The Fund Agreement in the Courts— V*

Joseph Gold
Published Date:
December 1962
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THIS ARTICLE DISCUSSES four eases which have been decided by courts in Hong Kong, Germany, Luxembourg, and the United States (New York) in the period 1949 to 1958. All of the cases deal with the unenforceability of certain exchange contracts under Article VIII, Section 2 (b), of the Articles of Agreement of the International Monetary Fund.

1. Hong Kong Case

In White v. Roberts, decided by the Hong Kong Supreme Court on November 3, 1949,1 the plaintiff and a partnership of the defendant and one Baeten had been foreign exchange brokers in Shanghai. The plaintiff, on behalf of his clients, had entered into numerous contracts with the partnership in Shanghai under which the plaintiff paid Chinese currency in return for payment by the partnership of specified foreign currency to a named person in another country. In January 1948, the plaintiff and defendant, fearing that their dealings in foreign exchange had been discovered by the Chinese authorities, removed themselves to Hong Kong, where the plaintiff brought an action on twelve of the contracts made in Shanghai under which the partnership had defaulted by failing to provide the stipulated foreign currency. The contracts had called variously for the payment of U.S. dollars in the United States, sterling in the United Kingdom, or Hong Kong dollars in Hong Kong. The plaintiff claimed to recover from the defendant approximately one million Hong Kong dollars, with an alternative claim of damages for breach of contract. The parties agreed that the contracts were governed by Chinese law. The defendant denied that he had been in partnership with Baeten during the period when the contracts were made, and pleaded that they had been made with Baeten only. The Court held that this defense failed, and that the contracts had been entered into by the defendant and Baeten as partners. The Court found that on this issue, and apart from the other issue raised by the defendant, he would be liable under both Chinese and Hong Kong law for breaches of the contracts or alternatively for money had and received. The defendant pleaded further that the contracts were illegal and criminal under Chinese law, and therefore that any money paid by the plaintiff under them could not be recovered under the laws of China or Hong Kong either as damages for breach of contract or as money had and received.

The defendant’s second plea relied upon certain foreign exchange control regulations of the Central Bank of China promulgated in August and December 1947. The August regulations provided that all foreign exchange dealings must be through appointed banks or licensed brokers and at rates established by the Foreign Exchange Equalization Fund Committee appointed by the Central Bank. Confiscation of foreign exchange and imprisonment were.prescribed as penalties for others dealing in foreign exchange. The December regulations closely followed the August regulations except that no provision was made for dealings through licensed brokers. The Court found that eleven of the contracts violated the August regulations, and the twelfth the December regulations. The Court came to the following conclusion:

… Counsel for the defendant relied on Article V11I Section 2(b) of the Bretton Woods Agreements. It is admitted that both China and the United Kingdom are signatories to these agreements which agreements were for the establishment of an international body to be called the International Monetary Fund, and another body with which we are not here concerned. In both cases, the year of signature was 1945. On the 10th January, 1946, the Bretton Woods Agreements Order-in-Council St. R. & 0. No. 36 provided that portion of Article VIII section 2(b) was to have the force of law. The Order is applicable to Hong Kong. The part of Article VIII section 2(b) which has the force of law reads:—

“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.”

Counsel also quoted in support Dicey’s Conflict of Laws page 750 where the learned author states under Rule 166 that a contractual obligation may be invalidated or discharged by exchange control legislation if such legislation is part of the proper law of the contract. He referred also to Frankman v. Prague Credit Bank (1948) 1 K.B. 730 where Article VIII section 2(b) was held applicable. This case was later reversed on appeal and argument as to the applicability of Article VIII section 2(b) was abandoned.

