- Joseph Gold
- Published Date:
- December 1989
The Fund Agreement in the Courts Volume IV
The Articles of Agreement of the International Monetary Fund and the interpretation of the treaty have had many effects on international and national law. Aspects of the Articles have been involved in litigation in the courts of member countries of the Fund, international tribunals, and arbitral tribunals.
The major theme of the present volume in the series devoted to an examination of this litigation is the difficulty of achieving the uniform judicial interpretation of the Articles. In this connection, the techniques adopted in treaty law for uniform judicial interpretation are discussed, with particular reference in the case of the Fund to its power of authoritative interpretation of its Articles and the Fund’s restraint in exercising this power.
The discussion is focused on two groups of litigated cases: the application of gold units of account in treaties, particularly the use of the SDR for this purpose, and the unenforceability of certain exchange contracts that are contrary to another member’s exchange control regulations. Recent cases in the courts of numerous member countries are examined. For each group, there is an analysis of the influences that have affected the courts in reaching their decisions. Official texts and a number of indexes will enhance the usefulness of the volume as a work of reference.
Books by the same author
The Fund Agreement in the Courts (1962)
The Stand-By Arrangements of the International Monetary Fund: A Commentary on Their Formal, Legal, and Financial Aspects (1970)
And in Spanish: Los acuerdos de derechos de giro del Fondo Monetario Internacional (Stand-By Arrangements): Un comentario sobre aspectos formales, jurídicos y financieros (1970)
Voting and Decisions in the International Monetary Fund: An Essay on the Law and Practice of the Fund (1972)
Membership and Nonmembership in the International Monetary Fund: A Study in International Law and Organization (1974)
The Fund Agreement in the Courts: Parts VIII–XI (1976)
Legal and Institutional Aspects of the International Monetary System: Selected Essays (1979)
Aspectos legales de la reforma monetaria internacional (1979)
The Fund Agreement in the Courts, Volume 2 (1982)
Legal and Institutional Aspects of the International Monetary System: Selected Essays, Volume 2 (1984)
The Fund Agreement in the Courts, Volume 3 (1986)
Exchange Rates in International Law and Organization (1988)
Legal Effects of Fluctuating Exchange Rates (in preparation)
The Fund Agreement in the Courts
Some Problems of the Uniform Interpretation of Multilateral Treaties
INTERNATIONAL MONETARY FUND
Washington, D.C. • 1989
© 1989 International Monetary Fund
Cover: IMF Graphics Section
Library of Congress Cataloging-in-Publication Data
(Revised for Vol. 4)
Gold, Joseph 1912–
The Fund Agreement in the Courts.
Vol. 2 has subtitle: Further jurisprudence involving the Articles of Agreement of the International Monetary Fund; v. 3: Further studies in jurisprudence involving the Articles of Agreement of the International Monetary Fund; v. 4: Some problems of the uniform interpretation of multilateral treaties.
Includes bibliographies and indexes.
1. International Monetary Fund. I. Title.
K4430.A495G65 1962 341.7′51 73-166361
US$100.00 a set
Jurisprudence in which the Articles of Agreement of the International Monetary Fund have been, or should have been, involved have been discussed in three earlier volumes. Further cases are examined in this volume, but they all relate to the single theme of the problem of uniform interpretation of the provisions of a multilateral treaty when the provisions are applied by the courts. The cases are gathered into two groups. The first group deals with units of account defined in terms of gold by the treaties in which the units appear. These cases involve the Articles of Agreement of the International Monetary Fund because the Second Amendment, which became effective on April 1, 1978, abrogated the par value system, according to which par values of currencies were defined by reference to gold. Furthermore, a solution usually considered by the courts is whether, in present conditions, the International Monetary Fund’s unit of account, the SDR (special drawing right), should be the basis for applying a gold unit of account in existing treaties by judicial interpretation.
In the second group of cases, problems of exchange control have arisen and prominent among them is the meaning of Article VIII, Section 2(b). This provision has been in the forefront of litigation involving the Articles of Agreement of the International Monetary Fund, and it continues to produce a remarkable range of issues. Further evidence of this phenomenon will be found not only in the new cases but also in the annotated bibliography of scholarly work since 1980 that is the subject of Chapter 11. Legal scholars have written so much about the provision because of the abundance of issues that have been litigated already or that could be raised in the future. The body of cases already decided can be considered an exception to the phenomenon, noted by one scholar, of the reluctance to resort to judicial proceedings in matters of international finance.1 The continuing problem of international indebtedness and the possible impact of Article VIII, Section 2(b) on it is a further, and perhaps more powerful, explanation of the unabated interest in the provision. This interest is reflected in the inclusion of a treatment of Article VIII, Section 2(b) in the American Law Institute’s Restatement of the Law Third, Restatement of the Foreign Relations Law of the United States. Interest in the provision has spread from the legal profession to policymakers and economists, and even the financial press.
In view of the diversity of interpretation by courts and the differences of opinion among legal scholars, this volume includes a more extensive discussion than in earlier volumes of what could be done to encourage uniformity of judicial interpretation. The considerations are not the same for the two groups of cases. The first group raises the primary problem of interpreting treaties other than the Articles of Agreement of the International Monetary Fund, although for the reasons given above the Articles are involved. The second group consists of cases in which the direct issue is interpretation of the Articles and not any other treaty.
This volume has been written so that it can be read as complete in itself, but copious references are made to the three earlier volumes in the series to assist those readers who wish to conduct further research. The monograph is not confined to a single field of law: it can be classified as a study in public international law, the conflict of laws, and comparative law.
References to the Articles throughout this volume are to the present Articles of Agreement of the International Monetary Fund, which is to say the Articles after the Second Amendment, unless a clear reference is made to the original Articles or to the Articles as they stood after the First Amendment. References to the Fund are to the International Monetary Fund, and members mean the member states that have accepted the Articles. By late 1989 there were 152 members. Repeated citation of the earlier volumes in the series and of a few other works have made it desirable to include a Guide to Short Titles as an index.
Many lawyers and officials throughout the world have provided me with reports or other information that have made it possible for me to write this volume. I express my profound gratitude to Jonathan Barrett (San Francisco); F. van den Broek (Amsterdam); Charles E. Brown (Alliance, Ohio); Lamberto Dini (Rome); Werner F. Ebke (Dallas and Konstanz); David Flint (Sydney); Jogi Föosztály (Budapest); Adrián F.J. Hope (Buenos Aires); Michael Hwang (Singapore); R.S.J. Martha (Washington); Juan Javier Negri (Buenos Aires); Fernando A. Vázquez Pando (Mexico City); Eliana Díaz de Prebisch (Buenos Aires); René J.H. Smits (Amsterdam); Mary Tan (Singapore); Reinhard Welter (Mainz); and R.J. Wolf (San Rafael, California).
Rose Bedrossian processed the final version of this volume and all the drafts that preceded it. Esha Ray of the Fund’s External Relations Department has been the superlative editor of this book. They have performed these tasks, and the many others connected with production of the book, with patience, skill, and good humor. It has been a pleasure to have the benefit of their help, and I am deeply grateful to them.
It must not be assumed that opinions expressed in this volume are those of the Fund, its officials, or other lawyers, including those to whom I have expressed my indebtedness above. In other words, the opinions are solely those of the author, formerly the General Counsel and Director of the Legal Department of the Fund and now Senior Consultant, unless opinions are clearly attributed to any other source.
September 20, 1989
Uniform Judicial Interpretation
It is not controverted that interpretation of the provisions of a treaty must be the same for all contracting parties. If interpretation is not the same for all parties, the consensus ad idem that the treaty is supposed to represent becomes a mirage. Widespread agreement exists on the basic principle of interpretation. It is stated as follows in paragraph 1 of Article 31 of the Vienna Convention on the Law of Treaties:
A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
There is likely to be little dissent from, or qualification of, the statement on interpretation by Lord Diplock in Fothergill v. Monarch Airlines.1 His statement is of particular interest because the case related to the Warsaw Convention, a treaty frequently involved in the cases discussed in Part I of this volume:
The language of that convention that has been adopted at the international conference to express the common intention of the majority of the states represented there is meant to be understood in the same sense by the courts of all those states which ratify or accede to the convention. Their national styles of legislative draftsmanship will vary considerably as between one another. So will the approach of their judiciaries to the interpretation of written laws. . . .
