The Cracks of Peaceful Regime Change: Piercing the Veil of the Tinoco Arbitration and the Doctrine of Odious Debts

By Nicolai Due-Gundersen

Published on April 5, 2014


The administration of Federico Tinoco as President of Costa Rica in the years 1917-1919 originated through what some critics describe as one of the most peaceful changes of government in history. The change of government occurred when the then-Costa Rican President’s attempt to defy constitutional limits by seeking re-election. A number of opponents, including Secretary of War, Tinoco rebelled. During Tinoco’s two year rule, the new executive granted long-term oil concessions to a British-owned petroleum firm, the Central Costa Rican Petroleum Company and also issued new currency. During the course of business with foreign firms, such currency came to be held by British banks, most notably the British-owned Royal Bank of Canada.

After Tinoco’s downfall, the succeeding government of President Acosta claimed to restore the old Constitution of Costa Rica and enacted Law 41, also known as the Law of Nullities. This Act invalidated all currency issued under the Tinoco regime and further nullified all contracts that had been made between the Executive and private actors. The Tinoco Arbitration of 1923 resulted from these actions. On the plaintiff side, Great Britain represented the claims of the Royal Bank of Canada and Central Costa Rican Petroleum Company, contending that Costa Rica was obliged to honor oil concessions granted by Tinoco and to reimburse money owed to the Royal Bank of Canada. The Arbitration was presided over by former U.S. President, William H. Taft.

This essay will analyze the arguments of both parties and Taft’s ruling through the principles of government recognition, state continuity, territorial sovereignty and estoppel. This essay will then examine the arguments of Great Britain through the features of equitable estoppel, in order to investigate to what extent Britain may have succeeded in having the oil concessions granted by President Tinoco upheld by the succeeding government. Further, the essay will explore the Tinoco Arbitration as a case study of the doctrine of odious debt before finally discussing the parallels between the rise and fall of the Tinoco regime and the 2009 Honduran Constitutional Crisis to ascertain to what extent the Tinoco Arbitration of 1923 is still relevant to contemporary International Law.

Great Britain’s Argument

During the Arbitration, Great Britain argued that for the two year duration of the Tinoco government’s existence, there was no rival actor claiming to represent the true government of Costa Rica, and that the Tinoco government controlled all Costa Rican territory in peace, without significant popular opposition. The fact that the Tinoco regime was the sole existing government of Costa Rica was Britain’s basis for retroactively granting the Tinoco regime both de jure and de facto recognition. The principle of government recognition is often split into de jure and de facto aspects, with de facto recognition regarded by some legal scholars as a purely pragmatic but often reluctant acceptance of a new government. Such reluctance may stem from the fact that a new government may have come to power through illegitimate means, but it may none the less be recognized by other states for practical reasons. By contrast, de jure recognition focuses on the origins of a new government and is often granted only if said government’s origins are considered to be legitimate by the recognizing state. It is possible that Britain granted the Tinoco regime both de jure and de facto recognition in an attempt to strengthen their case through the context of governmental legitimacy. As a de jure and de facto government, Tinoco himself was a legitimate head of state. Hence, all decrees and legislation enacted by the Tinoco regime were legally binding and had to be honored by the succeeding government. As the case in question involved foreign actors, not to honor such agreements would be a violation of international law.

Britain’s position can be argued on the basis of the principle of continuity of international rights and obligations of states, which cannot be abrogated by internal changes of governance, regardless of the nature of such change. Within the context of the oil concessions especially, there is also the principle that international agreements are made in good faith and thus binding upon both parties (pacta sunt servanda). The principle of pacta sunt servanda, though not specifically mentioned in the Arbitration, could thus have been cited by Britain with regards to the oil concessions as an agreement between two parties that must be honored, acting as a bolster to the obligations under the principle of continuity.