Counsel for the plaintiff submitted that even if Article VIII section 2(b) of the Bretton Woods Agreements was applicable to the case, it merely provided that such contracts were not enforceable in our Courts: it did not go on to provide that money paid under such contracts could not be recovered. Therefore. even if plaintiff failed on his action for breach of contract, he should still recover in an action for money had and received. …

… I do not agree with the contention of Counsel for the plaintiff that, because Article VIII section 2(h) of the Bretten Woods Agreements states only that the Court will not enforce exchange contracts contrary to the laws of a foreign country, I ought not to hold that plaintiff should not succeed in an action for money had or received. It is immaterial in such a case whether plaintiff relies on the breach of contract or on an action for money had and received: if the circumstances of the case show that there was illegality, then in my view he cannot succeed.

I agree with the submission of Counsel for the defendant that, these contracts being illegal by the law of China, this Court ought to do nothing to enforce them both on the grounds of public policy and because of the provisions of Article VIII section 2(b) of the Bretton Woods Agreements.

I hold that plaintiff fails in his claim and I give judgment for defendant. Plaintiff to pay ⅔ of defendant’s costs.

White v. Roberts is of interest for a number of reasons. It is one of the earliest cases involving the application of Article VIII, Section 2(b), and indeed seems to be the first in which the decision was based squarely on that provision, although equal weight was given to the principle that the contracts were illegal under Chinese law, the law governing them under the private international law of Hong Kong. In dealing with Article VIII, Section 2(b) most courts have taken confidence from the fact that the law of the member whose currency was involved under that provision was also the governing law under traditional private international law. There is probably no case so far in which a contract which was enforceable under what was found to be the governing law under private international law, was nevertheless declared unenforceable because of the provision, although it is significant that in the Hamburg case discussed in an earlier article2 the Court appears to have found it unnecessary to determine what was the governing law under traditional private international law. Moreover, in In re Sik’s Estate3 the Surrogate’s Court of New York found that the contract was unenforceable under New York law, the governing law, but nevertheless went on to consider the effect of Yugoslav exchange control regulations. However, it found that there was justification for not obtaining the license required by these regulations, and the enforceability of the contract was upheld.4

Perhaps the most interesting feature of White v. Roberts is that, having found that the contracts were unenforceable, the Court then decided that the plaintiff could obtain neither damages for nonperformance nor the return of the monies, or their equivalent, that he had paid under them. In short, the plaintiff was unable to base a remedy either on the unenforceable contracts or on the monies that he had paid pursuant to those contracts. The same conclusion was reached in Lessinger v. Mirau, which is discussed next.

2. Schleswig Case

Lessinger v. Mirau, decided by the Schleswig-Holstein Oberlandes-gericht in Schleswig on April 1, 1954,5 is, in essential respects, similar to White v. Roberts. The parties, who were Austrian citizens, concluded a contract in Vienna on May 1, 1949 under which the plaintiff was to provide 30,000 Austrian schillings to enable the defendant and one Karplus to try out a system of roulette in the casino at San Remo. What the plaintiff actually provided was a sum of US$1,000, the equivalent of the Austrian currency referred to in the contract. This payment was made without the consent of the Austrian exchange control authorities and was thus in violation of Austrian regulations. The plaintiff was to receive 30 per cent of the profits but was not to participate in any losses. The defendant and Karplus guaranteed the plaintiff that he would receive a minimum of 3,000 Austrian schillings each month. They also undertook to pay the profits and repay the capital to the plaintiff or his representative in Vienna, Switzerland, or Italy, at the election of the plaintiff, and they provided certain instruments as security for these obligations. The money advanced by the plaintiff was lost, and he had never received any payment or repayment. The defendant left Vienna for Travemünde in Germany, where he took a position at the local casino and finally became technical superintendent of gambling. The plaintiff brought an action in the Landgericht of Lübeck, in which he asked that the defendant be ordered to pay the equivalent in German currency of US$1,000 and interest into a blocked account in the plaintiff’s name. The Lübeck Court dismissed the plaintiff’s claim, and he appealed.