The language of an international convention has not been chosen by an English parliamentary draftsman. It is neither couched in the conventional English legislative idiom nor designed to be construed exclusively by English judges. It is addressed to a much wider and more varied judicial audience than is an Act of Parliament that deals with purely domestic law. It should be interpreted, as Lord Wilberforce put it in James Buchanan & Co Ltd v Babco Forwarding and Shipping (UK) Ltd  3 All ER 1048 at 1052,  AC 141 at 152, ‘unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation.’2
As is implied by this quotation, the problem of achieving uniform interpretation is particularly acute if provisions of a treaty are going to be interpreted by the courts of the contracting parties. The possibility of diverse interpretation may be modified somewhat if the courts of each contracting party pay attention to, and try to take account of, the interpretative decisions of other parties. It may not be easy for courts to follow this procedure, because the reports of foreign cases may not be accessible, and even if they are accessible language may be a barrier to understanding.
The parties to a treaty may try to achieve uniform interpretation by expressing their agreement in only one authentic language. English is the sole authentic language of the Articles of Agreement of the Fund, but this practice has not prevented diverse interpretations by the courts. One reason for this diversity is that members for which English is not the native language have adopted official translations of the Articles, and courts usually rely on the version in their own language endorsed by their authorities in deciding issues involving provisions of the Articles. The translations have often been criticized by academic and other experts as not wholly equivalent to the English original. There is even the strange spectacle of different official translations by members sharing the same language.3
Some treaties contain other safeguards to ensure uniform interpretation. One safeguard is provision for recourse to an international judicial tribunal if disagreement or doubt arises about the meaning of the treaty that can be resolved by interpretation. A treaty may even establish a tribunal for this purpose. The Treaty of Rome has established the Court of Justice and given it the duty to ensure that in the interpretation and application of the treaty the law of the European Economic Community is observed.4 The court has jurisdiction to give preliminary rulings concerning the interpretation of the treaty, the validity and interpretation of acts of the institutions of the Community, and the interpretation of the statutes of bodies established by an act of the Council where those statutes so provide. If any such question is raised in a case pending before a court or tribunal of a member state, against whose decision there is no judicial remedy under national law, that court or tribunal must bring the matter before the European Court of Justice.5
The creation of a special tribunal for the purpose of interpreting a treaty may seem to offer an ironclad safeguard against diversity of interpretation by the courts of contracting parties. Difficulties may arise, however, when contracting parties are faced with the obligation to give effect to decisions of the tribunal. For example, there have been problems of untoward delay on the part of some members of the European Community in implementing decisions of the European Court of Justice. Cumbrous parliamentary procedure may be the explanation in some instances when legislative action is required.6 It will be noted later that an objection to exercise by the Fund of its power of authoritative interpretation has been the necessity for parliamentary action in some countries to give effect to interpretations adopted under the power.
Another safeguard is to confer on the international organization created by a treaty the authority to settle with finality questions of interpretation of the treaty. Article XVIII of the original Articles conferred this power on the Fund. The provision was revised by the First Amendment of the Articles, which became effective on July 28, 1969, and appears without further substantive modification in Article XXIX of the Articles as they stand at present after the Second Amendment. Both provisions are reproduced in the Appendix to this Introduction. The original provision and the similar provision in the Articles of Agreement of the International Bank for Reconstruction and Development (World Bank) have been the model for provisions in numerous other treaties establishing international organizations.
The purpose of the provision, and of the corresponding provision in the Articles of the World Bank, was described as follows in a joint brief submitted by the two organizations in a proceeding before the Federal Communications Commission (FCC), an administrative agency of the United States:
The basic purpose of these provisions is to assure an expeditious, uniform interpretation of complicated financial agreements, which will enable the Bank and Fund to operate as effective institutions. It is apparent that one of the greatest difficulties in the operation of international organizations in the past has been that no mechanism was established for a speedy settlement of questions of interpretation arising under their basic charters, a settlement which would be binding on all their members.
This problem was particularly acute in the case of financial institutions like the Bank and Fund, whose charters are highly technical and where uniformity, speed and expertness of interpretation are vital to their success. Both the Bank and Fund are faced with difficult technical questions arising under their Agreements and on numerous occasions they have availed themselves of the interpretation machinery to decide certain of these questions. It is absolutely essential to an orderly functioning of these institutions that there be some machinery whereby interpretative questions can be settled with speed, with expert knowledge, with uniformity and with finality. The necessity for a procedure of this nature is not unlike the necessity for an administrative procedure in the United States where expert bodies can, on the basis of their special experience and competence, issue rules which have the force of law.
The interpretation machinery which was agreed to by the framers of the Bank and Fund agreements at the Bretton Woods Conference in New Hampshire in 1944 is admirably suited to meet the special needs of the Bank and Fund. The Executive Directors are chosen for their special competence in international financial matters; and, functioning in continuous session, they can act with the dispatch and skill essential for operating organizations. . . .7
It will be noted that Article XXIX requires the Fund or a member to resort to the procedure of interpretation under that provision. The Fund’s understanding of the provision has been that the Fund or a member cannot go outside the organization and institute proceedings before a tribunal to resolve a question of interpretation that arises in circumstances covered by the provision.8 Within those circumstances, the Fund’s power is exclusive, but courts are not prevented from interpreting the Articles in other circumstances. Furthermore, the Fund is not prevented from resolving questions of interpretation of the Articles by a less formal procedure than the one prescribed by Article XXIX. Interpretations adopted by the less formal procedure are not “final.” Although normally respected by members, the interpretations are not considered to have the same legal force as interpretations under Article XXIX.9
It would seem also that Article XXIX does not prevent the Fund from seeking advisory opinions from a court if the opinions would not be binding on the Fund and would not preclude interpretation under Article XXIX. This conclusion is implicit in Article VIII of the Agreement, which came into force on November 15, 1947, between the United Nations and the Fund as a Specialized Agency of the United Nations. Article VIII is formulated as follows:
International Court of Justice
The General Assembly of the United Nations hereby authorizes the Fund to request advisory opinions of the International Court of Justice on any legal questions arising within the scope of the Fund’s activities other than questions relating to the relationship between the Fund and the United Nations or any specialized agency. Whenever the Fund shall request the Court for an advisory opinion, the Fund will inform the Economic and Social Council of the request.
The Fund has never taken advantage of this authorization. One reason is the embarrassment that would be suffered by the Fund if it did not wish to follow an advisory opinion.
An interpretation under Article XXIX binds the Fund and the member between which, or the members between which, the question arises, because the interpretation is “final.” The “member” for this purpose means the government of the member. The Commission in the FCC case ruled as follows:
We believe that the question as to the application of the term “treatment” in the Bank and Fund Articles to rates has been conclusively determined by the Bank and Fund Executive Directors’ interpretation, by unanimous vote, that the language in question applies to rates charged for official communications of the Bank and the Fund. Under the terms of the Bank and Fund Articles of Agreement, this interpretation, in effect, is final. This procedure for issuing interpretations binding member governments does indeed appear novel; but it also appears to point the way toward speedy, uniform and final interpretations. This procedure is not only an integral part of the Bank and Fund Articles, which have been accepted by the United States, but its use was specifically invoked with respect to questions of interpretation by sections 12 and 13 of the Bretton Woods Agreements Act; and the United States Congress, by directing that an amendment of the Articles be sought if the requested interpretations were not satisfactory, appears to have recognized in these two sections that the United States is bound by the results of the interpretations. The United States Government is therefore bound by the Executive Directors’ interpretation of the term “treatment” and is under an international obligation to act in conformity therewith.10
If the interpretation relates to an obligation of a member under the Articles, the conclusion that the interpretation is binding on the parties between which the question arose can be drawn from Article XXXI, Section 2(a), which applies to original members,11 or the comparable term in the membership resolutions of the Board of Governors enabling other countries to become members. Under Article XXXI, Section 2(a),
Each government on whose behalf this Agreement is signed shall deposit with the Government of the United States of America an instrument setting forth that it has accepted this Agreement in accordance with its law and has taken all steps necessary to enable it to carry out all of its obligations under this Agreement.