However, it may be questionable weather retroactively granting the Tinoco regime both de jure and de facto recognition could have contributed to Britain’s argument vis-a-vis the binding legitimacy of Tinoco’s legislation. Though de facto and de jure recognition can be defined as bestowing ‘pragmatic’ and ‘legitimate’ recognition respectively, some legal scholars have argued that differentiation between the two by a recognizing state is purely political, and used to indicate the recognizing state’s degree and nature of acceptance of a new government. In the process of arbitration, however, both municipal and international courts grant equal weight to de jure and de facto recognition, thus making no distinction between the two. Within such a context, Britain’s ‘double recognition’ would grant their argument no legal advantage. However, the arbitrator, William H. Taft, did consider the implications of the de jure doctrine within the context of non-recognition of a government, concluding that the focus on legitimate origin as opposed to de facto control when determining non-recognition was a legal weakness. Hence, the Tinoco Arbitration can be regarded as granting de facto recognition greater weight than de jure (non) recognition.

Costa Rica’s Argument

In response to Britain’s demands that Tinoco’s granted concessions and currency must be upheld, Costa Rica attacked Britain’s claims of recognizing the Tinoco regime. Costa Rica asserted that the Tinoco regime had held neither de jure nor de facto recognition under international law. Without recognition, the Tinoco regime had no legal power to enter international agreements, and thus all contracts made between the subjects of Great Britain and Tinoco were void. The invalidation of Tinoco’s legislation, Costa Rica further asserted, was domestically justified because the Tinoco regime and its acts had violated the Costa Rican Constitution of 1871, which had preceded Tinoco’s rise to power.

Costa Rica also argued that because Great Britain did not grant the Tinoco regime any recognition during its existence, it could not conveniently reverse this decision and retroactively grant both de jure and de facto recognition. Costa Rica’s attack of Britain’s inconsistency vis-à-vis recognition is linked to the legal principle of estoppel. The principle of estoppel can be defined as a legal norm that prevents a party from asserting a position or behaving in a manner contrary to a position or mode of behavior that has already been established. In this case, Britain was thus estopped from retroactively granting recognition (be it de jure or de facto) to the Tinoco regime, because it had previously established a position of non-recognition of the Tinoco government.

While it is true that Britain did not recognize Tinoco’s government for the duration of its tenure, it is worth examining the political context surrounding Britain’s non recognition. During the early 20th Century, Costa Rica had become a chessboard for the competing interests of Western powers, especially those of Great Britain and the United States. Under President Woodrow Wilson, the American government vowed to only support (and thus acknowledge) constitutional governments within Latin America. Due to the nature of Tinoco’s rise to power, the United States withheld recognition and pressured its competitor and ally, Great Britain to do the same.

At the same time, however, Wilson seemed to ignore the internal political mechanisms that led to Tinoco’s rise to power. While non-recognition by the U.S. and her allies was ostensibly based on the desire to politically eschew despotic regimes, such non-recognition did not take into account the fact that Tinoco gained at least initial popularity and consent to rule from the people of Costa Rica. Holding elections shortly after staging his coup, Tinoco was declared president of Costa Rica with 99.5 percent of the vote. This domestic political context was not considered by Wilson, who found the circumstances surrounding Tinoco’s political credentials too dubious to be legitimate, leading to the decision of non-recognition by the U.S. and subsequently by Great Britain.

The political question of legitimacy that steered the non-recognition stance of Great Britain was at odds with Taft’s emphasis on de facto criteria of Tinoco’s sovereignty and control of Costa Rica. Hence, it may have been possible for Britain to have argued that its policy of non-recognition of the Tinoco government was due to American pressure, rather than its own sovereign desire to do so. Nonetheless, such an argument was not necessary due to Taft’s de facto criteria granting the Tinoco regime a form of recognition.