The Oberlandesgericht decided that the loan contract was governed by Austrian law, and that Austrian law included exchange control regulations which had been violated by the parties. The Court examined and rejected various arguments for refusing to recognize the exchange control regulations of Austria. It continued:

Frequently, the refusal to apply foreign exchange control law has been based on the principle of public policy. … It has been argued that foreign exchange laws enacted for the protection of the foreign currency would encroach upon creditors’ vested rights and are thus incompatible with domestic legal philosophy. … since the war this view has gradually been replaced by the contrary opinion. Since nearly all states have introduced some form of regulation of their exchange resources, the opinion has gained strength that in the present state of the world economy restrictions on the use of exchange resources by individual states are inevitable. Accordingly, more than fifty states6 have gradually ratified the Bretton Woods Agreements of 1944. The Federal Republic of Germany and Austria have also joined the Fund … Article VIII, Section 2(b), first sentence of this Agreement, provides in the official German translation:

“Aus Devisenkontrakten, die die Wahrung eines Mitglieds beriihren und diein Gegensatz stehen zu den von dem Mitglied in Ubereinstimmung mit diesem Abkommen aufrechterhaltenen oder eingefiihrten Devisenkontrollbestim-mungen, kann in den Gebieten der Mitglieder nicht geklagt werden.”

Accordingly, the members have obligated themselves under Article VIII, Section 2(b), second sentence—“to cooperate in measures for the purpose of making the exchange control regulations of either member more effective, provided that such measures and regulations are consistent with this Agreement. “It is true that jurisprudence has so far been reluctant to apply Article VIII of the Fund Agreement. … Yet, it is not clear why Article VIII … should not obligate German courts to apply Austrian foreign exchange law to cases like the one under consideration, undoubtedly, the contract of loan is a contract in the sense of Article VIII. … It is also an exchange contract within the meaning of this provision. Exchange contracts are contracts which affect the currency of a member (Mann, Der International Wahrungsfonds und das International Privatrecht JZ 1953, p. 444). This interpretation is the only one compatible with the purpose of the regimentation of foreign exchange resources. In any event, however, in view of our own German foreign exchange laws, German public policy is no basis which would justify a rejection of the applies of Austrian the happily impaction of Austrian law in its entirety, i.e., including the foreign exchange pro-visions concerning the effects of violations of exchange control regulations under civil law. … (Translation)

The Court concluded, therefore, that, since the loan contract was void under Austrian exchange control regulations, it would not support a claim for repayment of the amount lent. Furthermore, the plaintiff could not recover on the basis of unjust enrichment. That claim was subject to Austrian law. Under that law, restitution of commodities or foreign exchange transferred notwithstanding a prohibition of law was decreed only where restitution would further the purpose of the prohibition. Since the defendant no longer retained the foreign ex-change that he had received, he could not return it to the Austrian economy. The purpose of the Austrian prohibition of the illegal export of foreign exchange was not the indemnification of the payer who disregarded the law. Therefore, the plaintiff failed on this part of his case also.

The conclusion reached by the Schleswig Court was thus the same as in White v. Roberts, namely that the plaintiff could succeed neither on the contract nor on the basis of some quasi-contractual principle. In both eases, the Court relied equally on Article VIII, Section 2(b), and on private international law. In both cases, the contracts related to currency. In White v. Roberts they provided for exchange transactions, and in Lessinger v. Mirau an advance of currency was to be repaid together with a share of the profits resulting from the use of the currency. However, there is one feature of the decision in Lessinger v. Mirau which is of special interest, and this is its bearing on the meaning of the words “exchange contracts” and “involve the currency” in the provision.