The obligations must mean the obligations as interpreted by the Fund with finality under Article XXIX if interpretation has been necessary.
Two questions arise. First, does an interpretation under Article XXIX bind all members or only the member or members that are parties to the question that has arisen for decision under the provision? The interpretation must bind all members, because it resolves a “question of interpretation of the provisions of this Agreement.” (Article XXXI, Section 2(a).) A provision must have the same meaning for all members.
Second, does an interpretation bind a member’s courts in addition to a member’s government? This question is both substantive and procedural. If the interpretation relates to an obligation of a member and the obligation can be performed by a member only through its courts, Article XXXI, Section 2(a) or the corresponding term in a membership resolution must mean that the member is bound to ensure that the courts observe the Fund’s interpretation. Whether a member’s courts will decide that they must observe the Fund’s interpretation will depend on whether the interpretation has this effect automatically under the member’s law. If the interpretation does not have this automatic effect, the member must take whatever action is necessary to achieve the effectiveness of the interpretation and make good the representation the member made in the instrument it deposited under Article XXXI, Section 2(a) or under the resolution authorizing membership.
An interpretation by the Fund may be recognized as binding by the courts, but it may not lead to uniform results because the courts may understand the interpretation in different ways or may understand the interpretation in a way not intended by the Fund. The FCC case cited above illustrates this possibility. The Commission considered itself bound by an interpretation of the Fund that was relevant to the proceeding, but the Commission understood an aspect of the interpretation in a way that did not accord with the view presented by counsel for the Fund.12
Whatever the shortcomings of the two safeguards may be—a special tribunal or a power of authoritative interpretation by an international organization of its constitutive treaty—the prospects for an approach to uniform interpretation should be brighter than in the absence of these safeguards. This forecast assumes that there will be active resort to the court or active exercise of the power of authoritative interpretation. It is instructive to take note of a study that has been made of the interpretation by national courts of a treaty from which the safeguards are absent.13 The treaty is the International Convention for the Unification of Certain Rules Relating to Bills of Lading done at Brussels on August 25, 1924, commonly known as the Hague Rules.14 Almost every country involved in maritime commerce has ratified the Hague Rules or enacted a statute in substantially the same terms.15 The study is interesting for the present purpose because the Fund has rarely exercised its power of authoritative interpretation. The Fund has exercised the power in relation to one of the two broad problems examined in this volume but has left major areas of that problem unexplored. The Fund has not ventured to deal with the other broad problem, and there is substantial doubt that it would be subject to the Fund’s power of authoritative interpretation. In regard to both problems, therefore, the situation closely resembles one in which there is no international power of authoritative interpretation. It will be seen that the diversity of judicial interpretation that follows in these circumstances becomes one reason why the Fund forbears from making further use of its power of authoritative interpretation.
The author of the study attributes conflict of judicial interpretations of the Hague Rules mainly to the propensity of a national court to reconcile the treaty with the rules and doctrines of the court’s national law. When a choice must be made among plausible interpretations of a treaty, consistency with the rest of the court’s law rather than the uniformity that the treaty was designed to achieve is the court’s major objective. As systems of national law differ, diverse interpretations are inevitable, even if in a semantic sense the range of plausible interpretations is the same for all courts. Although in the abstract there would be little disposition to question Lord Diplock’s principle of interpretation as quoted earlier, the research by the author referred to leads him to the conclusion that the principle is not respected in practice, at least when the Hague Rules are being interpreted by national courts.
The author recognizes that there are other explanations of diverse interpretations but he attributes less force to them: ignorance of foreign law, differences in the methodology of treaty interpretation, the different connotations in domestic systems of technical legal terms, differences in legal tradition (so that, to cite one example, more or less weight may be given to prior judicial decisions or to academic discussions). The author is surprised to find little evidence that courts are influenced by their view of national policy when called on to interpret the Hague Rules.16
The author’s final reflections include the following passage:
The next step is for national courts to become aware of the dangers of interpreting international uniform law according to domestic legal doctrine. Many conflicts could undoubtedly be avoided if courts were more sensitive to the problem, and made the extra effort required to discover the international meaning of a convention. Counsel arguing a case governed by an international uniform law should likewise investigate the international understanding of the law, and take responsibility for calling this information to the court’s attention.
Perhaps the identification and explanation of the problem and the role of domestic law in causing it will begin a process of increasing judicial awareness so that no more conflicts in interpretation will arise. A more realistic prediction is that the world’s judges will continue to allow domestic legal doctrine to shape their interpretations of international uniform law. Even when judges are sensitive to the problem, the difficulty of deciding cases without being unduly influenced by well-developed professional assumptions is probably too great to overcome.17
It is likely that there are no legal techniques by which national courts can be insulated completely against the temptation to be influenced by rules and doctrines of domestic law when the courts are interpreting a uniform international law. Interpretation of the Hague Rules may be an extreme example of the influence of national law. This behavior represents a choice of policy extrinsic to the treaty itself. Other policies can enter into the interpretation of treaties establishing uniform international law, such as domestic policy on the subject matter of the treaty, the desire to favor nationals of the forum country, fairness or other moral conceptions, and protection of the interests of the forum country as a center for a particular activity (such as finance, trade, or arbitration). But the list can be greatly enlarged, the choice of dominant policy can be changed from time to time, and so can the content of the preferred category of policy.
Problems of Diverse Interpretation
The two main topics discussed in this volume are the judicial application of gold units of account in treaties and the judicial interpretation of Article VIII, Section 2(b) of the Fund’s Articles. The provisions of treaties that govern these topics are intended to apply uniformly wherever judicial proceedings involving the provisions are conducted. An objective of uniformity is to ensure that the obligations of contracting parties to the treaties have the same weight for all contracting parties. If provisions that impose an obligation are not interpreted in the same way by the courts, the obligation is necessarily more onerous for some contracting parties than for others.
Another consequence of the absence of uniformity is that litigants are not treated equally in all jurisdictions. Litigants are tempted to go forum-shopping to find the forum most advantageous to them. Governments have not liked the astute shopper and have sought to discourage him by treaties that provide for the uniform treatment of litigants wherever they decide to sue. A governmental objective may be to protect their entrepreneurs in particular economic activities so as not to put them at a disadvantage in competition with entrepreneurs in other countries. Forum-shopping, however, may not be regarded by courts with the same disapproval as by governments. Here is Lord Denning, then Master of the Rolls, in a case not involving a treaty:
In this respect the law of England is different from that of Scotland. . . . It is also different from that of the United States. . . . But we in England think differently. If a plaintiff considers that the procedure of our courts, or the substantive law of England, may hold advantages for him superior to that of any other country, he is entitled to bring his action here—provided always that he can serve the defendant, or arrest his ship, within the jurisdiction of these courts—and provided also that his action is not vexatious or oppressive. . . . This right to come here is not confined to Englishmen. It extends to any friendly foreigner. He can seek the aid of our courts if he desires to do so. You may call this “forum-shopping” if you please, but if the forum is England, it is a good place to shop in, both for the quality of the goods and the speed of service.18
Chaos, however, is an apt word to describe the state of the law that permits forum-shopping under the provisions discussed in this volume.19
The unequal weight of obligations for governments as contracting parties and the unequal treatment of litigants are not the only drawbacks of diverse interpretations. Another consequence is that if the provisions of a treaty have economic purposes, not all the judicial decisions will give effect to those purposes. In the case of treaties that contain gold units of account, there may be no way in which the original purpose of the equitable treatment of litigants can now be reached by interpretation. Inflation, for example, may have rendered inequitable the amounts to which liability is limited by a treaty. Satisfactory results can then be attained only by the amendment of existing treaties or by the substitution of new treaties for them. This function must be performed by the contracting parties and should not be performed by the courts. The problem of applying gold units of account persists, and is not likely to disappear soon, because of the difficulty of bringing new treaties or amendments into effect, even when they have been negotiated. The reasons for stalemate may be numerous, but prominent among them is dissatisfaction with the size of the limit on recoveries.
