The Fund Agreement in the Courts—XX

International Monetary Fund. Research Dept.
Published Date:
January 1984
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This installment in the series of articles dealing with litigation involving the Articles of Agreement of the International Monetary Fund takes up two main topics. The first topic is the application by courts in the United States, France, Italy, the Netherlands, and Austria of units of account defined in treaties as equivalent to a quantity of gold. In all but the French case, a solution based on the SDR was considered and sometimes adopted. The second topic is the relationship between provisions of the Articles and of the Treaty of Rome with respect to capital movements. The discussion is based on a decision of the Court of Justice of the European Communities.

I. Gold Units of Account and the SDR

Some cases involving the application of a unit of account defined in relation to gold are discussed below under the subheadings of the countries in which the courts have decided the cases.

united states

The Supreme Court of the United States decided on April 17, 1984, by eight justices to one, in Trans World Airlines, Inc. v. Franklin Mint Corporation et al.,1 how the limitation provisions of the Warsaw Convention for the Unification of Certain Rules Relating to International Transportation by Air, October 12, 19292 (the Warsaw Convention) are to be applied in present conditions. The United States became a signatory of the Warsaw Convention in 1934. In 1974, and subsequently, the U.S. Civil Aeronautics Board (CAB) informed international carriers doing business in the United States that the minimum acceptable limit on the liability of carriers for lost cargo would be $9.07 per pound avoirdupois. This dollar amount was taken to be the U.S. dollar equivalent per pound avoirdupois of the number of Poincaré francs per kilogram established by the Warsaw Convention as the limit on liability, to be converted into any national currency, unless the consignor declared a higher value when the cargo was handed to the carrier and paid the necessary surcharge. The Poincaré franc is defined as the equivalent of 65½ milligrams of gold nine-tenths fine.

In the United States, the Federal Aviation Act of 19583 conferred on the CAB, as part of its rule-making authority, the function of converting the Poincaré franc into U.S. dollars. Article 22(4) of the Warsaw Convention provides that “[t]hese sums [in Poincaré francs] may be converted into any national currency in round figures.” International carriers by air were required to file tariffs with the CAB specifying the limit on liability for cargo that they claim, and the CAB was able to reject any tariff inconsistent with the Federal Aviation Act or CAB regulations. The CAB had to exercise its rule-making authority in accordance with the treaty obligations of the United States. Trans World Airlines, Inc. (TWA) complied at all times with the CAB regulation of 1974.

On March 23, 1979, Franklin Mint Corporation (Franklin) delivered 714 pounds of numismatic materials to TWA for transportation from Philadelphia, Pennsylvania, to London, without any special declaration of value, but alleged in the proceedings to be worth $250,000. The packages were lost or destroyed, Franklin sued, and TWA acknowledged liability. The only issue was the extent of TWA’s liability. The District Court ruled that TWA’s liability was limited to $6,475.98, on the basis of the CAB’s datum of $9.07 per pound avoirdupois. This datum was derived from the last par value of the dollar ($42.22 per ounce of fine gold) established under the Fund’s Articles before the Second Amendment abrogated the par value system. The Court of Appeals for the Second Circuit affirmed the judgment, but the court held that 60 days from the issuance of the court’s mandate the liability limit in the Warsaw Convention would be unenforceable in the United States.4 A number of courts outside New York had applied the solution of the last par value of the dollar, at least one of them after the decision by the Court of Appeals of the Second Circuit,5 but the Second Circuit decision was particularly important for the airlines because all of them are subject to personal jurisdiction in New York City.

TWA challenged the declaration by the Court of Appeals on the prospective unenforceability of the liability limit. TWA argued in favor of the last par value of the dollar, with the SDR solution as an acceptable alternative. Under this alternative, the limit is calculated in terms of SDRs on the basis of the ratio between the definition of the Poincaré franc and the definition of the SDR in terms of gold in the Articles of Agreement before the Second Amendment. The value of the SDR in terms of the U.S. dollar on the relevant date is then applied to the limit in SDRs arrived at on the basis of the foregoing ratio.6 TWA no longer argued in favor of the equivalence between the Poincaré franc and the current French franc as another possible solution. Franklin contended that the court should declare the limit unenforceable retrospectively as well as prospectively. The Supreme Court confirmed that the limit of $9.07 per pound is not inconsistent with the Warsaw Convention and rejected the declaration of prospective unenforceability by the Court of Appeals. Obviously, the contention of retrospective unenforceability was equally unacceptable.

Before taking up the question of the unenforceability of the liability limit, the Supreme Court summarized, not altogether correctly, the history of the relationship between the U.S. dollar and gold.7 The signatories to the Warsaw Convention met in September 1975, and in No. 4 of the “Montreal Protocols” to the Convention agreed on a revised liability limit of SDR 17 per kilogram.8 The United States supported this proposed change and signed Protocol No. 4. On November 17, 1981, the Senate Committee on Foreign Affairs reported in favor of consent to ratification, but, on March 8, 1983, the Senate failed to reach the necessary two-thirds majority for consent. The matter remains on the Senate’s calendar.

The Supreme Court noted that the Court of Appeals had based its declaration on the reasoning that a conversion factor was necessary for enforcement of the Warsaw Convention and that no U.S. legislation had specified a factor to be used by the courts. The Supreme Court recalled the canon of construction that clear congressional action is necessary to support the conclusion that the repeal or modification of a treaty was intended. The text and legislative history of the Par Value Modification Acts9 and the repealing statute10 made no reference to the Convention.

Furthermore, the analysis continued, the Warsaw Convention is a self-executing treaty. No domestic legislation is required to give the Convention the force of law in the United States, and none was passed. The court held that the repeal of a purely domestic legislative act should not be considered an implied abrogation of any part of the Convention.

As a third argument in support of its conclusion, the court referred to the provision of the Warsaw Convention that requires a signatory to give to other signatories six months’ notice of an intention to withdraw from the treaty. The United States had not given notice. On the contrary, in a brief as amicus curiae, the Executive Branch maintained that the liability limit was still enforceable.

Finally, in response to Franklin’s suggestion that a treaty ceases to be binding when a fundamental change in conditions occurs, the court responded:

A treaty is in the nature of a contract between nations. The doctrine of rebus sic stantibus does recognize that a nation that is party to a treaty might conceivably invoke changed circumstances as an excuse for terminating its obligations under the treaty. But when the parties to a treaty continue to assert its vitality a private person who finds the continued existence of the treaty inconvenient may not invoke the doctrine on their behalf.11

After finding that the liability limit was enforceable, the court turned to the problem of translating the limit into dollars. The Warsaw Convention permitted each signatory to prescribe the mode of translation,12 but the Federal Aviation Act required translation into dollars. The Supreme Court held that the Court of Appeals was wrong in holding that Congress, by repealing the Par Value Modification Act, had repealed the “unit of conversion” specified by the Convention without specifying another unit. The Court of Appeals had held that the substitution of a new unit of conversion was a political question, unfit for judicial resolution. The Supreme Court rejected this analysis because the Convention did not specify a unit of conversion. The CAB performed this function. The court was called on not to substitute a new unit of conversion, but to decide whether the CAB’s action was inconsistent with domestic legislation or the Convention, an issue that did not involve a political question.

The Supreme Court found no inconsistency with national legislation. When an official price of gold was established by the Par Value Modification Act, the CAB applied that price. When Congress repealed the statute there was no hint that in future the CAB should use a different conversion factor.

The Supreme Court found that the question whether the CAB’s choice of $9.07 per pound avoirdupois was compatible with the Warsaw Convention was “more debatable.”13 The court held that to apply the market price of gold would fail to effect any purpose of the Convention and would be inconsistent with international practice, as acquiesced in by the signatories, over the past 50 years. The first and most obvious purpose of the Warsaw Convention was to set some limit on a carrier’s liability for lost cargo. “Any conversion factor will have this effect; in this regard a $9.07 per pound liability limit is as reasonable as one based on SDRs or the free market price of gold.”14

The Supreme Court then approached the nub of its decision:

The Convention’s second objective was to set a stable, predictable, and internationally uniform limit that would encourage the growth of a fledgling industry. To this end the Convention’s framers chose an international, not a parochial, standard, free from the control of any one country. The CAB’s choice of $9.07 per pound liability limit is certainly a stable and predictable one on which carriers can rely. We recognize however that in the long term effectuation of the Convention’s objective of international uniformity might require periodic adjustment by the CAB of the dollar-based limit to account both for the dollar’s changing value relative to other western currencies and, if necessary, for changes in the conversion rates adopted by other Convention signatories. Since 1978, however, no substantial changes of either type have occurred.