Great Britain’s Potential Counter-Estoppel

When examining the Tinoco case, it is interesting to consider Britain’s potential reaction to Costa Rica’s estoppel argument. One prospect is how Britain could have created a stronger argument for the oil concessions, at least, though a detailed argument under the doctrine of estoppel. Such a doctrine is generally defined through 3-point criteria. First, the element of assumption. Assumption is here defined as “[…] the expectation by the plaintiff that the defendant will act in a certain way”. Second is inducement, which must cause a form of reliance by the plaintiff that is based on an assumption influenced by representation by the defendant. Finally, the most important element of the 3-point criteria is that of detrimental reliance. This third criterion is used to measure to what extent the plaintiff suffered damages or injury as a result of their reliance on assumed promises made by the defendant.

In the case of Great Britain’s subject, British Controlled Oil Fields, Limited (which was the owner of the Central Costa Rican Petroleum Company), it is possible to argue economic detrimental reliance, along with wasted time and energy focused on fulfilling contractual obligations demanded by the Tinoco regime. In exchange for a 12 year license to explore Costa Rican territory for exploitable resources, British Controlled Oil Fields were expected to provide forthwith a deposit of 25,000 USD to Costa Rica’s public treasury. Furthermore, it was expected that British Owned Oil Fields, Limited would create a Costa Rican based subsidiary firm, called the Central Costa Rican Petroleum Company, to which all concession rights would be transferred. Finally, it was understood that all exploration and resource extraction work would involve only “[…] the best kind of machinery and methods for doing the work”. In line with this requirement, 300, 000 Colones’ worth of machinery was therefore imported into Costa Rica.

Within the context of the company’s fulfillment of such conditions, it is thus possible to argue that British Owned Oil Fields, Limited that its assumption of having secured 12-year concession rights influenced the company’s decision to fulfill contractual demands made by the Tinoco regime. Therefore, once the succeeding Costa Rican government nullified the granted concessions, the position of the relying party (i.e. British Owned Oil Fields, Limited) is altered and results in damage or injury as a result of its reliance on a now reneged promise. The initial investment of 25,000 USD made by the company, along with money spent on purchasing and importing high quality equipment into Costa Rica can thus represented detrimental reliance through wasted expenditure. Furthermore, the importation of said equipment, along with the creation of a specific, domestic subsidiary firm, the Central Costa Rican Petroleum Company, can be seen as representing wasted time and energy, in addition to the wasted financial expenditure of the initial deposit and also money spent on machinery importation and the creation of the Central Costa Rican Petroleum Company.

In light of the energy and expenditure wasted by British Owned Oil Fields, Limited, some critics may thus argue that Great Britain, on behalf of British Owned Oil Fields, Limited, could have asserted estoppel through the argument of detrimental reliance, in an attempt to force the succeeding Costa Rican government to honor Tinoco’s granted oil concessions. However, it is worth mentioning that the argument of detrimental reliance is regarded by some as permissible only if the detriment suffered is significant or substantial.

Hence, unless the economic losses and wasted energy resulted in injury that negatively affected the firm’s overall ability to operate (assuming that British Owned Oil Fields, Limited generated continued profit from other oil fields around the world), arguing estoppel through detrimental reliance may not have been effective. In addition, some experts cite several other difficulties that may have affected not only a potential counter-estoppel by Great Britain, but Britain’s case overall against Costa Rica.

Specifically, there is again a focus on the practice of recognition/non-recognition, with critics pointing out that recognition is determined by the interests of the recognizing state and thus unreliable. Changes in recognition undermine what some legal experts call an “unequivocal representation of fact”, with critics questioning to what extent Costa Rica could be regarded as representing promises made by the Tinoco regime due to the change in government. The latter argument naturally opposes the previously discussed principle of continuity, leaving it in a legally weak position within the context of state obligations under international law. Finally, there is the question of whether or not a state may represent a private company. The notion of detrimental reliance is here placed within the context of interstate relations. In other words, Great Britain herself did not suffer a form of detrimental reliance, as it was not Britain but private firms that relied on contractual promises made by Costa Rica under Tinoco.