The inadequacy of recoveries based on certain methods of valuing gold units of account has led a few courts to declare that national legal provisions purporting to give effect to treaty provisions limiting liability to amounts of gold units are unconstitutional or defunct in present conditions. These determinations may be intended to clear the way to a finding that a gold unit of account can be applied only on the basis of the market price of gold. Other courts have gone directly to the market to find the value of gold and, therefore, of a gold unit. These approaches are unsatisfactory for a number of reasons, one of which is that the effect may be to eliminate, or almost to eliminate, the limitation of liability, because all, or most, claims will be for amounts less than the limit of liability when calculated according to the market price of gold.
There is no intention here to imply that all possible solutions of the problem of interpreting provisions on gold clauses in present conditions are of equal quality and that it is impossible to find a technique that would be superior to other techniques. The “SDR solution” would be such a solution. The SDR (special drawing right) is a monetary reserve asset allocated by the Fund to its members and is also the Fund’s unit of account. The SDR solution requires translation of the prescribed number of gold units of account into SDRs on the basis of the definition of the gold unit and the definition of the SDR in terms of gold as it appeared in the Articles before the Second Amendment; the amount of SDRs arrived at in this way is multiplied by the Fund’s valuation of the SDR in terms of the currency in which a court expresses its decision in favor of a litigant. A number of states have taken domestic legal steps to apply the SDR solution.
The legal disorder created by the judicial interpretation of provisions containing gold units of account and of Article VIII, Section 2(b) cannot be attributed to the same cause. The problem of applying gold units of account is an unusual one in treaty law. It results from the necessity to go on applying the provisions of treaties based on a certain assumption after that assumption has been frustrated. The assumption was that currencies would have an official value in terms of gold. This assumption was sound in the period of the par value system under the Fund’s Articles, as well as in the earlier periods of the gold standard or the gold exchange system. While the par value system was in effect, the par value of a currency established under the Articles was expressed in terms of gold as the common denominator of the system. Even if a member failed to establish a par value for its currency or was not making the par value effective because the exchange rate for the currency was allowed to fluctuate without reference to the limits dictated by the Articles, it was possible to find a gold value for the currency. The technique for this purpose was based on the exchange rate for the currency in relation to the U.S. dollar as the currency that was maintained in terms of gold value by the willingness of the United States to engage in purchases and sales of gold for the dollar with the monetary authorities of all other members.20
An official gold value ceased to exist when the Second Amendment took effect on April 1, 1978 because members are now free to choose their exchange arrangements, with one exception, and there is no common denominator on the basis of which members must regulate the exchange rates of their currency. Indeed, the one exchange arrangement a member is forbidden to choose is maintenance of the external value of the member’s currency in terms of gold.21 This provision is the leading feature of an even broader effort to reduce the role of gold in the international monetary system.22 Another important feature of this effort is that the Fund must be guided in dealing with gold by the objective of avoiding management of the price of gold in the gold market and avoiding the establishment of a fixed price in that market.23 So much importance was attributed to this objective that the present Articles declare that if the Fund accepts payments in gold, the price agreed for each such acceptance shall be based on market prices,24 and that any decisions of the Fund to engage in operations or transactions in gold can be made only with the high majority of 85 percent of the total voting power of members.25
Nothing so convulsive as the disappearance of the par value system or the legal degrading of gold can explain the disorder produced by the judicial interpretation of Article VIII, Section 2(b). The provision has remained in its pristine state notwithstanding the radical changes in the Articles and in the international monetary system made by the First and Second Amendments of the Articles. The fundamental explanation of the disorder is that courts have been affected by different influences. These influences have not been confined to the rules and doctrines of national law. Nor has this particular influence necessarily been paramount. In the United States and England, for example, courts have held views on economic public policy that differ from the views of courts in other countries. In the two countries, courts have adopted restrictive interpretations of Article VIII, Section 2(b) in order to protect domestic financial markets against the disturbing consequences of recognizing the exchange control regulations of other countries. In England, a narrow interpretation of the provision has been endorsed because such an interpretation will produce little, if any, interference with international trade.
Courts are not unconscious of the public policy their decisions promote. Judicial opinions contain expressions of public policy, although these considerations may be presented as inherent in the provision that is being interpreted and not as purely national preferences. The courts of countries other than the United States and England have placed more emphasis on economic collaboration with other members as the purpose of the provision and therefore the public policy to be favored.
Public policy in relation to the interpretation of Article VIII, Section 2(b) may create a dilemma. While a narrow interpretation of the provision may protect a member’s residents as creditors against defenses based on the exchange control regulations of other members, a broad interpretation may help the member’s residents when, as debtors, they rely on defenses based on the member’s own exchange control regulations. The American Law Institute publishes a Restatement of the Foreign Relations Law of the United States. The Institute is not a governmental entity and the Restatement is not a governmental document, but the Restatement has enormous influence on the legal profession and courts in the United States. U.S. Government departments present their views with vigor on the drafts prepared by the Institute. The Restatement of the Foreign Relations Law of the United States published in 1965 has gone through a process of revision during a decade or more. The revised version, dated May 14, 1986, includes a section on Article VIII, Section 2(b) for the first time. The Black Letter and Comments in the Restatement are approved by the Council and membership of the Institute and represent views of the Institute. The Reporters’ Notes contain supporting authority, explanation, and other discussion by the Reporters, are not subject to review by the Council and membership, and are not statements of the Council or the Institute.
The Fifth Tentative Draft, dated April 5, 1984, contained a mild and largely innocuous paraphrase of Article VIII, Section 2(b) in Black Letter.26 The Comment, however, contained an expansive definition of “exchange contracts”27 and, by implication, of the currency “involved” also.28 The Sixth Tentative Draft, dated April 12, 1985 reproduced the Black-Letter version of the preceding Draft, with one modification that constituted an improvement, because it eliminated an ambiguity. The Comment, however, retreated from the earlier support for an expansive definition of “exchange contracts.” Instead, the Comment set forth a narrow version and an expansive one, made no choice between them, and pointed out that courts in the United States had favored the narrow interpretation.29 The Reporters themselves in their Notes expressed no support for either of these interpretations.30 The final version, subject to some textual changes, is in accord with the Sixth Tentative Draft.31
The Restatement purports to state (a) the international law applicable to the United States in its relations with other states as it would be found to be by an international tribunal charged with deciding a controversy in accordance with international law, and (b) domestic law that has substantial significance for the foreign relations of the United States or has other substantial international consequences. It can be assumed that representations were made to the Reporters by members of the legal profession and perhaps by officials that Tentative Draft No. 5 was not defensible under either (a) or (b). It is certainly correct that no decisions of courts in the United States could be cited in support of the expansive version. What is indicative of the strength of the representations that were probably made is that the Reporters not only abandoned a representation of their preference in those parts of Tentative Draft No. 6 that would carry the endorsement of the Institute but also refrained from expressing any preference for an interpretation in the Notes for which the Reporters take sole responsibility.
While courts in the United States have preferred a public policy that favors a narrow interpretation of Article VIII, Section 2(b), the United States has frequently adopted exchange control regulations as an economic sanction against a member with which there has been a political problem. The United States obtains the Fund’s approval of these regulations under the Fund’s special procedure for restrictions imposed for the preservation of national or international security.32 It must be assumed that the public policy of the United States favors the success of the sanction and, therefore, recognition of the exchange control regulations by the courts of other countries.33 If a narrow interpretation of Article VIII, Section 2(b) were established beyond further controversy by courts in the United States, the interpretation might ricochet in the courts of other countries and hurt interests of the United States.34 The dilemma may help to explain the equivocation of the Draft Restatement, and perhaps also the tendency of the United States not to cite Article VIII, Section 2(b) when it submits briefs as an amicus curiae in cases involving public policy when the exchange control regulations of other countries are in issue.35 But perhaps the explanation is that in the present state of jurisprudence in the United States, reliance on Article VIII, Section 2(b) would be futile.