On these elements in Article VIII, Section 2(b), two polar views have been expressed. Professor Nussbaum’s view may be taken as typical of a conservative approach to the interpretation of these words, and Dr. Mann’s as typical of a liberal attitude. Professor Nussbaum has said that “exchange contracts” are those which have international media of payment as their immediate or exclusive object, so that contracts involving securities or merchandise are excluded except where they are monetary transactions in disguise. A currency is “involved” if it is a medium of payment with which the contract deals or to which it refers.7 These views have been endorsed most recently by the editors of the seventh edition of Dicey’s Conflict of Laws,8 the classic English text on private international law. Dr. Mann, on the other hand, interprets “exchange contracts” to mean those contracts which affect the exchange resources of a country, and the currency “involved” is that of the country whose resources are affected.9 In his article in the Juristenzeitung,10 to which the court in Lessinger v. Mirau referred with approval, Dr. Mann wrote:

According to a third suggestion “exchange contracts” are contracts which in any way affect a member’s exchange resources [see paragraph 2 below]. This definition is probably closest to the intentions of the drafters, but does have the disadvantage that it makes the word “exchange” redundant; in order to express the idea the provision could have referred simply to “contracts which involve the currency of any member.” One cannot lightly decide to ignore an important word, and thereby act against all rules of interpretation. Yet, this objection, grave though it may be, is out-weighed by the fact that no other interpretation would achieve the purposes of the Agreement.

2. As was pointed out above, exchange contracts “which involve the currency of any member” are contracts which affect the currency resources of a member. It is not so much the denomination of a debt in a particular currency that matters, but the prejudicial effect which a transaction may have upon a member’s financial position and which, by international co-operation, the members have attempted to preclude. Gold, securities of whatever denomination, even land, moveables or intangibles, may be the subject matter of exchange control and their disposition may “involve the currency of a member.” There is no reason why in a document of this kind, “currency” should not be construed in the broad sense of economics rather than in a strictly legal sense. (Translation)

In Lessinger v. Mirau, the contract did not provide for an exchange transaction in the ordinary sense, but it was a monetary transaction because currency was what the plaintiff rendered and was to receive in consideration. The plaintiff was to pay an amount of money expressed in Austrian currency, although in fact paid in U.S. dollars, and he was to receive this amount back together with profits in Vienna, Switzerland, or Italy, and, presumably, therefore in the legal tender of the place of payment selected by the plaintiff. Thus, currency was the immediate, although in one sense not the exclusive, object of the contract, and Austrian currency was certainly “referred” to. The Court could easily have taken a conservative approach to the interpretation of the provision and still have decided as it did. It preferred instead to support the wider view of Dr. Mann as the “only one compatible with the purpose of the regimentation of foreign exchange resources.” 11

It may be of interest to return for a moment to the question of recovery in quasi-contract. In both White v. Roberts and Lessinger v. Mirau, the denial of a quasi-contractual remedy seems to have been based on the fact that the contracts were illegal under the exchange control regulations which the parties had failed to observe, and not on any close analysis of the concept of unenforceability or other elements in Article VIII, Section 2(b). In Lessinger v. Mirau, it is quite clear that the law under which the exchange control regulations were imposed was referred to as the law governing the quasi-contractual claim under the private international law of the forum, and this was probably the position in White v. Roberts also.

The conclusion reached by both Courts on the issue of the quasi-contractual claim promotes the general policy of the provision to discourage the making of contracts in disregard of exchange control regulations. Obviously, parties would be encouraged more frequently to take their chances in connection with such contracts if the risks were reduced. There could be no better way of eliminating risks than to assure a party that, if he fails to enjoy the performance of a contract that is unenforceable because it is contrary to exchange control regulations, he will thereupon be helped to recover the consideration that he has paid under the contract. Moreover, in some cases, a quasi-contractual remedy would be tantamount to the enforcement of the contract that is to be treated as unenforceable. For example, if A receives francs from A and promises to pay sterling to A in violation of French exchange control regulations, an action in quasi-contract by A in England for the francs had and received by A would result, if successful, in a judgment in sterling.12 If one ignores any difference that might be involved in the applicable rate of exchange, this would be precisely what the parties had sought by their unenforceable contract. At the same time, it should be noted that in some cases the denial of a quasi-contractual remedy may not be helpful to the economy of the country of the currency involved. For example, in Lessinger v. Mirau, if it is assumed that the plaintiff remained a resident of Austria, which seems to have been the case, restitution to him of the dollars that he had paid, if that were possible, or even the equivalent in the currency of the forum, would have restored resources, or their equivalent, to the Austrian economy. Nevertheless, the consideration of discouraging parties from disregarding exchange control regulations is a broader one and is more likely to be beneficial to members of the Fund in the long run. It is submitted, therefore, that the result in White v. Roberts and Lessinger v. Mirau should be approved.