Despite the demise of the gold standard, the $9.07 per pound liability limit retained since 1978 has represented a reasonably stable figure when converted into other western currencies. This is easily established by reference to the SDR, which is the new, non-parochial, internationally recognized standard of conversion. On March 31, 1978, for example, 1 SDR was worth $1.23667; on March 23, 1979, $1.28626. At all times since 1978 a carrier that chose to set its liability limit at 17 SDRs per kilogram as suggested by Montreal Protocol No. 4 would have arrived at a liability limit in dollars close to $9 per pound.15

To support the conclusion that the CAB’s factor satisfied the second purpose for the time being, although perhaps not indefinitely, the court relied on the following arguments and data.

(1) The CAB’s factor has represented “a reasonably stable figure when converted into other western currencies,” as “is easily established by reference to the SDR, which is the new, non-parochial, internationally recognized standard of conversion.”16 (The “western” currencies that compose the SDR basket are the U.S. dollar, pound sterling, deutsche mark, French franc, and Japanese yen.)17 The court quoted values for the SDR on two dates, apparently because Franklin had delivered the packages to TWA on one of them, March 23, 1979, and thought that the position one year earlier was revealing. The court said that, “for example,” SDR 1 was equal to $1.23667 on March 31, 1978 and $1.28626 on March 23, 1979.18 On April 17, 1984, the day on which the court’s decision was delivered, SDR 1 was equal to $1.05813. The values of SDR 1 at the end of a few earlier months were as follows and would have been strikingly different “examples” if they had been quoted:

Dollar Value

of SDR 1
November 19831.0506
December 19831.0470
January 19841.0341
February 19841.0601
March 19841.0642

These statistics do not support the court’s conclusions. For example, the liability limit of SDR 17 per kilogram would result, on the basis of SDR 1 equivalent to $1.05813 on April 17, 1981, in a conversion factor of approximately $8.15 per pound avoirdupois.19

As suggested above, the explanation of the court’s citation of the value of the SDR in terms of the dollar for March 23, 1979 and for no later date may be that the cargo was delivered to TWA on March 23, 1979. The value on March 31, 1978 may have been cited because that day was the last day before the Second Amendment became effective. The failure to give subsequent data, however, cannot be defended as a judicial preference for confining the decision to the date the court considered relevant because the court said “we cannot fault the CAB’s decision to adhere, in the six years since 1978, to a constant $9.07-per-pound liability limit.”20

(2) The court found that $9.07 per pound “appears to have been a reasonable interim choice for keeping” the liability limit “in line with limits enforced by other signatories.”21 As of December 31, 1975, 15 nations had signed Montreal Protocol No. 4, showing their intention to accept a liability limit of SDR 17 per kilogram. Other nations were applying the last official price of gold for translating the liability limit into the national currency, but a footnote to the court’s decision recognizes that some signatories had adopted the SDR solution.22

The court returned to a consideration of the market price of gold:

We recognize that this inquiry into the dollar’s value relative to other currencies would have been unnecessary if the CAB had chosen to adopt the market price of gold for converting the Convention’s liability limits into dollars. Since gold is freely traded on an international market its price always provides a unique and internationally uniform conversion rate. But reliance on the gold market would entirely fail to provide a stable unit of conversion on which carriers could rely. To pick one extreme example, between January and April 1980 gold ranged from about $490 to $850 per ounce…. Far from providing predictability and stability, tying the Convention to the gold market would force every carrier and every air transport user to become a speculator in gold, exposed to the sudden and unpredictable swings in the price of that commodity. The CAB has correctly recognized that this is not at all what the Convention’s framers had in mind. The 1978 decision by many of the Convention’s signatories to exit from the gold market cannot sensibly be construed as a decision to compel every air carrier and air transport user to enter it.23

The Supreme Court suggested that a third purpose that was to have been served by the choice of a gold unit of account “may have been to link the Convention to a constant value, that would keep step with the average value of cargo carried and so remain equitable for carriers and transport users alike.”24 The court recognized that a fixed dollar-based liability might fail in the long run to achieve this purpose in an inflationary environment. This objection was dismissed with the double response that the drafters of the Warsaw Convention viewed it as one that would be drawn up for only a few years and that the parties to the Convention had tolerated the substantial decline in the official price compared with the market price of gold and other commodities in the more prolonged period in which the Convention had continued in force. The volatile market price of gold as a commodity did not reflect inflation and would serve no purpose of the Convention.

The Supreme Court held that, “As of March 31, 1978, $9.07 per pound of cargo therefore represented a ‘correct’ conversion of the Convention’s liability limit into dollars.”25 A reference to March 23, 1979 instead of March 31, 1978 might have been closer to the true ratio decidendi of the decision. In this sentence, there is no mention of the six years after 1978, notwithstanding the earlier reference to that period.

The decision accepts the last official price of gold in dollars as the standard for translating the Poincaré franc into the national currency but not as the technique that must prevail in all circumstances before Montreal Protocol No. 4 becomes effective. The court concluded that the solution it was endorsing achieved the purposes of the Warsaw Convention to a reasonable degree, but the conclusion rested on a false assumption about the stability of the dollar. Furthermore, the court declared, this solution had achieved reasonably uniform results with those that would have been achieved by the SDR solution. This assertion also can be challenged, but, whether it is accepted or not in the circumstances of the case, uniformity is not inherent in the solution as an increasing number of countries turn to the SDR solution. The court noted in a footnote26 that Canada, Italy, South Africa, Sweden, and the United Kingdom had already done so by legislation, but probably many more countries could be listed. The Federal Republic of Germany and the Netherlands are certainly among these other countries.27 The court’s emphasis on the acceptance or endorsement of the SDR as the unit of account by which to apply the liability limits of the Warsaw Convention—and, it might be added, of many more treaties—implies the court’s view that the SDR solution would be more effective in achieving the purposes of the Convention.

The court obviously concluded that it could not itself apply the SDR solution by interpretation because of the objection, accepted by the Court of Appeals, that this solution would amount to the substitution of a new unit for the unit of the Warsaw Convention. Nevertheless, the court has not ruled against the SDR solution if it were reached by another procedure. It may be that the court has deliberately shown the way to this solution. The U.S. Department of Transportation, to which the surviving functions of the CAB have been transferred as of January 1, 1985, could find that in the circumstances that have developed, including the variability in the exchange rate of the U.S. dollar, tariffs are to be filed on the basis of SDR 17 per kilogram of gold, expressed in the dollar equivalent per pound. This action by the Department of Transportation would resemble the ministerial action taken in some countries in the absence of legislation.28

In Boehringer-Mannheim Diagnostics, Inc., f/k/a Hycel, Inc. v. Pan American World Airways, Inc.,29 the District Court held that the limit of liability under the Warsaw Convention for the loss of cargo must be calculated on the basis of the market price of gold, and that the last official price as the proposed unit was the purest kind of fiction. The United States Court of Appeals for the Fifth Circuit awaited the decision of the Supreme Court in Franklin Mint and, of course, has reversed the District Court’s decision and followed the Supreme Court.30 The shipper, which had proved damages totaling $34,054.64, was able to recover $16,870.20 on the basis of the limit of $9.07 per pound avoirdupois.

The Court of Appeals for the Fifth Circuit then took up a question that it had not decided previously. Did the Warsaw Convention provide the exclusive cause of action and remedy against international air carriers, in which event the Convention preempted state law, or did the Convention merely limit the liability that arose under state or federal law? The court decided, as had courts in two other Circuits, that the Convention provided the exclusive cause of action and remedy. The purpose of this inquiry was to decide whether the Convention had preempted the law of Texas, which provides for the recovery of attorney’s fees in claims for lost or damaged freight. The Court of Appeals, having decided the major question of the effect of the Convention on the law of Texas, concluded that the provision of that law on attorney’s fees also had been preempted.31 The shipper was not able to recover his attorney’s fees from the defendant.


In the discussion of the Franklin Mint case, it was noted that TWA abandoned the argument that, if its other assertions of the correct basis for limiting its liability failed, liability should be limited on the principle that the current French franc must be deemed, in present circumstances, to be the successor to the Poincaré franc. The original contention of TWA with respect to the French franc was inspired by the decision of the Court of Appeal of Paris in Société Egyptair v. Chamie32 and the decision of the Court of Appeal of Aix-en-Provence in Pakistan International Airlines v. Compagnie Air Inter S.A. et al.33 Those courts rejected the solutions based on the SDR and the market price of gold.