In Allied Bank International et al. v. Banco Credito Agricola de Cartago et al.,36 the United States as amicus curiae persuaded the United States Court of Appeals for the Second Circuit to be guided by the public policy of not recognizing the effect of the exchange control regulations of another country if recognition would impair the freedom of creditors to decide whether or not to join with other creditors in a rescheduling of obligations owed to them. A creditor, it was held, should not be deprived of his right to insist on the exact performance of the obligation owed to him by the debtor. Article VIII, Section 2(b) was not cited. Nor was there any judicial consideration of the question whether the Fund had approved the exchange control regulations in issue or of the question whether approval should have some legal effect without reference to Article VIII, Section 2(b). The result was that the plaintiff, the one creditor unwilling to join in a rescheduling that would be beneficial to Costa Rica as the promulgator of the exchange control regulations, was able to insist on exact performance of the obligation owed to the plaintiff.37
In the Allied Bank case, the United States was supporting the creditor’s claim because the public policy supported by the Government was that rescheduling should be voluntary on the part of creditors. If Article VIII, Section 2(b) were to render a creditor’s claim unenforceable, there would be pressure on creditors to join in a rescheduling even though they would have been unwilling to do so in the absence of the pressure. The attitude of the United States in a case before Chamber One of the Iran-United States Claims Tribunal may seem at first glance to be more favorable to Article VIII, Section 2(b) and to a broad interpretation of the provision. The Reply of the United States to Iran’s Statement of Defence and Supplemental Statement cites the following opinion by the author of this volume:
Exchange contracts are contracts under which payments or transfers are to be made, whatever else must be rendered or done under the terms of the contracts. Only this interpretation of the provision avoids redundancy or irrelevancy in the reference to “currency” and the two references to “exchange.” Contracts for loans, deposits, the purchase and sale of merchandise or securities, and the rendering of services are among the classes of contracts that can be exchange contracts, but there are no limits on subject matter if the criterion for exchange contracts is satisfied. Contracts for barter or countertrade not involving arrangements relating to payments and transfers are not exchange contracts.38
The United States was relying, therefore, on an expansive view of Article VIII, Section 2(b).39
The United States in this case was also supporting the claimant. The claim was for payment under a contract for the supply of books, and rescheduling was not involved. The United States was replying to the contention that the claim was unenforceable under Article VIII, Section 2(b) because of the exchange control regulations of the Islamic Republic of Iran. The reply was that the exchange control regulations had not been approved by the Fund, and therefore they were not maintained or imposed consistently with the Articles. As a consequence, the argument continued, Article VIII, Section 2(b) provided no defense. The reply did not argue that the contract was not an “exchange contract,” although current judicial opinion in the United States would not accept the view that a contract for merchandise is an exchange contract.
The case shows that it may be in the interest of a member when supporting a claimant to accept an expansive view of Article VIII, Section 2(b), at least on the meaning of “exchange contracts.” An expansive view can be in a member’s interest even when the public policy of supporting defenses so as to maximize the effectiveness of the member’s own exchange control regulations is not involved.
Differences of opinion on public policy are one explanation of the disorder that has existed in the interpretation of Article VIII, Section 2(b). Another explanation may be the widely different opinions that legal scholars have held on almost every aspect of the provision, and the volume of exposition has been extraordinary. Chapter 11 contains an annotated bibliography of some of the works published in the few years since 1980 and not commented on in earlier volumes in this series. It has not been possible to impress the courts with the unified views of scholars, although there is a preponderance among scholars in favor of views that have an economic rationale. Courts, however, are frequently uncomfortable with arguments of an economic character. The judicial reaction often has been to rely on so-called clear language and national legal concepts, even though this approach is inconsistent with national decisions on how treaties should be interpreted. On language and concepts, there can be wide differences of opinion among countries.
Gold Units of Account
It must be assumed that international agreement on the limitation of the liability of entrepreneurs in various activities is still considered useful. Retention of the provisions that limit liability even when the opportunity has existed to abrogate the provisions leads naturally to the question whether anything could be done to reduce or eliminate disorder in the interpretation of the provisions.
One author has suggested that the Fund might decide that the change in the legal status of gold brought about by the Second Amendment has had the effect of substituting the SDR for gold in treaties in which the unit of account is defined in terms of gold.40 The suggestion can be understood to mean that the Fund could exercise its power of authoritative interpretation under Article XXIX, the text of which is reproduced in the Appendix to this Introduction. Article XXIX, however, is confined to “[a]ny question of interpretation of the provisions of this Agreement,” namely, the provisions of the Fund’s Articles of Agreement. It would be difficult to consider the issue of interpretation raised by the application of gold units of account after the Second Amendment to be a question of interpreting the Articles rather than a question of interpreting the provisions of treaties under which a gold unit is still the unit of account for the purposes of the treaty.
Although it would be difficult to treat the problem of gold units of account as a question of interpreting the Articles, it might not be impossible for the Fund to take some action because the suggestion that has been made relates to the substitution of the SDR for gold. Viewed in this way, the problem might bring into play the possible effect of two provisions of the Articles. One provision is Article VIII, Section 7:
Obligation to collaborate regarding policies on reserve assets
Each member undertakes to collaborate with the Fund and with other members in order to ensure that the policies of the member with respect to reserve assets shall be consistent with the objectives of promoting better international surveillance of international liquidity and making the special drawing right the principal reserve asset in the international monetary system.
The other provision is Article XXII:
General Obligations of Participants
In addition to the obligations assumed with respect to special drawing rights under other articles of this Agreement, each participant undertakes to collaborate with the Fund and with other participants in order to facilitate the effective functioning of the Special Drawing Rights Department and the proper use of special drawing rights in accordance with this Agreement and with the objective of making the special drawing right the principal reserve asset in the international monetary system.41
Both provisions establish an obligation of members to collaborate with the Fund and with other members42 to make the SDR the principal reserve asset in the international monetary system. The question raised by the possible bearing of these provisions on the problem under discussion is whether, on a proper interpretation of them, the Fund could call on members to ensure that their courts apply the SDR solution when a gold unit of account is involved. Some courts, some national authorities, and some international organizations have decided that the SDR solution is the appropriate procedure for applying a gold unit of account. Usually, the decision has referred to the change in the legal status of gold, but often this reference is coupled with the role of the SDR as the Fund’s unit of account. There may or may not be instances of reference to Article VIII, Section 7 and Article XXII, but if there are any they will be rare. The conclusion seems to be unavoidable that in most instances the decisions were considered to be decisions interpreting the treaty in which the gold unit of account was prescribed or decisions on the proper administration of the treaty, and not decisions that relied on the two provisions of the Articles of Agreement.
This conclusion means that adoption of the SDR solution so far gives no guidance on the question whether the two provisions quoted above could be relied on to mean that the Second Amendment has solved the problem of gold units of account by requiring the SDR solution to be observed. The words “objectives” in one provision and “objective” in the other were intended to suggest that the immediate effect of the Second Amendment was not to make the SDR the principal reserve asset in the international monetary system, but that members should act to bring about that result. This usage means that members are obliged to take steps in collaboration with the Fund and other members that would help to achieve the result.
The question to be faced, therefore, is whether the SDR solution under other treaties would assist the SDR to become the principal reserve asset in the international monetary system. If the answer is that the SDR solution would make a contribution, the Fund could call on members to collaborate with it and with each other to promote the role of the SDR as the principal reserve asset by adopting the SDR solution and making it binding on their courts. The Articles have always included duties of collaboration, which the Fund has invoked by calling on members to take certain measures or to follow certain policies or to refrain from certain measures or policies. Often, the Fund has invoked these duties specifically for the purpose of avoiding international disorder. The Fund has determined what measures or policies would be consistent or inconsistent with the substance of a particular duty of collaboration.