3. Luxembourg Case

In Société ‘Filature et Tissage X. Jourdain’ v. Epoux Heynen-Bintner, decided by the Tribunal d’Arrondissement de Luxembourg (Civil) on February 1, 1956,13 proceedings were brought to obtain execution in Luxembourg of a judgment rendered by a French court, le tribunal de première instance de Mulhouse. On November 19, 1946, the Jourdain Company, a French firm, sold to Stangé, a resident of Luxembourg, seven bales of poplin for 641,685 French francs. The French authorities gave the necessary export and exchange control authorizations. On March 31, 1947, one Wolff, a resident of France, paid the Jourdain Company the contract price in French francs on behalf of Stangé. The Jourdain Company sued Stangé for this sum in the Mulhouse Court. French exchange control regulations provided that a franc payment from abroad must be made by debit to a foreign franc account opened in France in the name of the foreign debtor or his bank. The Mulhouse Court concluded that the payment by Wolff, which was not in accordance with French exchange control regulations, could not discharge Stange, and thus gave judgment for the Company. In the Luxembourg proceedings, the defendants, who were the heirs of Stangé, argued that the Court should not decree execution of the Mulhouse judgment because the French exchange control legislation on which it was based was contrary to the public policy of Luxembourg.

The Luxembourg Court rejected this argument:

The contract between the Jourdain Company and Stangé constitutes an exchange contract within the meaning of Article VIII, Section 2(b) of the Articles of Agreement of the International Monetary Fund;

Pursuant to this provision exchange contracts which involve the currency of a member and which are contrary to the exchange control regulations of that member, maintained or imposed consistently with this Agreement are unenforceable within the territories of other members;

By virtue of the authority conferred by Article XVIII of the above Agreement the Fund has interpreted the meaning and purpose of Article VIII, Section 2(b), as follows: (1) The parties to an exchange contract involving the currency of another member of the Fund and contrary to the exchange control regulations of that member, which are maintained or introduced in accordance with the Fund Agreement, may not receive the assistance of the judicial or administrative authorities of other members in order to obtain the execution of such contracts. … (2) In accepting the Articles of Agreement members undertook the obligation to incorporate the above-mentioned principles into their national law. An obvious result of this obligation is that if one party to an exchange contract of the category envisaged by Article VIII, Section 2(b), demands the execution of such a contract the tribunal of the member before which the action is brought may not on the grounds that these regulations are contrary to the public policy of the forum refuse effect to the regulations of the other member which are maintained or introduced in accordance with the Fund Agreement, (See L’application des Statuts du Fonds Monéiaire par les tribwnaux, by Joseph Gold; Revue critique de droit international privé, 1951, pages 586 and 587);