The Court of Cassation (Commercial Chamber) on March 7, 1983 quashed the decision of the Paris court in Société Egyptair v. Chamie,34 which probably explains TWA’s abandonment of its contention based on the French franc. The court remitted the case to the Paris Court of Appeal with what amounted to the following instruction:

Whereas, by imposing upon the parties a method of computation different from the one provided for by the Warsaw Convention, and whereas trial judges must abide by the official interpretation given by the governmental authority to which they must apply if the provisions of a diplomatic treaty submitted to them for interpretation involve monetary public policy as defined by international agreements in force, the Court of Appeal violated the provision of the Warsaw Convention.35

A commentator on the decision regrets that the Court of Cassation did not settle the problem of applying the Poincaré franc by reference to the SDR. She reports that the French courts had applied diverse solutions, although none seems to have referred to the SDR solution. She raises the interesting question whether the Court of Cassation, when referring to the governmental authority to which courts must apply, had in mind the Fund or a French governmental authority. The question is raised because the problem of interpretation may relate to the Articles and not to the Warsaw Convention: “… could the Fund’s Articles imply that the new unit of account automatically replaces the units of account provided for by conventions governing the liability of carriers”?36 Although she really assumes that the court meant to refer to a French governmental authority, perhaps the implication is that the French Government or the Bank of France could raise the question with the Fund.


Borletti Brothers, Inc. v. Dolphin Shipping Agency,37 decided by the Court of Genoa on March 11, 1981, involved the application of the gold unit of account in the International Convention for the Unification of Certain Rules Relating to Bills of Lading, done at Brussels on August 25, 1924 (the Brussels Convention).38 Italy is a contracting party to the treaty. Article 4, paragraph 5 provides, in pertinent part, that

Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding 100 pounds sterling per package or unit or the equivalent of that sum in other currency unless the nature and value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.

Article 9 provides as follows:

The monetary units mentioned in this convention are to be taken to be gold value.

Those contracting states in which the pound sterling is not a monetary unit reserve to themselves the right of translating the sums indicated in this convention in terms of pound sterling into terms of their own monetary system in round figures.

The national laws may reserve to the debtor the right of discharging his debt in national currency according to the rate of exchange prevailing on the day of the arrival of the ship at the port of discharge of the goods concerned.

Two packages of goods dispatched to the plaintiff had been loaded in Milwaukee, Wisconsin, on board a Canadian vessel on July 28, 1976, but no trace of them was found when the vessel reached Genoa. The plaintiff brought suit against the agency that represented the shipowner in Italy. A leading issue was the amount of the judgment to which the plaintiff was entitled. The plaintiff argued that the limit on maximum liability under the Brussels Convention had to be computed on the basis of the gold content of sterling at the date of the Convention in 1924 (7.32 grams) and the market price of gold at the time of judgment (about 18,000 lire per gram). The result of this computation was about 26 million lire (7.32 x 18,000 x 100 x 2). For some reason not made apparent in the report, the defendant offered to pay compensation in the amount of 990 Netherlands guilders as the limit under the Brussels Convention. The value of the lost goods was equal to 18,736.99 guilders, or slightly more than 8 million lire at the exchange rate at the time of the decision (then fluctuating around 435 lire per guilder).

The defendant argued that the determinants of the value of the gold unit were the gold content of sterling in 1976 and the price of gold in the official market. The defendant based the argument for 1976 on the fact that the contractual obligation had been entered into at that time, and that the Brussels Convention, in contrast to the many conventions in which the Poincaré franc was the unit of account, did not define the gold value of sterling. This omission suggested that the gold value of sterling in 1924 was not intended. The court chose the gold value as of 1924 and rejected the argument in favor of 1976 because of the legislative history of the Brussels Convention, which clearly indicated that the gold value of sterling in 1924 was the intended standard. Another reason for the court’s choice was the Brussels Protocol of February 23, 1968, which, although not yet effective, was evidence of intention. The Protocol amended Article 4, paragraph 5 of the 1924 Convention by adding the words “equivalent to 10,000 francs,” with the franc defined as the equivalent of the Poincaré franc.39 Finally, the court rejected the gold value of sterling in 1976 because acceptance of that datum would imply the right of the British monetary authorities to modify the unit of account in the Brussels Convention unilaterally by changing the gold value of sterling.

The defendant argued that the second determinant, the value of gold, had to be the official price of gold in dollars under the Fund’s Articles, namely $42.22 per ounce. The defendant stated that the Articles had never been abrogated formally. This statement was literally true, because the Articles have remained in force continuously since December 27, 1945, but the statement overlooks the radical change in the role of gold under the Second Amendment, which became effective on April 1, 1978. The decision of the court, it will be recalled, was delivered on March 11, 1981.

The court held that the official price of gold could not serve as the present standard because it had been based on the convertibility of dollars into gold and on a monetary system with the dollar at the center. These conditions had not existed since 1971, although the official gold market had not been formally abolished. Once again, this statement overlooks the fact that the external value of a currency must not be maintained by reference to gold under the Second Amendment.40 Moreover, the court continued, the application of the former par value of a currency would result in unequal recoveries because currencies were floating. The market price of gold was more realistic, and was preferable, because it involved fewer elements of uncertainty: only the price of gold fluctuated while currencies in general were floating. The court continued as follows:

Secondly, it must be noted that, while it is true that the official gold market has not been formally abolished, it is also true that a decision was made to maintain it only in the framework of relations between states and solely for the purpose of avoiding excessively destabilizing movements. Furthermore the gold reserves of the various countries are constantly valued on the basis of the current free market price of gold.41

Even if the first sentence of this statement were taken to reflect the two-tier gold system, the court should have been aware that the system was terminated in November 1973.42

The court then moved on to consider the SDR solution, which it rejected as follows:

Finally, with regard to the view that the value of gold should be determined by recourse to the SDR, it is true that some conventions replace a sum expressed in gold with sums expressed in units of account, defined as baskets of fixed amounts of national currencies; reference is made in particular to the special drawing right of the International Monetary Fund. The Brussels Convention—the only one applicable in the case in hand—does not refer to such units of account, however. Nevertheless, the use of units of account is not problem-free, either. For one thing, they take account of the major currencies’ trends only; for another, they too are subject to fluctuation, since they consist of national currencies.43

The objections to the SDR were threefold: no mention of the SDR in the Brussels Convention, the composition of the SDR, and the fluctuating value of the SDR. The first objection is of a technical legal character, the other two are economic. There are satisfactory answers to all three objections.

The choice of the market price of gold made it necessary for the court to decide on the date as of which to apply the price. The plaintiff argued that the date of the court’s judgment should be selected. The court rejected this contention because Article 4, paragraph 5 of the Brussels Convention provides that the limit on liability does not apply when the value of the goods has been declared and is stated in the bill of lading. The purpose of the provision is to enable the carrier to calculate his risk, whether or not the limit applies, at the time the contract is signed. These considerations induced the court to hold that the appropriate price is the one that prevailed when the contract was signed.

The court’s conclusions led to a computation of the limit on liability as follows: 7.32 x 5,000 lire (the market price per gram of gold in 1976) x 100 x 2 = 7,320,000 lire. The actual loss was 18,736.99 Netherlands guilders, equivalent to 6,058,793 lire at the 1976 exchange rate of 323.36 lire per guilder. The plaintiff was entitled to the full amount of the loss because it was less than the limit on liability.

This finding did not dispose of the case. The total amount of the loss had to be reassessed in light of the inflation that had occurred since the loss of the packages. The reassessment raised a novel question. Was the amount arrived at as a result of reassessment subject to the limit imposed by the Brussels Convention? The court noted that Article 4, paragraph 5 referred to “any loss or damage to or in connection with goods,” and that, in accordance with Article 1(e), the loss or damage must be incurred during shipment. It followed that the liability limit did not apply to loss or damage of any other origin, such as a decline in the purchasing power of money. The amount owed to the plaintiff (6,058,793 lire) had to be recalculated in accordance with changes in the ISTAT44 indices of consumer prices for workers and employees from September 1976 (the date of nonperformance) to the date of settlement, with legal interest on the basis of the revalued amount from September 1976. The decision is in contrast to the narrow reading in the Boehringer-Mannheim case that the Warsaw Convention precludes application of the law of Texas and makes no provision for the recovery of attorney’s fees by a successful plaintiff.