Whether the SDR solution would make a contribution would depend on what was meant by the obligation to make the SDR the principal reserve asset in the international monetary system. This language was not clarified in the drafting of the Second Amendment, but some deductions can be drawn from the travaux préparatoires. Article VIII, Section 7 originated in proposals that it should declare, in accordance with an objective of the Second Amendment, that each member would collaborate with the Fund and other members to reduce the role of gold in the international monetary system. Some members wished to include reserve currencies in this formulation, on the ground that a stronger international monetary system could not evolve on the foundation of either gold or the U.S. dollar. The United States, which had taken the lead in proposing a reduced status for gold, objected to linking gold with reserve currencies, because the U.S. dollar was the foremost reserve currency, and the United States was unwilling to surrender that role for its currency.
A compromise was reached in the form of a provision that does not require members to collaborate in reducing the role of gold or reserve currencies, but instead requires members to collaborate in observing a weaker obligation. They must collaborate to ensure that their policies with respect to reserve assets will be consistent with the objectives of promoting better international surveillance of international liquidity and making the SDR the principal reserve asset in the international monetary system. This language does not mention specific reserve assets, except for the SDR, but the reference to that asset as the principal reserve asset necessarily implies that gold and reserve assets other than the SDR are in some unspecified ways not to be principal reserve assets. The implication, in other words, is that they are to have some lesser status than SDRs, at least in the future development of the international monetary system.
Another deduction from the legislative history is that the ways in which the SDR is to be superior to other reserve assets as the principal reserve asset in the international monetary system does not include superiority in volume. The United States preferred the adjective “principal” to other adjectives, such as “main,” because “principal” seemed less likely to suggest volume and more likely to suggest function, although function was not clarified43 and was left to evolution of the international monetary system.44 The purpose of Article XXII is to suggest that improvements in the characteristics and uses of the SDR, rather than the volume of SDRs in existence, will contribute to the objective of making the SDR the principal reserve asset in the international monetary system.
Would deductions drawn from the texts and history of the two provisions justify action by the Fund to urge members to take whatever steps were necessary and feasible to apply the SDR solution to gold units of account in treaties? An answer is difficult to propound because there are conflicting arguments. For example, an argument against this authority for the Fund might be that the substance of the two provisions is confined to reserve assets and official liquidity (namely, the monetary reserves of monetary authorities, the acquisition of these reserves, and the uses made of them). The argument could continue that the proper application of gold units of account is too far removed from the substance of the obligations of collaboration in the two provisions. Units of account, whether related to gold, the SDR, or anything else, are not reserve assets or official liquidity.
A similar argument might be that the references to reserve assets and the international monetary system in the two provisions make it clear that the provisions deal with the international monetary system. The Second Amendment has made “the international monetary system” a term of art by including the expression in the Articles for the first time,45 but the expression is not defined and is susceptible to a number of definitions. The liability conventions in which a gold unit of account occur are not easily embraced by any definition.46
Another argument leading to the same conclusion might be that the only express prohibitions in the Articles to the use of gold as a denominator are to a member’s maintenance of the external value of the member’s currency in terms of gold47 and to operation of the par value system of Schedule C on the basis of gold as the common denominator.48 Uses of gold for other purposes, such as its function as a denominator for solely domestic purposes, are not prohibited. This argument and the others that have been cited might justify the conclusion that members are not forbidden by the Articles to go on applying a gold unit of account in whatever way a member decides is compatible with the treaty in which the gold unit appears, and that the Fund is not entitled to limit this choice under any provision of the Articles. The confusion that has resulted from this freedom would be regarded as no concern of the Fund. If states consider this confusion to be intolerable, the remedy rests with them. They can negotiate and bring into effect new treaties or amendments of existing treaties.
In support of an affirmative answer to the question of action by the Fund under the Articles, it could be argued that an aim, and indeed the source, of the two provisions is the policy, agreed among members, of reducing the role of gold in the international monetary system. The SDR solution would contribute to a reduced role for gold by implying that gold had lost its former functions. Gold was chosen as a unit of account by the drafters of treaties in earlier times because gold was considered the primary (or principal) reserve asset, as a result of which the external value of currencies was maintained by reference to gold. That technique has disappeared and is indeed forbidden by the Articles.
Furthermore, although the Fund has not taken direct action to discourage the use of gold in ways not explicitly forbidden by the Articles, the Fund has acted to encourage the use of the SDR as a unit of account for purposes not governed by the Articles. An improvement of outstanding importance to promote this objective has been simplification in the method of valuing the SDR by reducing the basket of currencies in terms of which the SDR is valued from 16 currencies to 5.
Whatever the merits or demerits of the legal argument may be, it is unlikely that the Fund would contemplate intervention in a problem that was not close enough to the Fund’s main concerns. In addition, the Fund would probably be reluctant to venture into a field in which members’ authorities and courts take different views on what seems primarily to be a problem of domestic law. A similar reaction has been expressed in relation to the interpretation of Article VIII, Section 2(b), which is discussed in the next section of this Introduction. The hesitancy to take action on gold units of account would not be overcome by the reflection that members have shown a preference for the SDR as the unit of account in the many new treaties and amendments of existing treaties that have been negotiated since the Second Amendment became effective. The Fund would be likely to conclude that if contracting parties have not brought these treaties and amendments into effect, this delay was another good reason why the Fund should not intervene. These inhibitions might be overcome, however, if a substantial number of members, exercising a large proportion of the total voting power, were to request the Fund to take a position, but there is no evidence of the prospect of such an invitation.
Exchange Control Regulations
There can be no question about the Fund’s power to adopt authoritative interpretations of Article VIII, Section 2(b). The first sentence of the provision has been the subject of much judicial consideration and even more scholarly discussion, which does not abate. The first sentence of the provision is brief but has provoked innumerable legal problems for courts and scholars:
Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member.49
On June 10, 1949, the Fund adopted an authoritative interpretation of the provision. The interpretation, which is reproduced in the Appendix to Chapter 4 of this volume, dealt exclusively with the effect of the provision on aspects of the recognition of the exchange control regulations of other members under pre-existing private international law. No move was made by the Fund to adopt further interpretations, or by members to induce the Fund to do so, notwithstanding the controversy stimulated by the provision and the diversity of judicial interpretations to which it has given rise.
The interesting question is why there has been no further interpretation that would have helped to eliminate controversy and encourage uniform interpretation by the courts. An attempt was made in Volume II of The Fund Agreement in the Courts to explain the passivity of the Fund and of its members.50 Some of the explanations were that the Fund was not disposed to be drawn into litigation involving the provision or to act as a de facto court of appeal from members’ courts. The Fund’s interpretations might be contrary to policies some members favored. Interpretations would be made in the first instance by the Executive Board, which is composed of Executive Directors among whom there are few lawyers. The problems with which the Executive Board deals are rarely of the kind that arise under private law. When problems of interpretation arise, the Executive Board has shown a strong preference for informal decisions rather than authoritative interpretations. Informal decisions permit greater flexibility in drafting, but these decisions would not have conclusive, and might not even have persuasive, effect on courts.
The last paragraph of the discussion made the following point:
Finally, if the procedure for authoritative interpretation were pursued beyond the first stage of decision by the Executive Board, difficulties would complicate the second stage. A Committee of the Board of Governors on Interpretation is the body to which decisions of the Executive Board are referred on appeal at the request of any member. The First Amendment of the Articles made provision for the Committee as a compromise when the procedure for authoritative interpretation under the original Articles became controversial. Some members saw the problem as predominantly one of legal doctrine, while others saw it as predominantly one of the distribution of power. Most members did not believe that there was a problem, but they were anxious that agreement should be reached on the SDR as the main feature of the First Amendment. The provision expressing the compromise was drafted in broad terms, not only because of the inherent difficulties of reaching agreement on all aspects of the compromise but also because most members had no enthusiasm for engaging in further negotiation on procedures that had seemed to them satisfactory in the past. As a result, many features of the Committee were left for subsequent determination by the organs of the Fund, but the same forces that were responsible for leaving the issues open in the First Amendment of the Articles have been responsible for not resolving them later. The steps necessary to put the Committee into operation have not been taken.51
In 1988, almost forty years after adoption of the first and only interpretation of Article VIII, Section 2(b), an informal discussion in the Fund brought to light some further reactions to the possibility of additional interpretation. The question arose of the legal consequences of unapproved restrictions for which the Fund’s approval is necessary,52 and in particular the legality of permitting a member imposing such restrictions to use the general resources of the Fund, but the breadth of the question raised the issue of the meaning of Article VIII, Section 2(b).