Since by the law of December 24, 1945, the Grand Duchy of Luxembourg approved the draft agreements contained in the Final Act of the Monetary and Financial Conference of the United Nations held at Bretton Woods from July 1 to 22nd, 1945, relating to the creation of the International Monetary Fund and the International Bank for Reconstruction and Development, the domestic courts are bound by the Fund Agreement and may not refuse to apply exchange control regulations of a member of the Fund which have been created or are being maintained in accordance with this Agreement, for the reason that they go against internal public policy, (See Réglementation des changes en droit international privé by Berthold Goldmann; report published in “Le contrôle des changes, ses répercussions sur les institutions jurdiqves” by Joseph Hamel, Andre Bertrand et Rene Roblot, pages 46 sq.; “De l’élimination des conflits de lois en. matière monétaire réalisée vor les Statuts du. Fonds Monétaire International et de ses limites” bv G. R. Delaume. published in the Journal de Droit International, 1954, pages 332 so.; Decision of Perutz v. Bohemian Discount Bank in Liquidation with note by Joseph Gold and G. R. Delaume, published in the Journal de Droit International, 1953. pages 796 sq.);

As France is a member of the International Monetary Fund and as Articles 10 and 11 of the French Decree of July 15, 1947 have not been introduced or maintained in violation of the Fund Agreement, these provisions may not be considered contrary to the public policy of Luxembourg: it follows that the motion made by the defendants … is without merit. (Translation)

Two features of this case should be noted. First, the Luxembourg Court treated it as one which unquestionably fell within the scope of Article VIII, Section 2(b). However, the basic issue was not the enforcement of a contract which was contrary to French exchange control regulations—the contract had been authorized by the appropriate French authorities—but the recognition as a discharge of a purported payment which was contrary to those regulations. The Luxembourg Court refused to recognize that this payment was a discharge. The result is logical because if the contract had expressly provided for payment as made by Wolff, the contract would clearly have been unenforceable under Article VIII, Section 2(b).

Secondly, the Luxembourg Court held that the contract was an “exchange contract.” It will be noted, however, that it was not a contract in which international means of payment were the immediate and exclusive object. It was a contract involving merchandise on one side and currency on the other.

The Luxembourg case suggests another issue. Article VIII, Section 2(b), provides that the exchange contracts there referred to shall be unenforceable “in the territories of any member.” Suppose that a party to a contract which would be unenforceable in the courts of a member country sues on it and obtains a judgment in a court in a nonmember country. Suppose then that the plaintiff sues on the judgment in a court in a member country. The private international law of many countries provides that, in certain circumstances, foreign judgments are conclusive and enforceable. If the judgment were treated in this way in the circumstances that have been imagined, the policy of Article VIII, Section 2(b), would be frustrated. However, foreign judgments can frequently be impeached on the basis of the public policy of the forum which is asked to enforce the judgment. The Luxembourg case involved the judgment of a court in another member country, and decided that the judgment could not be refused enforcement because it was based on the foreign exchange control legislation of that other member country. It is significant, however, that the Luxembourg court was willing to examine the question whether the foreign judgment offended Luxembourg public policy. Therefore, since it must now be considered part of the public policy of member countries to refuse enforcement of the contracts covered by Article VIII, Section 2(b), it would seem that in the case that has been supposed the foreign judgment would not be enforced.

4. New York Case

In Southwestern Shipping Corporation v. National City Bank of New York, decided by the New York Supreme Court,14 a court of first instance, on March 17, 1958, the plaintiff sued to recover $37,222 paid by the defendant to Anlyan in October 1951 pursuant to instructions from the Bank of Italy, Milan, to the defendant. The plaintiff claimed that the money should have been paid to it and not to Anlyan. The dealings on which this claim was based were these. In September 1951, Garmoja, an Italian entity, made an arrangement with Corti, another Italian entity, under which Garmoja paid approximately 23 million lire to Credito-Lombardo, an Italian bank, for the account of Corti. Corti then instructed Credito-Lombardi to transmit $37,222 to Anlyan in New York, who, before that transfer, was to assign the dollars to the plaintiff in New York. The plaintiff was to hold the money for Garmoja. Anlyan did assign the dollars to the plaintiff before the transfer to Anlyan, and the plaintiff notified the defendant of the assignment. The defendant promised to pay the sum to the plaintiff but nevertheless paid it to Anlyan.