A commentator on the case has noted that, although other Italian courts have applied the market price of gold and the gold value of sterling in 1924, opinions have been remarkably diverse on the choice of date for determining the market price. The date of the contract has been one choice, but the date of the damage suffered has been another solution. Among scholars, however, there has been support for the SDR solution.45

the netherlands

The Convention on the Contract for the International Carriage of Goods by Road of May 19, 1956, for which the acronym based on the French title is CMR, is one of a number of conventions on unimodal transit concluded under the auspices of the United Nations Economic Commission for Europe (ECE). The liability of carriers under these conventions is limited by reference to the Germinal franc, which is defined as 1031 gram of gold nine-tenths fine. Agreement was reached on July 5, 1978 on Protocols to the CMR and the other conventions, so that when the Protocols become effective the SDR will be substituted for the Germinal franc as the unit of account. The substitution is based on the ratio between the definition of the SDR in terms of gold before the Second Amendment and the definition of the Germinal franc.46

In Frigoscandia Transport B. V. v. Sea Products International,47 The Hague Court of Appeals on November 12, 1982 confirmed the decision of the lower Rotterdam court in an action in which the issue was the mode of application of the Germinal franc. Goods were carried from Marseilles via the Netherlands to an English destination, where the goods, on arrival, were found to be damaged. The carrier paid the owners of the goods 10,767.94 pounds sterling, which the carrier argued was the value in sterling of the limit on liability expressed in terms of the Germinal franc under Article 23(3) of the CMR (25 francs per kilogram). The owners sued for the difference between the amount received in sterling and the limit (58,951.08 francs) under the CMR converted into Netherlands currency.

The appellate court stated that sweeping changes had occurred in international payments since the CMR had been negotiated, and as a result gold had lost all monetary significance. It followed that “the suitability of the franc expressed in gold as a general unit of account for setting internationally uniform liability limits has been lost,”48 and that a gap existed under the CMR that had to be filled. The Protocol of July 5, 1978 had not yet taken effect for the Netherlands, but the Law of May 15, 1981 of the Netherlands had taken effect on March 15, 1982 and had been made applicable to the CMR by Royal Decree of January 19, 1982. Under these legal provisions, the gold franc referred to in Article 23(3) of the CMR is deemed to be equivalent to one third of an SDR. Furthermore, Article 2(2) of the Protocol provides that the SDR is to be converted into the currency of the country where action is brought on the basis of the value of the SDR at the date of judgment.

The court held that the provisions of English law expressing the limit on liability in sterling, on which the carrier relied, are exclusively national in character and depart from both the original CMR rules and the rules based on the SDR. The English rules had no application to proceedings in the Netherlands. The limits expressed in SDRs under Dutch law had to be applied and translated into guilders at the value of the currency on the date of judgment.

An odd feature of the case is that by April 23, 1982, when the Rotterdam court adopted its decision, and, of course, by November 12, 1982, when The Hague Court of Appeals took its decision, the Protocol of July 5, 1978 to the CMR had taken effect for the United Kingdom, although, according to the decision of the Court of Appeals, the Protocol had not yet taken effect for the Netherlands. The United Kingdom was bound by the CMR from December 28, 1980, on which date a statutory order49 brought into force provisions of the Carriage by Air and Road Act of 1979.50 The statute substituted the SDR for the Germinal franc on the basis of the SDR solution.51 The United Kingdom, by means of these provisions, was giving effect to a change in the law that followed from the Protocol, but the Netherlands was filling a gap in the law by analogy to the Protocol even though the Protocol was not yet binding on the Netherlands.

The dictum that English law departed from the rules based on the SDR must be understood in the limited sense that the English legal provisions did not apply to proceedings in the Netherlands. It is not clear why the plaintiff was dissatisfied with the amount offered in sterling,52 but it can be assumed that a judgment in guilders at the rate of exchange prevailing at the date of judgment was more advantageous for the plaintiff.53


In Kislinger v. Austrian Airtransport, the Commercial Court of Vienna as the Court of Appeals decided on June 21, 1983 how it would apply the Poincaré franc in the Warsaw Convention.54 The plaintiff, on a flight from Madrid to Vienna on April 20, 1981, lost photographic equipment, weighing 3 kilograms and purchased for 13,360.40 Austrian schillings (S.), from a valise weighing 10 kilograms.55 The defendant airline paid the plaintiff compensation of S.4,100, apparently on the assumption that the valise had been lost, but the plaintiff claimed S.6,588, the difference between the current value of the equipment and the compensation paid, plus interest. The defendant had paid compensation of S.410 per kilogram on the basis of the market price of gold and the limit of liability in Poincaré francs under the Warsaw Convention (250 Poincaré francs per kilogram). The lower court, applying what it took to be relevant provisions of domestic law, arrived at S.240 per kilogram and decided that the plaintiff must fail because she had been overcompensated.

On appeal by the plaintiff, the Court of Appeals agreed that the legal provisions on which the lower court had relied were not relevant because they had been abrogated. In finding its way to the SDR solution, the Court of Appeals cited Transarctic Shipping Corporation, Inc., Monrovia, Liberia v. Krögerwerft Company, decided by the Higher Regional Court of Hamburg on July 2, 1974.56 (The Hamburg case is discussed in detail in Pamphlet No. 19.)57 The issue in that case was the application of the Poincaré franc as the unit of account in the Treaty Concerning the Limitation of Liability of Owners of Seagoing Vessels, done at Brussels, October 10, 1957.

The Hamburg court refused to apply not only the market price of gold but also the latest par value of the deutsche mark established under the Fund’s Articles, even though the Commercial Code of the Federal Republic of Germany declared that the Poincaré franc was to be applied on the basis of the “parity” of the currency. The par value was still in existence under the Articles at the time of the decision, because the par value system as regulated by the Articles had not yet been abrogated. On June 23, 1974, Germany had notified the Fund of a central rate for its currency in terms of the SDR under a decision of the Fund that had not, and could not, confer legal consistency with the Articles on central rates.58 The Hamburg court decided to apply the Poincaré franc by reference to the central rate and not the par value.

The Court of Appeals of Vienna held, however, that the rationale of the Hamburg case ceased to exist on March 31, 1978 because the Second Amendment took effect the next day and the SDR ceased to be defined in terms of gold. The court held that, in accordance with the General Civil Code,59 the court had to find a solution by an interpretation or an analogy that respected the objectives of the limitation of liability in the Warsaw Convention. The objectives were uniformity in recoveries and as much independence as possible from accidental variations in currency systems. “In theory, it [the external value of a currency] should remain nominally constant until the member states decide on a change in the nominal sum, over longer periods of time, because they intend to introduce a greater liability or because the real value has changed quite decisively.”60

Clearly, the solution could be no more than one that would be justifiable by analogy only. It is interesting that the court adverted to, and rejected, the principle that the Circuit Court of Appeals had propounded in the Franklin Mint case:

It is therefore appropriate to seek a way that corresponds to the extent possible to the liability limitation system standardized in the WA [Warsaw Agreement], the basic tendency of which has been stated above, if one does not wish to assume the point of view that a spurious gap has arisen in the law due to the dropping of the gold parity and the maximum liability limits have become completely inapplicable.61

The Court of Appeals chose the SDR solution and supported it by referring to the similar solution the Federal Republic of Germany had adopted in its Gold Franc Conversion Law of June 13, 1980.62 The court referred also to Austria’s own Gold Franc Conversion Law, although the law applied to two treaties on transit negotiated under the auspices of the ECE and not to the Warsaw Convention.63

The court held that it would apply the rate of the Austrian schilling in terms of the SDR that prevailed on the date the lower court gave its decision. The Court of Appeals, acting under the Civil Procedural Code, obtained the rate from the National Bank. On the basis of that rate, liability under the Warsaw Convention was limited to S.308 per kilogram. The court held also that the plaintiff had lost only 3 kilograms of property. She had been entitled to no more than S.308 x 3, but had received S.4,100, and so was not entitled to more.

The Linz District Court as the Court of Appeals, on June 17, 1983 in Rendezvous-Boutique-Parfumerie Friedrich und Albine Breitinger Gmbh v. Austrian Airlines, applied the SDR solution to the Poincaré franc in the Warsaw Convention.64 The defendant airline had paid the plaintiff S.11,355.72 as compensation for the loss of goods, but the plaintiff claimed a further S.5,433. The lower court awarded this further amount, basing the judgment on the market price of gold and, therefore, calculating the limit of liability under the Convention at S.53,638.33. The judgment was overruled on appeal by the defendant, with the finding that the plaintiff had already been overcompensated.