A broad interpretation of elements of the provision that would make them applicable to international loans might help to solve what is sometimes called the problem of the “free rider.” The Allied Bank case exemplifies this problem: a bank refuses to join in a rescheduling of debt in which other banks participate and in an agreement to provide new funds.53 The dissenter’s ability to get satisfaction of a judgment requiring payment of the debt owed to it is enhanced by the willingness of other banks to reschedule the debts owed to them and to provide new loans. If the Fund were to approve restrictions on the amortization of loans54 and the payment of interest,55 a dissenting bank would be unable to recover on its claim under a broad interpretation that treated loans as exchange contracts under Article VIII, Section 2(b) and included a sufficiently flexible view of the currency involved for the purpose of the provision.56
An obvious consideration in support of the case for an interpretation is the lack of uniformity in the judicial interpretation of the provision. As a result, the impact of restrictions approved by the Fund is unevenly distributed among members, and the courts of some major members have narrowed the obligation of these members. A member’s economic program supported by the Fund’s resources and the Fund’s approval of restrictions could be endangered if creditors were able to recover on their claims in litigation notwithstanding the restrictions. It was illogical for creditors to rely, as they do, on the Fund’s negotiation of an economic program supported by the use of the Fund’s resources and then to insist on the repayment of indebtedness notwithstanding the Fund’s approval of restrictions on repayment.
There is an element of illogicality, however, in the argument that a new interpretation could help members reduce or terminate their use, and in this way promote the revolving character, of the Fund’s resources. The cogency of this argument can be questioned because the Fund has permitted the use of its resources by a member without approving the member’s restrictions, so that Article VIII, Section 2(b) would not be available as a defense against creditors suing notwithstanding the restrictions. It should be noted that the use of the Fund’s resources in such circumstances shows the fallacy of the presumption sometimes relied on by courts that restrictions are maintained or imposed consistently with the Articles because a member was permitted to use the Fund’s resources.57
The question of interpretation cannot be dissociated from the current problem of international indebtedness. Banks might be deterred from providing new loans or from participating in innovative approaches to the solution of the problem if Article VIII, Section 2(b) was seen to be a threat. This effect would hinder the Fund’s policy of helping to restore the access of members to capital markets.
If banks were to refrain from financial involvement in a country, the consequence might be a resort to new or intensified restrictions by the country, and a growing difficulty for the Fund in deciding whether or not to approve the restrictions. If the Fund decided to approve restrictions, the effect would be to endorse an increase in arrears and a prolongation of them, which would be inconsistent with the Fund’s policies. Intervention by the Fund would make it increasingly unpopular with either creditors or debtors. A broad interpretation and the liberal approval of restrictions might seem to favor debtors, while a policy of withholding approval might seem to favor creditors. The argument implies the desirability of voluntary agreements between debtors and creditors and the neutrality of the Fund.
Another reason why the efficacy of a new interpretation might be a dubious contribution to solution of the problem of international debt is that a major proportion of the indebtedness has been incurred or guaranteed by governments. These governments would be the parties interested in delaying the performance of their contractual obligations, but action by them to achieve this result would not be considered restrictions by the Fund in the sense of the Articles.58 Article VIII, Section 2(b) would not apply to governmental debt.
Current financial and political difficulties might seem to justify action by the Fund under Article VIII, Section 2(b), but the task of arriving at a satisfactory interpretation in such circumstances might be formidable. Furthermore, an interpretation influenced by current difficulties might be inappropriate in the future. A new interpretation would mean inevitably that some national courts would have to confess past error. Members might find it inconvenient to take the steps that were required under their law to make an interpretation binding on their courts, particularly if the effect would be to overturn national decisions. Thus, the absence of uniformity of interpretation by the courts, cited as the reason for an authoritative interpretation by the Fund, becomes a reason why there should not be such an interpretation.
A new interpretation might not achieve uniformity because it would be unlikely to deal with all controversial issues. Courts might try to apply an interpretation in a way that was consistent with their own earlier view of the provision. Courts might try to find noncontractual remedies in place of contractual remedies. Article VIII, Section 2(b) might be ineffective to prevent such a tendency, because the provision declares contracts to be unenforceable, and not invalid. Similarly, courts might tend to sever contracts in order to preserve and enforce as much of them as was possible. Serious difficulties might emerge if an interpretation resulted in the movement of business to nonmember countries by contracting parties that sought to avoid the effect of Article VIII, Section 2(b).
Notwithstanding the reluctance of the Executive Board to adopt new interpretations of Article VIII, Section 2(b), it has authorized responses to inquiries about the consistency of exchange control regulations with the Articles that amount to implicit or even explicit interpretations. For example, the Fund’s practice has been to assume that an inquiry relates to consistency at the time when enforcement of an exchange contract is sought, unless the inquiry expressly specifies a different date. This assumption is based on the view that Article VIII, Section 2(b) refers to the consistency of regulations with the Articles as at the date when enforcement is sought. This view should be endorsed, but it has been contested by those who hold that the appropriate date for determining the consistency of regulations with the Articles is the date when the contract was entered into.
The Fund’s view on the relevant date for determining consistency has been described above as an interpretation. Although this view has been explained in at least one such response, there has been no decision of a general character that would normally be adopted to endorse an interpretation. It would not be possible to assert, therefore, that the view is an authoritative interpretation under Article XXIX. What persuasive effect on a court the view would have as an informal interpretation has not been tested. Furthermore, it is likely that the Fund would provide information about the consistency of regulations with the Articles as at the time when the contract was entered into if the inquiry was explicit on this point. If this was the sole inquiry, the Fund should volunteer further information about consistency as at the date of enforcement or declare that the regulations had been withdrawn if this development had occurred. A court would then be able to reach a decision based on its own view of the date that it considered relevant.
Authoritative Interpretation and Judicial Uniformity
This discussion suggests certain generalizations on the subject of uniform interpretation. It is obvious that a power of authoritative interpretation of a treaty by the international organization created by the treaty may not succeed in achieving uniform interpretation by the courts of contracting parties if the organization does not exercise the power. The longer the delay in exercising the power, the more difficult it may become to exercise the power, and the more difficult it may become to find sufficient support for a particular interpretation. One reason for these difficulties may be the diverse interpretations adopted by courts of the contracting parties. The greater the need for an interpretation to impose uniformity on the courts, the less is the prospect that agreement can be reached that there should be an interpretation or on what an interpretation should be.
This reason for reluctance to exercise the power may not be the only reason. There may be a greater disposition to adopt authoritative interpretations when the subject matter is confined to the organization’s relations with its members than when an interpretation would have an obvious effect on private persons and their rights. This hesitancy may be particularly pronounced if the interpretation would appear to apply pressure to, or a sanction on, private parties. The contracting parties may doubt that it is appropriate for the organization to perform what appears to be a judicial function.
For some contracting parties, authoritative interpretation may resemble a legislative rather than a judicial function. Indeed, in some countries the effectiveness of an interpretation may depend upon legislative action. The passage of time can intensify the sense that what is being proposed as an interpretation is more truly a disguised amendment. An objection then is that amendment is reserved for governments. This sensitivity is intensified if the majorities for amendment and for the adoption of authoritative interpretations are not the same. In the case of the Fund, an authoritative interpretation can be adopted by the Executive Board by a majority of the votes that are cast.59 Acceptance by three-fifths of the members and by members having 85 percent of the total voting power of the membership is necessary for the adoption of an amendment.60
Considerations of an economic, financial, or other nonlegal character may outweigh the importance attached to uniformity of interpretation by the courts. An organization may follow this approach if policy on a matter deemed central to the functions of the organization cast doubt on the wisdom of an interpretation. Reluctance to adopt an authoritative interpretation might be increased if a policy considered paramount at one time might be different or less weighty in the future. These generalizations do not imply that it is improper to take economic considerations into account in arriving at the interpretation of a provision. In the case of the Fund, there is a direction that it be guided by the purposes set forth in Article I in arriving at its policies and decisions.61 Interpretative decisions are not excluded from this direction. But policies must be weighed against each other, and a judgment must be made on which shall prevail in the circumstances of the time if the policies are not compatible with each other. If an interpretation might undermine the Fund’s catalytic role in arranging new financing and the rescheduling of existing debt when the burden of debt is seen to be a major threat to the international economic system, priority will be assigned to policies that protect that role.