The issue of detrimental reliance thus becomes whether or not British-owned firms can be subjects of international law. Given the fact that British Owned Oil Fields, Limited was represented by the British state, its legal rights under international law may be limited. Some critics argue that corporations are, however, subjects of international law as legal persons. As such, a corporation must be linked to (or represented by) its state of nationality in order to apply rules of international law to a legal dispute involving one or more private entities on the international plane. From this latter perspective, although the state of Great Britain may not have been the victim of detrimental reliance, its legal requirement of representing its subjects can be interpreted as making it viable for the British state to demand arbitration to resolve issues of detrimental reliance on behalf of its subjects.

The Ruling: Legal Principles versus the Political Context

In the end, Taft denied the validity of the oil concessions granted under Tinoco to British Owned Oil Fields through the Central Costa Rican Petroleum Company but granted a (partial) repayment of debt owed to the Royal Bank of Canada due to Law 41’s invalidation of Tinoco’s currency. On the surface, it is possible to analyze Taft’s ruling within the context of certain principles of international law. The repayment of money owed to the Royal Bank of Canada can be linked to the principle of continuity, and the argument that state debts must be repaid. As the elected president, Tinoco can be regarded as the Costa Rican head of state, and with the loans in question incurred in the name of the Costa Rican state, Tinoco’s debt could be regarded as state debt and thus, according to the principle of continuity, the responsibility of the succeeding government to repay. However, the denial of oil concessions can be linked to the principle of territorial sovereignty.

The principle of territorial sovereignty can be concisely defined as the jurisdiction of a state over territory within its boundaries. Such jurisdiction stems from the unique legal personality of sovereignty, which bestows statehood. Of importance within the context of this principle is the intrinsic ownership of various rights by a sovereign state, as such rights can include ownership of natural resources.

The concessions granted to a foreign commercial actor by Tinoco would have allowed British Owned Oil Fields, Limited to explore and engage in resource extraction activities across over half of Costa Rican state territory. Hence, had Taft gone against the new Costa Rican government’s wishes and allowed foreign actors onto Costa Rican soil, it is possible that such a ruling would be interpreted by future legal scholars and professionals as approval of the violation of territorial sovereignty for the sake of commercial profit. The prospect of such an interpretation could have set and unwanted precedent that prioritized commercial private actors over state territorial sovereignty.

In addition, it is worth examining the political context behind Taft’s ruling. Most significant is Taft’s belief in dollar diplomacy as a U.S. strategy in Latin America, as opposed to the use of military might. During the Arbitration, Taft likely considered how the ruling would affect future business in Latin America. Denying (partial) repayment of Tinoco’s loan to the Royal Bank of Canada risked reducing the willingness of U.S. government supported private banks to grant future loans to Latin American states.

Hence, to rule against the Royal Bank of Canada was to restrict U.S. dollar power and American influence in Latin America and even as far as China by reducing the willingness of U.S. backed creditors to extend conditional loans that would also further cement U.S. influence in each client state.

Tinoco and the Doctrine of Odious Debts

Because of the typical manner in which the Tinoco Arbitration is presented as involving the debts of a despot, it is worth examining to what extent money owed by the Tinoco regime falls under the doctrine of odious debts. The term ‘odious debt’ was coined by Alexander Sack in 1927. He defined such debt through a 3-point framework: 1) Debts must have been incurred by a despot who ruled without the consent of the people; 2) Such loans were not spent in the interests of the people; 3) The creditors were aware of the potential misuse of the extended loans. Some experts have argued that the conditions surrounding the Tinoco Arbitration do indeed allow Tinoco’s debts to be regarded as odious. By the end of his short reign, Tinoco was indeed considered a despot, borrowing money for personal expenses presented as expenses of the state. Furthermore, the Royal Bank of Canada was aware that the credit lent was not for state purposes but for Tinoco’s retirement and exile, which was, as one Royal Bank employee phrased it, “[…] known as a positive thing about to take place.”