The Court of Appeals recounted the history of Austria’s exchange arrangements under the Articles: par values, multiple currency practices, central rates, convertibility obligations under Article VIII, and exchange arrangements notified to the Fund under Article IV, Section 2(a) of the Second Amendment. The court dealt also with aspects of the original Articles and the Amendments. On the basis of these two accounts, the court came summarily to the conclusion that the SDR solution must be applied. The court seems to have attached some importance to the fact that Austria is a participant in the Special Drawing Rights Department of the Fund, has received SDRs, holds them as reserves, and considers them to be part of the currency cover. The court seems also to have drawn some support from various provisions of the Articles that refer to the SDR as a denominator for currencies65 or to the former value of the SDR in terms of gold.66 The Linz court, like the Vienna court, cited Austria’s Gold Franc Conversion Law, although the law did not apply to the Warsaw Convention. The defendant’s maximum liability based on the SDR solution was S.4,285.

Once again, the court’s decision on costs can be contrasted with the decision in the Boehringer-Mannheim case. The Linz court held that the plaintiff was able to recover from the defendant the costs incurred by the plaintiff in the proceedings of the lower court and on appeal. These costs amounted to S. 13,639.49 and exceeded the S.11,355.72 the plaintiff had received.

II. Movements of Capital

In “The Fund Agreement in the Courts—XIX,”67 the relationship between provisions of the Fund’s Articles and of the Treaty of Rome with respect to capital movements was discussed in relation to the Guerrino Casati case,68 decided by the Court of Justice of the European Communities on November 11, 1981. The court delivered another important decision on January 31, 1984 on questions arising under the Treaty of Rome in the joined cases of Luisi v. Ministero del Tesoro and Carbone v. Ministero del Tesoro.69 In each case, the plaintiff in the Italian proceedings, a resident of Italy, had obtained foreign exchange from Italian banks and had spent abroad during 1975 and 1976 amounts in excess of the equivalent of 500,000 lire per annum, the maximum permitted under Italian legislation at that time for exportation for the purpose of tourism, business, education, and medical treatment. The plaintiffs had physically exported the foreign means of payment from Italy to France and the Federal Republic of Germany. The Ministry of the Treasury imposed fines for these infractions. The plaintiffs, in proceedings before an Italian court, contested the legality under Community law of the legislation adopted in 1974 under which the fines were imposed, alleging that the expenditures were for tourism and, in one case, for medical expenses.

Article 67 of the Treaty of Rome provides that, during the transitional period and to the extent necessary to ensure the proper functioning of the common market, member states of the Community would progressively abolish among themselves all restrictions on the movement of capital belonging to residents. In the Casati case, the court decided, first, that Article 67 of the Treaty of Rome did not mean that restrictions on the exportation of bank notes were automatically abolished as of the end of the transitional period.70 Those restrictions were to be abolished only progressively, in accordance with the directives adopted by the Council of the Community on the liberalization of capital movements. Second, Article 106(3) of the Treaty was inapplicable to the re-exportation of foreign means of payment previously imported to make commercial purchases that had not been effected. Third, the right of nonresidents to re-export such means of payment is not guaranteed by any principle of Community law or by provisions of Community law relating to capital movements or by the rules of Article 106 concerning payments connected with the movement of goods. Fourth, member states may control capital movements and transfers of currency that member states are not obliged to liberalize under Community law, and may enforce compliance with the controls by criminal penalties. The facts in the Luisi and Carbone cases did not bring them within the ratio decidendi of the Casati case.

Article 106 of the Treaty of Rome is formulated as follows:

1. Each Member State undertakes to authorise, in the currency of the Member State in which the creditor or the beneficiary resides, any payments connected with the movement of goods, services or capital, and any transfers of capital and earnings, to the extent that the movement of goods, services, capital and persons between Member States has been liberalised pursuant to this Treaty.

The Member States declare their readiness to undertake the liberalisation of payments beyond the extent provided in the preceding subparagraph, in so far as their economic situation in general and the state of their balance of payments in particular so permit.

2. In so far as movements of goods, services, and capital are limited only by restrictions on payments connected therewith, these restrictions shall be progressively abolished by applying, mutatis mutandis, the provisions of the Chapters relating to the abolition of quantitative restrictions, to the liberalisation of services and to the free movement of capital.

3. Member States undertake not to introduce between themselves any new restrictions on transfers connected with the invisible transactions listed in Annex III to this Treaty.

The progressive abolition of existing restrictions shall be effected in accordance with the provisions of Articles 63 to 65, in so far as such abolition is not governed by the provisions contained in paragraphs 1 and 2 or by the Chapter relating to the free movement of capital.

4. If need be, Member States shall consult each other on the measures to be taken to enable the payments and transfers mentioned in this Article to be effected; such measures shall not prejudice the attainment of the objectives set out in this Chapter.

The Italian court addressed a composite question to the European Court, which was asked, in effect, to determine which of the following provisions of the Treaty of Rome applied to the physical exportation, by a resident traveling abroad, of means of payment in foreign currency to be spent for the purpose of tourism, business, education, or medical treatment within the Community:

(1) Article 106(1), on the assumption that tourism and travel for business, education, or medical treatment fall within the scope of the movement of services and that physical transfers of currency to cover related expenses are to be treated as current payments and deemed to be as liberalized as the services with which they are connected;

(2) Article 106(3), first subparagraph, and Annex III, on the assumption that the transfers in question are connected with the category of invisible transactions under the first subparagraph, which category includes, in accordance with Annex III, business travel, tourism, and travel for the private reasons of education, health, and family;

(3) both Article 106(1) and 106(3), under (1) and (2) above;

(4) Article 106(3), second subparagraph, on the assumption that the transfers are transfers of cash within the category of movements of capital subject to Article 67 of the Treaty and associated provisions and directives.

The Governments of Italy and France presented observations supporting the applicability of Article 67, but on the basis of different arguments. As shown by the Casati case, under that provision member states may impose restrictions on movements of capital and levy fines for breaches of the restrictions. The Governments of Belgium and the Federal Republic of Germany supported the applicability of Article 106(3), but again with different arguments. The Government of the Netherlands, the Commission of the European Communities, and the two plaintiffs supported the applicability of Article 106(1).

The court decided that Article 106 of the Treaty of Rome must be interpreted as follows:

Transfers in connexion with tourism or travel for the purposes of business, education or medical treatment constitute payments and not movements of capital, even where they are effected by means of the physical transfer of bank notes;

Any restrictions on such payments are abolished as from the end of the transitional period;

Member States retain the power to verify that transfers of foreign currency purportedly intended for liberalized payments are not in reality used for unauthorized movements of capital;

Controls introduced for that purpose may not have the effect of limiting payments and transfers in connexion with the provision of services to a specific amount for each transaction or for a given period, or of rendering illusory the freedoms recognized by the Treaty or of subjecting the exercise thereof to the discretion of the administrative authorities;

Such controls may involve the fixing of flat-rate limits below which no verification is carried out, whereas in the case of expenditure exceeding those limits proof is required that the amounts transferred have actually been used in connexion with the provision of services, provided however that the flat-rate limits so determined are not such as to affect the normal pattern of the provision of services.71

The court made the following points, among others.

(1) Services are deemed to be “services” within the meaning of the Treaty when they are normally provided in return for remuneration, insofar as they are not governed by the provisions relating to freedom of movement for goods, capital, and persons.

(2) Freedom for services applies whether the provider of a service goes to the state of residence of the recipient of the service or whether the recipient goes to the state of residence of the provider.

(3) Payments connected with the movement of goods or services are liberalized to the same extent as the movement of goods or services is liberalized. Therefore, because the movement of goods and services has been liberalized since the end of the transitional period on December 31, 1969, obstructions to services are not permitted even if the restrictions are solely on payments for services. (Whether this principle, insofar as it relates to movements of goods, overrules some of the findings in the Casati case need not be considered here.)

(4) Article 106(3) of the Treaty, which provides for the progressive removal of restrictions on invisible transactions, is subordinate to Article 106(1) and (2). Article 106(3) applies only to the extent that transactions and associated payments have not been liberalized as a result of Article 106(1) and (2). Therefore, Article 106(3) cannot apply to services and associated payments, related to tourism and travel for business, education, or medical treatment, even though these payments fall under Article 106(3) and Annex III as invisible transactions.