The defendant pleaded that the arrangement between Garmoja and Corti was an agreement for the purchase and sale of foreign exchange which violated Italian exchange control legislation; and further that the agreement and the attempted transfer from Anlyan to the plaintiff were unenforceable because they were contrary to the public policy of the United States and the State of New York.

The New York court found that Italian exchange control legislation from 1934 to the date of the trial required that a license must be obtained from the Italian exchange control authorities for the dealings that have been described. A license had not been obtained, and the arrangement and attempted assignment were illegal, void, and unenforceable in Italy.

The plaintiff argued that its case was predicated, not on the Garmoja-Corti agreement or the Anlyan-plaintiff assignment, but on its independent contract with the defendant, the National City Bank. The plaintiff relied on a principle that a bargain collaterally and remotely connected with an illegal purpose or act is not rendered illegal thereby if proof of the bargain can be made without relying upon the illegal transaction. The New York Court held that either there was no proof at all of the alleged independent contract between the plaintiff and the defendant or the only proof necessarily involved the preceding illegal arrangements.

The Court decided as follows:

… With these established facts in mind, our courts, under the Bretton Woods Agreement, are expressly prohibited from furnishing any assistance to the enforcement of any agreements made in violation of the Foreign Exchange Control Laws of Italy. Article VIII, section 2(b) of the Bretton Woods Agreement provides as follows:

“2(b) 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.”

The Board of Directors of the International Monetary Fund on August 18, 1949,15 issued an interpretation of the above quoted Article VIII, section 2(b) of the Bretton Woods Agreement which provides in material part as follows:

“The meaning and effect of this provision are as follows: 1. Parties entering into exchange contracts involving the currency of any member of the Fund and contrary to exchange control regulations of that member which are maintained or imposed consistently with the Fund Agreement will not receive the assistance of the judicial or administrative authorities of other members in obtaining the performance of such contracts. That is to say, the obligations of such contracts will not be implemented by the judicial or administrative authorities of member countries, for example, by decreeing performance of the contracts or by awarding damages for their non-performance.

“2. By accepting the Fund Agreement, members have undertaken to make the principle mentioned above effectively part of their national law. This applies to all members, whether or not they have availed themselves of the transitional arrangements of Article XIV, Section 2.

An obvious result of the foregoing undertaking is that if a party to an exchange contract of the kind referred to in Article VIII, section 2(b) seeks to enforce such a contract, the tribunal of the member country before which the proceedings are brought will not, on the ground that they are contrary to the public policy (ordre public) of the forum, refuse recognition of the exchange control regulations of the other member which are maintained or imposed consistently with the Fund Agreement. It also follows that such contracts will be treated as unenforceable notwithstanding that under the private international law of the forum, the law under which the foreign exchange control regulations are maintained or imposed is not the law which governs the exchange contract or its performance.’”

And the Board of Directors of the Fund have by letter dated August 8, 1957, addressed to the Secretary of the Treasury of the United States (Defendant’s Ex. V in evidence) determined that the six Italian Decree laws upon which Dr. Rava based his opinion have since Italy joined the Fund on March 27, 1947, and particularly during the year 1951, been maintained and imposed consistently with the Bretton Woods Agreement.

Both the United States and Italy are parties to the Articles of Agreement of the International Monetary Fund (Bretton Woods Agreement), effective December 27,1945. This agreement was accepted by the United States on December 20, 1945, and by Italy on March 27,1947.

Even in the absence of the Bretton Woods Agreement, I must conclude that the cited authorities are determinative of the legal issue presented and that plaintiff cannot recover, as a matter of law, in a case such as this, if, as part of its case, plaintiff is required to allege and prove an unlawful act. The rule is succinctly stated in Stone v. Freeman, 298 N.Y. 268, 82 N.E. 2d 571, 8 A.L.R. 2d 304, where the Court of Appeals said:

‘It is the settled law of this State (and probably every other State) that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose…’

It will be observed that the decision is again based as much on the application of the governing law, Italian law, under New York private international law as on Article VIII, Section 2(b). It is interesting that the Court refused to sever the last stage in the complicated dealings, the relationship between the plaintiff and the defendant in New York, from the steps leading up to it and the impact of Italian law and exchange control.