However, the elements of Tinoco’s rule that fit Sack’s 3-point definition can be challenged by various factors that much literature on odious debts may overlook. In addition to the political context of dollar diplomacy that influenced Taft’s ruling, some legal critics have re-examined the Tinoco Arbitration by focusing on the rise to power of both the governments preceding and succeeding Tinoco, in addition to Tinoco himself.

The previous government of Alfred Gonzalez (under which Tinoco had served as Secretary of War) was headed by an executive who was elected not by popular consent but by the Costa Rican Congress, after elections failed to provided an undisputed president elect. Gonzalez’ popularity was low, and it was precisely such widespread discontent to his rule that allowed Tinoco to gain and enjoy initial popular support, granting him the presidency not through brute force but via strong election results. The importance of Latin America to American and British interests, coupled with Tinoco’s initial popularity, as demonstrated by his election into office, certainly challenge the notion that he was a casebook despot. Furthermore, the origin of eventual opposition to his rule may not have been entirely domestic.

Although Taft, during the Arbitration, claimed that domestic opposition to Tinoco’s rule was a constant (but also unarmed) threat, U.S. interests in Costa Rica cannot be excluded . The protection of American property in Costa Rica lent Wilson an ostensible excuse to send American troops to the Costa Rican coastal city of Limon. Such a move was cited by some critics as proof of U.S. interference, with the sole purpose of ensuring Tinoco’s downfall and a desired regime change.

In addition to Tinoco’s election potentially barring the Tinoco case from meeting the first criterion of Sack’s definition, the succeeding Acosta government suffered from its own issues of legitimacy. To outside observers, including the U.S., the Acosta government’s rise to power was of comparable questionability as that of Frederico Tinoco, and there were doubts as to whether the Acosta government had truly restored the original constitution. If the Acosta government struggled with its own problems of legitimacy and recognition that somewhat paralleled the similar problems suffered by Tinoco, it is doubtful that the Acosta government could have claimed any argument akin to odious debts in an attempt to forego repayment of money owed to the Royal Bank of Canada. For the aforementioned reason, as well as the questionable status of Tinoco as a genuine despot, it is unlikely that the Tinoco Arbitration can be cited as a precedent of how to deal with odious debts.

From Costa Rica to Honduras: The Contemporary Relevance of Tinoco

The criteria for de facto recognition of a government set out by Taft may still be considered relevant in more contemporary studies of International Law. The 2009 Honduran Constitutional Crisis can be compared and contrasted both in terms of historical parallels and to explore the relevance of Taft’s criteria for de facto governance when applied to a modern case. In 2009, then-president of Honduras, Manuel Zelaya, sought to defy constitutional term limits by holding a public referendum on whether or not to increase said limits by redrafting the Constitution. Zelaya’s actions ultimately resulted in his removal from office in a military coup authorized by the Honduran Supreme Court. Zelaya was replaced by an interim government headed by Roberto Micheletti, then-president of the National Congress. In a twist of irony, Zelaya was forcibly exiled to Costa Rica. The events surrounding Zelaya’s removal mirror those of the removal of Costa Rican President Alfredo Gonzalez, overthrown by Tinoco due to the President’s own attempt to defy constitutional term limits.

Shortly after the removal of Zeyala, critics began to evaluate the likelihood of Honduras’ interim government being granted de facto recognition by the international community. Some critics assessed such a likelihood using Taft’s de facto criteria. To the extent that Taft’s ruling could have been applied to recognition of the 2009 Honduran interim government, critics reiterate Taft’s criteria of de facto governance. The Tinoco regime was granted de facto recognition due to peaceful rule under its two year tenure, during which there was no significant political opposition to Tinoco’s government and no rival actor claiming to represent the true government of Costa Rica.