(5) The liberalized payments under Article 106 are payments in the currency of the member state in which the creditor or the beneficiary resides. (It would seem that payments in the currency of the member state in which the debtor resides or in a third currency are not liberalized. If this is a correct reading of Article 106, the obligation under the Treaty of Rome is narrower than the obligation to give effect to the multilateral system of payments under the Fund’s Articles.)

(6) The Treaty of Rome does not define “movement of capital,” but the annexes to the Council’s directives on the progressive abolition of restrictions on the movement of capital, to implement Article 67, list categories of capital movements. List D of the annexes sets forth capital movements that need not be liberalized. The list includes “physical import and export of financial assets.” A question that had to be resolved was whether this category embraced physical transfers of bank notes and implied that the transfers were movements of capital. The court said:

… [C]urrent payments are transfers of foreign exchange which constitute the consideration within the context of an underlying transaction, whilst movements of capital are financial operations essentially concerned with the investment of the funds in question rather than remuneration for a service. For that reason movements of capital may themselves give rise to current payments….

The physical transfer of bank notes may not therefore be classified as a movement of capital where the transfer in question corresponds to an obligation to pay arising from a transaction involving the movement of goods or services.

Consequently, payments in connexion with tourism or travel for the purposes of business, education or medical treatment cannot be classified as movements of capital, even where they are effected by means of the physical transfer of bank notes.72

(7) Movements of capital have not been fully liberalized. The export of capital in the form of foreign currency has not been liberalized. Therefore, members may impose controls to ensure that transfers alleged to be for liberalized payments do not constitute unauthorized movements of capital. This ruling means that controls, but not restrictions, may be applied even to liberalized payments: “It is for the national court to determine in each individual case whether the controls on transfers of foreign currency which are at issue in proceedings before it are in conformity with the limits thus defined.”73 (That is, as defined in the last two paragraphs of the court’s reply as quoted above to the questions addressed to the court.)

The case is of interest in connection with the Fund’s Articles for a number of reasons. The distinction between payments for current international transactions and capital transfers is a fundamental one for the purposes of the Fund’s regulatory jurisdiction. The court’s opinion on the criteria for distinguishing between the two categories is useful, even though Article XXX(d) of the Fund’s Articles defines payments for current transactions for the purposes of the Articles. The four classes of payments set forth in the definition, however, are expressed to be “without limitation.” Moreover, the first class includes “all payments due in connection with foreign trade, other current business, including services …” (emphasis added). The necessity to determine whether certain payments go beyond payments for services, and to that extent constitute capital transfers, arises under both the Fund’s Articles and the Treaty of Rome.74

If these parallels deserve attention for positive reasons, the case is interesting for a negative reason also. The court made no reference to the fact that Italy, as a member of the Fund, was bound by an obligation not to restrict payments for the services that were in issue in the proceedings. The French and Italian Governments, arguing in favor of the applicability of Article 67 of the Treaty of Rome and the right of member states of the Community to adopt measures to prevent disguised capital transfers, referred to the Code of the Organization for Economic Cooperation and Development for the Liberalization of Invisible Transactions by way of analogy. According to the OECD Code, a resident traveler was authorized to purchase and export bank notes of the member states to be visited up to the equivalent of SDR 700 per trip. The Governments did not mention the Fund’s Articles, even though Article 4 of the OECD Code provides that:

Nothing in this Code shall be regarded as altering the obligations undertaken by a Member as a Signatory of the Articles of Agreement of the International Monetary Fund or other existing multilateral international agreements.

The court held that controls must not have the effect of limiting payments in connection with the provision of the services in question to a specific amount for each transaction or for a given period or have the effect of subjecting the payments to the discretion of administrative authorities. Flat-rate limits could be adopted for the purpose of requiring proof that amounts in excess of the limits are really payments for services. The national courts must determine whether these principles have been observed. The functions of the Fund were not noted.

In May 1974, the Italian authorities introduced a regulation under which residents were granted a basic allowance of 500,000 lire per year, which was equivalent to approximately $775 at the time, for travel abroad, apart from travel fare. For travelers other than tourists (for example, those who went abroad for reasons of business, study, or health), additional exchange was made available, within five or six days, if the authorities were satisfied that the request was bona fide. The measure was introduced for balance of payments reasons, and to prevent the illegal export of capital, after it had become clear that earlier procedures had proved to be ineffective.

The Italian authorities understood that, because applications in excess of the basic allowance would not be granted for tourism, the Fund regarded the measure as a restriction on payments for current international transactions. The authorities requested approval, which the Fund granted under Article VIII, Section 2(a) until December 31, 1974 and, subsequently, until a later date.

The principles enunciated by the court should not result in validating restrictions that are subject to approval by the Fund but have not been approved by it. If that were not so, the Treaty of Rome could free members of the Community from their obligations under the Fund’s Articles as members of the Fund. There is no evidence that the negotiators or administrators of the Treaty of Rome have intended to establish any derogation from the obligations under the Articles of member states that are members of the Fund. There is no reason to suppose that the question of the legal validity of an attempted derogation arises.

No conflict between the treaties would exist if the Treaty of Rome obliged member states not to impose measures that the Fund would consider restrictions subject to approval under the Articles. Article VIII, Section 2(a) is not a license for members to impose restrictions with the approval of the Fund. On the contrary, the provision requires members not to impose restrictions, unless the Fund approves them. The emphasis is on the prohibition of restrictions. An undertaking under the Treaty of Rome not to impose restrictions does not free members from an obligation under the Articles. On the contrary, the undertaking is consistent with the multilateral system of payments that is a purpose of the Fund.75 It is assumed, however, that a member state that does not impose particular restrictions on payments and transfers for current international transactions with fellow member states in accordance with the Treaty of Rome refrains at the same time from imposing the same restrictions on payments and transfers to other members of the Fund. If more restrictive measures were imposed on other members of the Fund, the measures would be not only restrictions under the Fund’s Article VIII, Section 2(a), but also discriminatory currency arrangements under Article VIII, Section 3. It is unlikely that the Fund would approve such measures. Members of the Fund are entitled, however, to discriminate in the imposition of capital controls.

On the subject of discrimination, it must be recalled that under Article 106(1) of the Treaty of Rome, member states must refrain from imposing restrictions on payments in connection with the listed current international transactions if the payments are in the currency of the member state in which the creditor or beneficiary resides. If this is the full extent of the obligation of liberalization in relation to the listed transactions, the obligation would not extend to payments in the currency of a non-Community currency, such as the U.S. dollar, or to payments, for example, in sterling demanded for services to be rendered to tourists going to France. These payments, though not subject to the Treaty of Rome, are subject to Article VIII, Section 2(a) of the Fund’s Articles. If a member state of the Community wished to limit liberalization to the payments covered by Article 106(1) of the Treaty of Rome, the approval of the Fund would be necessary. If greater freedom were permitted for payments not covered by that provision, once again discriminatory currency arrangements as well as restrictions would be involved.

Suppose that the Fund has not approved a measure, imposed by a member state of the Community, for which approval is necessary under the Articles. If the measure is inconsistent with provisions of the Treaty of Rome that are directly binding, the courts of the promulgator will probably hold the measure to be invalid. If the measure is consistent with the provisions of the Treaty of Rome but inconsistent with the Articles, nothing made explicit in the Articles requires the courts of the promulgator to treat the measure as invalid.76 The issue would be different if it arose in the courts of a country other than the promulgator.

III. A Concluding Comment

The cases in which a unit of account defined in terms of gold is to be applied demonstrate a growing acceptance of the SDR as the successor to gold in its function as an international standard of value. No final decision has held that it is impossible to apply a gold unit.77 In all but the Italian case, the market price of gold has been rejected as the correct mode of applying a gold unit.

Technical legal difficulties have troubled the courts and prevented some from applying the SDR solution. These difficulties were one reason why the Italian court chose the market price of gold. The Supreme Court of the United States has indicated that, although it could not adopt the SDR solution by way of interpretation, the solution might be acceptable by way of administrative determination.

The courts that have applied the SDR solution by interpretation have done so for a variety of reasons, some of which are persuasive but others not. The courts have not hesitated to rely on the analogy of conventions under which the SDR will replace a gold unit, even though the conventions have not yet become effective, and on the analogy of domestic and foreign statutes that have adopted the SDR solution even though the statute has not applied to the convention before the court.

