized in General Assembly resolutions 1122(XI) of 26 November 1956, 1089(XI) of 21 December 1956, 1090(XI) of 27 February 1957, 1151(XII) of 22 November 1957, 1204(XII) of 13 December 1957, 1337 (XIII) of 13 December 1958,

1441(XIV) of 5 December 1959 and 1575(XV) of 20 December 1960 relating to the operations of the United Nations Emergency Force undertaken in pursuance of General Assembly resolutions 997 (ES-I) of 2 November 1956, 998(ES-I) and 999 (ES-I) of 4 November 1956, 1000 (ES-I) of 5 November 1956, 1001 (ES-I) of 7 November 1956, 1121 (XI) of 24 November 1956 and 1263(XIII) of 14 November 1958, constitute 'expenses of the Organization' within the meaning of Article 17, paragraph 2, of the Charter of the United Nations?"

The question put to the Court concerns the status of expenditures authorized by certain previously adopted resolutions as "expenses of the Organization" within the meaning of Article 17 (2) of the Charter. These resolutions relate to the financing of the United Nations Emergency Force (UNEF) and of the United Nations Operations in the Congo (ONUC). The bonds will be paid out of assessments which are not before the Court and which, in fact, have not yet been adopted by the General Assembly. Accordingly, it would not be possible for the Court specifically to hold invalid the resolutions by which the loan will be repaid. Similarly, the advisory opinion of the Court would not collaterally prejudice repayment of the loan. It is anticipated that the Court will hold that the expenditures authorized in the enumerated resolutions are "expenses of the Organization." While not directly affecting the repayment of the loan, this would facilitate the strengthening of the Organization's financial situation by helping to secure the collection of unpaid past assessments.

It is possible, of course, that the Court might decline to respond to the General Assembly's request for an advisory opinion. The predecessor of the present Court, the Permanent Court of International Justice, did so in one instance, where the type of question and the circumstances were very different from those in the present case. Eastern Carelia case, P.C.I.J., ser. B, No. 5 (1923). seems quite unlikely that the International Court of Justice would decline to render an advisory opinion in the current case. In the improbable event that the Court were to do so, a jurisdictional determination of this sort obviously would not impede repayment of the loan.

It

On the assumption that the Court renders an opinion, it is expected that this will vindicate and uphold the position contended for by the United States. In this connection, it is to be noted that the principal contentions advanced against our position are not such as to strike at the validity of the United Nations loan or the obligation of repayment. For example, it has been contended that the UNEF and ONUC assessments now before the Court are not "expenses of the Organization" because they stem from special accounts, rather than the general account, of the United Nations budget. Resolution 1739 (XVI) specifies that the loan is to be repaid from the general account used in paying the Organization's ordinary expenditures. Thus, any contention distinguishing between the general and special accounts, and urging that the latter do not constitute "expenses of the Organization," only emphasizes the obligation of Member States to pay the kind of assessments from which the loan is to be repaid.

Another contention advanced against the U.S. position in the present advisory opinion case is that the assessments referred to were not "expenses of the Organization" because of the nature of the operations financed-e.g., because the establishment or operation of UNEF and ONUC should have been decided upon, arranged, and managed exclusively by the Security Council. Repayment of the loan would remain unimpaired regardless of this contention. The United Nations bond issue will give rise to a separate and distinct contractual obligation, whose character is unaffected by the purpose to which the revenue received from the sale of the bonds is devoted. It has already been indicated that the United Nations is competent to borrow funds, and to issue bonds as evidence of the debt. This competence was recognized by the General Assembly, which adopted resolution 1739(XVI) by a large majority. The character of the obligation assumed by the United Nations on the loan would not be affected by the use made of the proceeds.

In a related case, the International Court of Justice has affirmed the obligation of the United Nations to meet its financial obligations. In the Court's advisory opinion on the effect of awards of compensation made by the United Nations Administrative Tribunal, the Court affirmed the obligation of the United Nations to pay awards by the Tribunal established by the General Assembly to hear complaints by Secretariat members concerning their terms of employment. It had been asserted that the General Assembly, in establishing the Tribunal, could not divest itself of its power to reject such awards as a part of its function of approving the budget of the Organization under Article 17. The Court said:

"But the function of approving the budget does not mean that the General Assembly has an absolute power to approve or disapprove the expenditure proposed to it; for some part of that expenditure arises out of obligations already incurred by the Organization, and to this extent the General Assembly had no alternative but to honour these engagements." Effect of awards of compensation made by the U.N. Administrative Tribunal Advisory Opinion of July 13, 1954: I.C.J. Reports 1954, p. 47, 59.

Pertinent U.S. cases also confirm the validity of this principle. In the case of bonds issued by a state, it has been held that the obligation of the bonds is not affected even by irregularity in the issuing of the bonds (State ex. rel. Louisiana Sav. Bank & Trust v. Board of Supervisors of Louisiana State University, 202 La. 176, 11 So. 2d 521 (1942) (bonds issued before effective date of authorizing legislation)). Even in the case of municipal corporations, it has been held that the unlawful use of the proceeds of bonds legally issued and sold by a municipality does not affect the validity of the bonds (State ex. rel. Davis v. Ryan, 118 Fla. 42, 158 So. 62 (1935); State ex. rel. Ake v. Broward County Port. Auth., ibid. (municipal corporations not authorized by statute to borrow money for purposes of bond issue)). While an international organization is not the legal equivalent of either a state or a municipal corporation, these citations attest the validity of the general principle stated above.

It is thus concluded that the issues raised in the request for an advisory opinion from the Court are legally separate from the issues raised by the United Nations loan; and that no foreseeable opinion of the Court would collaterally prejudice repayment.

APPENDIX 4

ANALYSIS OF THE UNITED NATIONS FINANCIAL POSITION AS AT DECEMBER 31, 1961

(Prepared by the U.N. Office of the Comptroller)

In the Acting Secretary General's statement of December 11, 1961, to the Fifth Committee on the United Nations financial position and prospects (A/C.5/907) it was estimated that the gap between the unpaid obligations of the Organization and its net cash resources would reach the amount of $107.5 million at the end of 1961. This amount represented the difference between estimated unpaid obligations totaling $114.4 million and estimated cash resources of $6.9 million.

In that statement the Acting Secretary General used the term "unpaid obligations" to mean the sum represented by the unliquidated obligations entered on the United Nations books of account plus the amounts that should be in various surplus accounts plus the amounts borrowed from the working capital fund and other special or trust funds and accounts in the custody of the Secretary General. It excludes, however, the Organization's residual liabilities relating to the unpaid balance of the United Nations Headquarters loan or the balance of credits due members in respect of the transfer of the League of Nations assets.

It now appears that the 1961 year-end estimates given in document A/C.5/907 should be revised as follows:

A breakdown of the figure given above for unpaid obligations as between (a) the United Nations General and Working Capital Funds, (b) UNEF, and (c) ÙÑOC is as follows:

The breakdown of net cash resources and deficit in millions of U.S. dollars is as follows:

Attached is a schedule analyzing the provisional recorded obligations of UNEF and UNOC as at December 31, 1961.