Gold units of account and Article VIII, Section 2(b) are examples of the same problem. The contracting parties to a treaty reach agreement on a common objective, and the policy expressed in their solution is to be observed equally by all of them. The uniform observance of their solution ceases to be a primary concern because of changes in circumstances. Other considerations of policy predominate, and diversity in the interpretation of the solution is tacitly accepted because authoritative interpretation or amendment of the treaty is not feasible. The two problems illustrate a weakness of conventional international law when the application of it depends on interpretation by national courts.
A New Possibility
Certain safeguards to achieve uniform judicial interpretation of the provisions of a treaty have been mentioned in this Introduction. Another safeguard has appeared in treaty law. The EEC-EFTA Judgments Convention 1988,62 done at Lugano on September 16, 1988, and to be adopted by the member states of the European Economic Community (EC) and the European Free Trade Association (EFTA), takes effect three months after ratification by the first member state of the EC and the first EFTA member state. The preamble to the Convention notes that the contracting parties desire to ensure as uniform an interpretation as possible of the provisions of the Convention. The preamble notes also that the contracting parties have taken into account the Brussels Convention of September 27, 1968 on jurisdiction and the enforcement of judgments in civil and commercial matters, as amended by the Accession Conventions under the successive enlargements of the EC.
Protocols are annexed to the Lugano Convention and are stated by Article 65 to be an integral part of the instrument. Protocol 2 on the uniform interpretation of the Convention includes a preamble of its own, in which this statement of an objective of the contracting parties is included:
Desiring to prevent, in full deference to the independence of the courts, divergent interpretations and to arrive at as uniform an interpretation as possible of the provisions of the Convention, and of these provisions and those of the Brussels Convention which are substantially reproduced in this Convention.
Uniformity is, therefore, sought not only among judicial interpretations of the Lugano Convention but also among interpretations of common provisions of the two treaties.
Article 1 of the Lugano Convention provides as follows:
The courts of each Contracting State shall, when applying and interpreting the provisions of the Convention, pay due account to the principles laid down by any relevant decision delivered by courts of the other Contracting States concerning provisions of this Convention.
Article 2 of the preamble declares that the contracting parties agree to set up a system for exchanging information concerning judgments delivered pursuant to the Lugano Convention as well as relevant judgments under the Brussels Convention. The system includes the transmission by the competent national authorities of judgments pursuant to the Conventions to the Registrar of the European Court of Justice. His functions include the preparation and publication of translations and the communication of relevant documents to the competent national authorities.
Under Article 3 a Standing Committee is to be set up for the purposes of Protocol 2, composed of the representatives appointed by each signatory and acceding state. Representatives of the organs of the EC and EFTA may attend meetings of the Committee as observers. Under Article 4, at the request of a contracting party, meetings of the Committee are to be convened for the purpose of exchanging views on the functioning of the Convention, and in particular on the development of case law as communicated under Article 2 of the preamble. In the light of these exchanges, the Committee may consider the appropriateness of revising particular topics and may make recommendations.
Three Declarations are annexed to the Lugano Convention. Under the second Declaration, the representatives of member states of the EC that are parties to the Lugano Convention state that
they consider as appropriate that the Court of Justice of the European Communities, when interpreting the Brussels Convention, pay due account to the rulings contained in the case law of the Lugano Convention.
The third Declaration is made by the representatives of member states of EFTA that are parties to the Lugano Convention. These representatives declare that
they consider as appropriate that their courts, when interpreting the Lugano Convention, pay due account to the rulings contained in the case law of the Court of Justice of the European Communities and of courts of the member-States of the European Communities in respect of provisions of the Brussels Convention which are substantially reproduced in the Lugano Convention.
A simpler approach to uniform interpretation than the one summarized above has been taken by the negotiators of the International Factoring Convention 1988,63 prepared by the International Institute for the Unification of Private Law (UNIDROIT) and adopted by a diplomatic conference at Ottawa on May 28, 1988. The Convention is to enter into force in the month following six months after the third ratification. Article 4 runs as follows:
1. In the interpretation of this Convention, regard is to be had to its object and purpose as set forth in the preamble, to its international character, and to the need to promote uniformity in its application and the observance of good faith in international trade.
2. Questions concerning matters governed by this Convention which are not expressly settled in it are to be settled in conformity with the general principles on which it is based or, in the absence of such principles, in conformity with the law applicable by virtue of the rules of private international law.
It would be unrealistic to expect that the Fund’s Articles would be amended along the lines of the provisions on uniform interpretation in either of the two treaties that have been discussed here. It is almost equally unrealistic to expect that the Fund will adopt new interpretations of Article VIII, Section 2(b). Nevertheless, the objective of uniform judicial interpretation by national courts is implicit in the provision. The Fund could take the minimum action of requesting members to provide it with copies of all judgments by their courts interpreting or applying the provision. The Fund could translate these judgments and circulate them to member countries. In the early years of the Fund, its Legal Department collected such decisions and had them translated, but they were circulated only within the Department or were supplied to others on request. The Fund would have adequate authority under Article VIII, Section 5 to perform the more formal function suggested here. The Fund could even perform a similar service in connection with the judicial interpretation of gold units of account in treaties, but there would probably be less willingness to undertake this service.
Original Articles Article XVIII Interpretation
(a) Any question of interpretation of the provisions of this Agreement arising between any member and the Fund or between any members of the Fund shall be submitted to the Executive Directors for their decision. If the question particularly affects any member not entitled to appoint an executive director it shall be entitled to representation in accordance with Article XII, Section 3 (j).
(b) In any case where the Executive Directors have given a decision under (a) above, any member may require that the question be referred to the Board of Governors, whose decision shall be final. Pending the result of the reference to the Board the Fund may, so far as it deems necessary, act on the basis of the decision of the Executive Directors.
(c) Whenever a disagreement arises between the Fund and a member which has withdrawn, or between the Fund and any member during liquidation of the Fund, such disagreement shall be submitted to arbitration by a tribunal of three arbitrators, one appointed by the Fund, another by the member or withdrawing member and an umpire who, unless the parties otherwise agree, shall be appointed by the President of the Permanent Court of International Justice or such other authority as may have been prescribed by regulation adopted by the Fund. The umpire shall have full power to settle all questions of procedure in any case where the parties are in disagreement with respect thereto.
Present Articles Article XXIX Interpretation
(a) Any question of interpretation of the provisions of this Agreement arising between any member and the Fund or between any members of the Fund shall be submitted to the Executive Board for its decision. If the question particularly affects any member not entitled to appoint an Executive Director, it shall be entitled to representation in accordance with Article XII, Section 3(j).
(b) In any case where the Executive Board has given a decision under (a) above, any member may require, within three months from the date of the decision, that the question be referred to the Board of Governors, whose decision shall be final. Any question referred to the Board of Governors shall be considered by a Committee on Interpretation of the Board of Governors. Each Committee member shall have one vote. The Board of Governors shall establish the membership, procedures, and voting majorities of the Committee. A decision of the Committee shall be the decision of the Board of Governors unless the Board of Governors, by an eighty-five percent majority of the total voting power, decides otherwise. Pending the result of the reference to the Board of Governors the Fund may, so far as it deems necessary, act on the basis of the decision of the Executive Board.
(c) Whenever a disagreement arises between the Fund and a member which has withdrawn, or between the Fund and any member during liquidation of the Fund, such disagreement shall be submitted to arbitration by a tribunal of three arbitrators, one appointed by the Fund, another by the member or withdrawing member, and an umpire who, unless the parties otherwise agree, shall be appointed by the President of the International Court of Justice or such other authority as may have been prescribed by regulation adopted by the Fund. The umpire shall have full power to settle all questions of procedure in any case where the parties are in disagreement with respect thereto.