The 2009 events of Honduras did not perfectly mirror Taft’s de facto criteria. Of importance in Costa Rica during this time was public unrest. While Tinoco’s military coup was no more than a brief interval with little opposition or disruption to the daily lives of Costa Rican citizens, Honduras citizens endured military curfews. Such curfews, along with the military’s blockade of international and domestic efforts, were so comprehensive as to provoke observers to remark that “the [entire] country was in jail.” Such unrest took the form of strong opposition to the interim government upon Zeyala’s return to Honduras. Furthermore, Zeyala’s claim to have represented the sole legitimate president was regarded by certain critics as the presence of an ostensible rival government.

The aforementioned elements of the 2009 crisis certainly seem to go against Taft’s de facto criteria. However, other critics demand a closer inspection of the nature of Honduran unrest and Zeyala’s presidential claim. Taft’s de facto investigation searched for, and failed to find, unrest of a political nature. Comparing the lack of revolutionary opposition under Tinoco with the 2009 Crisis reveals general public unrest as a result of military curfews, but little significant demonstrations targeted against the interim government, despite Zeyala’s eventual return to the country.

Furthermore, Zeyala’s presidential claim (and thus the prospect that he could have represented a rival government) is mitigated by the fact that Taft’s criterion for a rival government requires an actor capable of asserting power within the country. Having been exiled, and without a significant power base upon his return, it is therefore unlikely that Zeyala could have made a serious claim to represent a rival government. In addition, Zeyala’s legal status upon his removal from office was reduced to that of an ordinary citizen, with no status remaining as a government official. The stripping of Zeyala’s governmental status and legal reduction to that of an ordinary citizen by the Honduran Supreme Court further emphasizes how Zeyala did not represent a rival government but only a single man protesting removal from office.


The Tinoco Arbitration of 1923 exemplifies the principles of state continuity, territorial sovereignty and estoppel. This paper has explored the potential of Britain’s counter-estoppel through detrimental reliance but revealed how Britain’s use of estoppel in this manner would have been questionable, as it was not the British state that suffered injury but private companies that happened to be British subjects. While the case’s relevance to the doctrine of odious debt is debatable (certainly within the context of setting precedent), one can argue that Tinoco’s adherence to the doctrine of odious debt can work within a strictly legal context. This argument is bolstered by Taft’s citing of the 1903-05 Jarvis Case, in which a U.S. citizen was paid in state bonds for their assistance in a coup d’état. Despite the use of state bonds for payment, the debt was deemed odious due to the personal nature of the debt, which was outside of the state obligations of Venezuela. Once the historical aspect is considered, however, especially US interests (including, to an extent, that of Taft’s, which may illustrate a lack of impartiality) it becomes clear that Tinoco does not represent a casebook example of odious debt.

Nonetheless, the comparative analysis by some critics of Tinoco’s historical context with the events of the 2009 Honduran Constitutional Crisis, illustrate how the 1923 Arbitration still has relevance to the scholarly pursuit of International Law. Through closer inspection, this paper has revealed the many cracks in the belief that the Crisis was a perfect contemporary reflection of the events surrounding the Tinoco Arbitration. Nonetheless, the importance of American political interests in Honduras, and the retroactive acknowledgement of the Micheletti interim government as a de facto administration, based not on its legitimacy but its territorial control, illustrates how Taft’s definition of de facto governance is still applicable to modern cases.

The Author

Nicolai Due-Gundersen is a Jordan-based researcher with the Amman-Sydney Oval Office for Research and Studies, specialising in higher education in the MENA region with their Jordan branch. His research also focuses on the rise of Islamaphobia post 9/11 and the potential compatibility of Muslim values with traditionally Western secular (legal) frameworks.

His work on the MENA region has been published by, the Oil, Gas and Energy Law Journal (OGEL), the Small Wars Journal, Open Democracy and the Journal of Energy Security

He is a former Adviser, to the Arab Institute for Security Studies (ACSIS) in Amman and a former researcher of the Jordanian Interfaith Coexistence Research Center.

Article picture: This work is from the Harris & Ewing collection at the Library of Congress. Source: Wikipedia


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