A French author78 has made the interesting suggestion that the Fund might decide that the Second Amendment has had the effect of substituting the SDR for gold as the unit of account under conventions. It is unlikely that the problem would be regarded as one of interpreting the Articles rather than the conventions, from which it would follow that the problem did not fall within the Fund’s power of authoritative interpretation of its Articles.

A decision of the Court of Justice of the European Communities raises questions about the relationship between the complex provisions of the Treaty of Rome with respect to the liberalization of payments and transfers and the provisions of the Articles. This relationship has not been the subject of judicial comment, perhaps because it is assumed that no conflict arises. The court’s reflections on the distinction between capital transfers and payments and transfers for current international transactions have an interest that is broader than the Treaty of Rome.

Sir Joseph Gold, Senior Consultant and formerly the General Counsel and Director of the Legal Department of the Fund, is a graduate of the University of London and Harvard University. He is the author of numerous books, pamphlets, and essays on the Fund and on international and national monetary law.

80 L Ed 2d 273.

49 Stat. 3000, T.S. No. 876 (1934), reprinted at 49 U.S.C. §1502 note.

49 U.S.C. §130 et seq.

690 F. 2d 303 (1982).

Deere and Company v. Deutsche Lufthansa Aktiengesellschaft, No. 81 C 4726, United States District Court for the Northern District of Illinois, Eastern Division, 18 Av. Cas. 17, 178, December 30, 1982. For a discussion of cases in the United States and other countries, see Joseph Gold, The Fund Agreement in the Courts: Volume II (Washington: International Monetary Fund, 1982), pp. 439–57, hereinafter cited as Gold, Volume II; SDRs, Currencies, and Gold: Sixth Survey of New Legal Developments, Pamphlet Series No. 40 (Washington: International Monetary Fund, 1983), pp. 83–89, hereinafter cited as Gold, Pamphlet No. 40; James David Simpson, Jr., “Air Carriers’ Liability Under the Warsaw Convention After Franklin Mint v. TWA,” Washington and Lee Law Review (Lexington, Virginia), Vol. 40 (1983), pp. 1463–1503.

In the courts of other countries, the SDR solution involves the value of the SDR in terms of the currency of the forum in lieu of the U.S. dollar.

The most extraordinary statement is that “Effective April 1, 1978, the ‘Special Drawing Right’ (SDR) was to become the sole reserve asset that IMF nations would use in their mutual dealings” (80 L Ed 2d 273, p. 280). This view of the SDR is wrong, but if held could have given the court a reason to conclude that the SDR is the successor to gold in the international monetary system and that a gold unit of account must be interpreted and applied in accordance with that development.

See Joseph Gold, Floating Currencies, SDRs, and Gold: Further Legal Developments, Pamphlet Series No. 22 (Washington: International Monetary Fund, 1977), pp. 33–34.

Pub. L. No. 92–268 §2, 86 Stat. 116 (1972); Pub. L. No. 93–110 §1, 87 Stat. 352 (1973).

Pub. L. No. 94–564 §6, 90 Stat. 2660 (1976).

80 L Ed 2d 273, p. 282. A footnote to the second sentence of this passage reads: “However, Article 39(2) of the Convention expressly permits a Convention signatory to withdraw by giving timely notice. Plainly, a party to a treaty of voluntary adhesion can have no need for the doctrine of rebus sic stantibus, except insofar as it might wish to avoid the notice requirement.”

The Suoreme Court stated (footnote 26 on 80 L Ed 2d 273, p. 283) that Article 22(4) “expressly” permits each signatory to determine the way the Poincaré franc is to be converted (that is, translated) into the national currency. Article 22(4), however, can be read to provide expressly only that the translation may be made into round figures. It is reasonable to assume that this formulation implies authorization to prescribe the mode of translation.

80 L Ed 2d 273, p. 283.

80 L Ed 2d 273, p. 284. In this context, “reasonable” must be taken to mean only that any limit is a limit.

Ibid. (Footnotes omitted.)


International Monetary Fund, By-Laws; Rules and Regulations, 41st Issue (Washington, August 1, 1984), pp. 55–56.

80 L Ed 2d 273, p. 284. The computation for converting Poincaré francs into U.S. dollars would be as follows on the basis of the value of the SDR on March 23, 1979, the date the cargo was delivered to TWA: 1 Poincaré franc (90 percent fine gold) = 0.0655 gram of fine gold; 1 Poincaré franc (100 percent fine gold) = 0.05895 gram of fine gold; 1 SDR (gold value on March 31, 1978) = 0.888671 gram of fine gold. The number of francs in 1 SDR = 0.888671/0.05895 = 15.075, rounded to 15. The Warsaw Convention limit of 250 francs per kilogram converted to SDRs = 250/15 = 16.67 SDRs per kilogram, rounded to 17 SDRs. The dollar value of 1 SDR on March 23, 1979 = 1.28626; 17 SDRs per kilogram times 1.28626 = $21.87 per kilogram. (SDR 17 per kilogram was equal to approximately $17.99 on April 17, 1984.) Petition for a Writ of Certiorari to the United States Court of Appeals for the Second Circuit, by Trans World Airlines, Inc., Petitioner, January 15, 1983, p. 20 n. 34; in Trans World Airlines v. Franklin Mint Corporation et al.

For a discussion of the effect of variability in the value of the SDR in relation to another treaty, see Chester D. Hooper, “Dow Should Promote the Visby Amendments,” Journal of Commerce (New York), October 19, 1984, p. 4A.

80 L Ed 2d 273, p. 285.

Ibid., p. 284.

Ibid., p. 285 n. 31.

Ibid., p. 285. What the court meant by the decision of countries in 1978 “to exit from the gold market” is obscure. The reference is to the Second Amendment, but the Articles now free members of the Fund from the earlier legal constraints on them under the Articles with respect to the prices at which they could engage in transactions in the market. Nevertheless, the objection to the market price in the application of the Warsaw Convention should be beyond further controversy. The dissenting Justice, however, held that the majority was not enforcing the liability limit in the Convention, but the limit set by TWA and accepted by the CAB on the ground that it was more compatible with the purposes of the Convention. In preferring the market price of gold, he considered absolute uniformity the main purpose of the Convention and not the approximation to uniformity that the majority struggled to discover in justification of its solution. 80 L Ed 2d 273, pp. 287–301.

80 L Ed 2d 273, p. 285.

Ibid., p. 286.

Ibid., p. 285 n. 31.

Gold, Pamphlet No. 40, p. 88.

Ibid., pp. 88–89; Joseph Gold, SDRs, Gold, and Currencies: Third Survey of New Legal Developments, Pamphlet Series No. 26 (Washington: International Monetary Fund, 1979), pp. 35–38, hereinafter cited as Gold, Pamphlet No. 26.

531 F. Supp. 344 (S.D. Tex. 1981).

737 F. 2d. 456 (1984).

Ibid., at p. 459. The court decided that there was no federal law that allowed the recovery of attorney’s fees. Prejudgment interest was allowed, however, under Texas law.

Droit maritime français (Paris), Vol. 32 (1980), pp. 285–94.

Ibid., p. 275 et seq. The cases are discussed in Gold, Volume II, pp. 448–51.

Revue critique de droit international prive (Paris), Vol. 73 (April-June 1984), pp. 310–15.

Ibid., p. 311 (translation).

Marthe Simon-Depitre, ibid., pp. 311–15, at pp. 314–15 (translation).

Foro Italiano (Bologna), Part 1–134 (1982), p. 2074.

Konrad Zweigert and J. Kropholler, eds., Sources of International Uniform Law, Vol. 2, Transport Law (Leiden, Netherlands: Sijthoff en Noordhoff, 1972), pp. 23–28. The Brussels Convention will be replaced by the Convention on the Carriage of Goods by Sea, 1978 (“the Hamburg Rules”), adopted on May 31, 1978, when it becomes effective; Joseph Gold, SDRs, Currencies, and Gold: Fifth Survey of New Legal Developments, Pamphlet Series No. 36 (Washington: International Monetary Fund, 1981), pp. 33–34.

See Gold, Pamphlet No. 26, p. 35.

International Monetary Fund, Articles of Agreement, Article IV, Section 2(b).