The judgment contains no comment on the interpretation of Article VIII, Section 2 (b) apart from the Fund’s authoritative interpretation of June 14, 1949. Thus, there is no discussion of such elements in the provision as exchange contracts or the currency involved. This is undoubtedly because, as in White v. Roberts, the arrangements taken as a whole provided for an exchange transaction and thus, on any view, constituted an exchange contract. Again, by any test that has been advanced, Italian currency was “involved” in this exchange contract.

The reference in the opinion of the Court to a letter dated August 8, 1957 from the Fund to the Secretary of the Treasury of the United States raises a novel point of law. It will be recalled that the final paragraph of the interpretation of June 14, 1949 stated that:

The Fund will be pleased to lend its assistance in connection with any problem which may arise in relation to the foregoing interpretation or any other aspect of Article VIII, Section 2(b). In addition, the Fund is prepared to advise whether particular exchange control regulations are maintained or imposed consistently with the Fund Agreement.

The Fund is frequently requested to certify that specific exchange control regulations are maintained or imposed consistently with the Articles. In the New York case, this certificate was sent by the Fund to the U.S. Treasury, the fiscal agency of the United States under Article V, Section 1. The Treasury was able to certify that the Fund’s certificate was in its records. Presumably, this would overcome any difficulty under the practice of the New York State courts that might attend the direct submission by a litigant of the Fund’s certificate in evidence. Section 400 of the Civil Practice Act of New York provides that a copy of a record or other paper, remaining in a department of the Government of the United States, is evidence when certified by the head, or acting chief officer, for the time being, of that department.


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    Seidl-HohenveldernIgnaz.Note on Austrian exchange control cases,Journal du Droit InternationalVol. 84 (1957) pp. 101425.

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Originally published in November 1958.

33 Hong Kong Law Reporte (1949), pp. 231–82. Annual Digest and Reports of Public International Law Cases, Year 1949, pp. 27–36.

Pp. 82–86, supra.

05 Misc.715,129 NYS. (2d) 134 (1954).

Pp. 74–77, supra.

Unreported, The case is the subject of s, note and learned discussion by Hart-wig Bülck, Jahrbuch für Internationales Recht, Vol. 5, Part 1 (1955), pp. 113–23, Dr. Bülck has very kindly supplied a transcript of the case.

This refers to the date of the judgment. On June 1, 1958, there were 67 members, with other applications for membership pending.

A. Nussbaum, Money in the Law, National and International (Brooklyn, Rev, ed., I960), pp. 542–44.

Dicey’s Conflict of Laws (ed, J. H. C., Morris and others, London, 7th ed., 1958), pp. 923–24.

F. A. Mann, The Legal Aspect of Money (London 2nd ed., 1953), p. 382.

F. A. Mann, “Der Internationale Währungsfonds und das Internationale Privatrecht,” Juristenzeitung (Tubingen), Vol. 8 (1953), pp. 442–46.

Dr. Mann’s article was referred to with approval in the Hamburg case as well. See pp. 83–84, supra.

Cf. Boissevain v. Weil (1950), A.C. 327, particularly at p. 341. This case, however, did not fall under Article VIII, Section 2(b), because the English courts were concerned with the application of British exchange control regulations.

Pasicrisie Luxembowrgeoise (1957), pp. 36–39.

173 N.Y.S. (2d) 509.

The Fund addressed this interpretation to members on June 14, 1949. It was published in the United States by the National Advisory Council on International and Monetary Problems in the Federal Register of August 19. 1949, pp. 5208–9. See also pp. 12–13, supra.

For the first bibliography on Article VIII, Section 2(b), see pp. 67–68, supra.

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