Foro Italiano (see footnote 37), p. 2076 (translation). On the valuation of gold in official reserves, see Gold, Pamphlet No. 26, p. 86 n. 98; SDRs, Currencies, and Gold: Fourth Survey of New Legal Developments, Pamphlet Series No. 33 (Washington: International Monetary Fund, 1980), p. 89, hereinafter cited as Gold, Pamphlet No. 33; Pamphlet No. 40, p. 77.

Joseph Gold, Legal and Institutional Aspects of the International Monetary System: Selected Essays, Vol. II (Washington: International Monetary Fund, 1984), pp. 332, 733, 742, 744.

Foro Italiano, p. 2077 (translation).

Istituto Centrale di Statistica (Central Institute of Statistics), Rome.

Foro Italiano, p. 2075 n. 3.

See Gold, Pamphlet No. 26, pp. 24–26; Pamphlet No. 33, pp. 32–33.

Schip en Schade (Zwolle, Netherlands), No. 30 (1983), pp. 78–80 (translation).

Ibid., p. 78.

The Carriage by Air and Road Act 1979 (Commencement No. 1) Order 1980 (1980 No. 1966 (C.84)).

1979 c. 28.

Ibid., Section 4(1).

Under Section 5 of the statute, which was brought into force by the Order cited in footnote 49, the value of an SDR on a particular day shall be treated as equal to such sum in sterling as the Fund has found for that day, or, if no sum has been found for that day, for the last day before that day for which the Fund has found a sum. A certificate by or on behalf of the U.K. Treasury stating the sum in sterling in accordance with the foregoing rule shall be conclusive evidence in any proceedings.

The report does not clarify why the proceedings were brought in the Netherlands, but it may be that the defendant was a resident of that country. Article 31(1) of the CMR provides that:

In legal proceedings arising out of carriage under this Convention, the plaintiff may bring an action in any court or tribunal of a contracting country designated by agreement between the parties and, in addition, in the courts or tribunals of a country within whose territory:

(a) the defendant is ordinarily resident, or has his principal place of business, or the branch or agency through which the contract of carriage was made, or

(b) the place where the goods were taken over by the carrier or the place designated for delivery is situated,

and in no other courts or tribunals.

Probably, subparagraph (a) applied because the carrier received the goods in Marseilles for delivery in England.

No. 1 R 145/83, translated and reproduced in Brief of Trans World Airlines, Inc., August 29, 1983, at BA 12–21; in Trans World Airlines, Inc. v. Franklin Mint Corporation et al.

For an English decision on what part of a total consignment is the subject of compensation for loss or damage under the Warsaw Convention, see Data Card Corp. et al. v. Air Express International Corp. et al. [1983] 2 A 11 ER 639 (QBD).

European Transport Law (Antwerp), Vol. 9 (1974), pp. 701–10.

Joseph Gold, Floating Currencies, Gold, and SDRs: Some Recent Legal Developments, Pamphlet Series No. 19 (Washington: International Monetary Fund, 1976), pp. 17–33. See also Gold, Volume II, pp. 228, 242, 442.

Joseph Gold, Legal and Institutional Aspects of the International Monetary System: Selected Essays (Washington: International Monetary Fund, 1979), pp. 558–66.

The relevant Articles of the General Civil Code are as follows:

Article 6. No other interpretation shall be attributed to a particular provision of the law than that which is apparent from the plain meaning or the language employed and from the clear intention of the legislator.

Article 7. If a case can be decided neither from the language nor from the natural sense of a law, similar situations which are determined by reference to the laws and the purpose or related provisions must be taken into consideration. Should the case still remain doubtful, then it must be decided upon the carefully collected and well-considered circumstances in accordance with the natural principles of justice.1

Footnote 1 attached to Article 7 is as follows:

These two articles (6 and 7) are rules of interpretation which are binding upon the court. Article 6 demands principally a semantic interpretation, taking into account the intent of the legislator. Such intent is found in the deliberations of the experts who drafted the law, and, in later laws in the published reports of the “motives”, the reasons for drafting the laws. The first part of Article 7 refers to the use of analogy, and the second sentence refers to the principles of “natural law” which were in vogue at the time (1811). This rule was later discarded, and the meaning is now: The judge shall decide according to such rules as he would enact if he were the legislator at the time of drafting of the Code (see Commentary by Prof. Klang).

Paul L. Baeck, ed., The General Civil Code of Austria, annotated and rev. ed. (Dobbs Ferry, New York: Oceana, for the Parker School of Foreign and Comparative Law, Columbia University, 1972), p. 4.

See brief referred to in footnote 54, at BA 19.


Gold, Pamphlet No. 40, pp. 87–89.

For further support, the court cited Article 1 of International Air Transport Association, Passenger Services Conference Resolutions Manual, 3rd ed. (Montreal, effective January 1, 1983).

See brief referred to in footnote 54, at BA 23–35.

International Monetary Fund, Articles, Article IV, Section 2(b); Schedule C, paragraph 1.

Ibid., Article V (not IV as stated by the court), Section 12(e); Schedule C, paragraphs 3 and 7; Schedule K, paragraph 2.

Joseph Gold, “The Fund Agreement in the Courts—XIX,” Staff Papers, International Monetary Fund (Washington), Vol. 31 (March 1984), pp. 179–234, at pp. 220–23, hereinafter cited as Gold, Fund—XIX.

Criminal Proceedings Against Guerrino Casati (reference for a preliminary ruling from the Tribunale, Bolzano), Case 203/80, [1981] E.C.R. 2595; [1982] 1 C.M.L.R. 365.

Court of Justice of the European Communities, Judgment of the Court, 31 January 1984, Joined Cases 286/82 and 26/83, pp. 1–54 (official translation). Dr. Ren6 J.H. Smits has saluted the decision as “The End of Claustrophobia: European Court Requires Free Travel Payments,” European Law Review (London), Vol. 9 (June 1984), p. 192–202.

See Gerhard Rambow, “The End of the Transitional Period,” Common Market Law Review (The Hague), Vol. 6 (1968–69), pp. 434–50. For a discussion of the Casati, Luisi, and Carbone cases, see Lazar Focsaneanu, “Le contrôle des changes en question: L’arrêt de la cour de justice des communautés européennes du 31 janvier 1984,” La semaine juridique—I.—Doctrine (Paris), Vol. 58 (July 1984), 3153.

Paragraph 37 of the opinion, p. 51 (see footnote 69 above). The court did not accept the argument that transfers were not payments in respect of services unless the services had already been contracted for.

Ibid., paragraphs 21–23, pp. 46-7.

Ibid., paragraph 36, p. 51.

Dr. Smits has commented as follows:

The Court thus gives a definition of current payments and capital movements, which until now was conspicuously lacking. The definitions will prove useful whenever a transaction is listed as a capital transaction, but seems more suitably defined as a payment for an underlying transaction. The Court’s definition of current payments differs from that of Article XXX sub (d) of the IMF’s Articles of Agreement which describes as payments for current transactions payments which are not for the purpose of transferring capital and then enumerates some payments which are included in that definition. In practice, transactions defined as “current” under the IMF’s Articles will be qualified likewise under the Court’s definition. The Treaty itself classifies some payments connected with capital movements as “current.” The Court notes this system, which follows from Articles 67(2) and 106(1), in its Judgment. Interests and dividends are among the category of current payments connected with capital movements which are liberalised with direct effect by Article 67(2). These payments are also labelled “current” by the IMF’s Articles.

Smits, “The End of Claustrophobia” (see footnote 69), at pp. 196–97, footnotes deleted. See also Marc Dassesse, “Recent Developments of European Law Affecting Banking: The Free Movement of Capital and the Freedom of Payments in the European Economic Community,” International Banking Law (London), Vol. 3 (December 1984), pp. 95–97.

Gold, Fund—XIX, pp. 220–23.

See Joseph Gold, “Australia and Article VIII, Section 2(b) of the Articles of Agreement of the International Monetary Fund (IMF),” Australian Law Journal (Sydney), Vol. 57 (October 1983), pp. 560–66, at pp. 564–66.

The dissenting justice’s view in Trans World Airlines, Inc. v. Franklin Mint Corporation et al. that the market price of gold is the correct solution under the Warsaw Convention is supported in a note by Barbara A. Lincoln and Christine E. Lanzon, “Franklin Mint Corporation v. Trans World Airlines: Resolution of the Warsaw Convention Gold-Based Liability Limits Issue?” The George Washington Journal of International Law and Economics, Vol. 18 (No. 2, 1984), pp. 393–421.

Simon-Depitre, Revue critique de droit international privé (see footnote 36), at pp. 314–15.

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