Abstract

The litigation in U.S. courts in which claims have been made under life insurance policies issued by U.S. or Canadian companies to applicants then resident in Cuba is the most extensive body of cases involving Article VIII, Section 2(b), that has come into the courts so far. The cases suggest the following reactions.

The litigation in U.S. courts in which claims have been made under life insurance policies issued by U.S. or Canadian companies to applicants then resident in Cuba is the most extensive body of cases involving Article VIII, Section 2(b), that has come into the courts so far. The cases suggest the following reactions.

1. The benefits of Article VIII, Section 2(b), cease to be available to a country once it withdraws from the Fund, even in respect of contracts entered into when the country was a member. This conclusion seems to have been accepted by both courts and counsel in the cases. The conclusion has a wider significance in that it supports the view that Article VIII, Section 2(b), does not provide for the invalidity of contracts, but only their unenforceability. Whether a contract is unenforceable is determined by the facts at the time when enforcement is sought. (See pp. 45–46.)

2. Notwithstanding the view that seems to have been held in one of the cases, the application of exchange control regulations under Article VIII, Section 2(b), does not depend on a finding that they are part of the governing law under the private international law of the forum. (See pp. 21–23.)

3. Article VIII, Section 2(b), does not abrogate the choice-of-law rules of private international law. Therefore, if a contract is not unenforceable under Article VIII, Section 2(b), the forum may still apply the law which its private international law determines to be the governing law. This may result in the recognition of exchange control regulations that are part of that system, even though this result is not required by Article VIII, Section 2(b). (See pp. 23–25.)

4. The cases did not exclude life insurance contracts from the category of “exchange contracts.” Suggestions that the test of an exchange contract is whether it calls for payment in a currency foreign to the forum or to the governing law under private international law should not be accepted. (See pp. 25–27.)

5. The test for determining whether a member’s currency is involved in an exchange contract is that its exchange resources would be affected by the performance that is sought. This may be equivalent to the principle that the member whose exchange control regulations are in issue has legislative jurisdiction under public international law to adopt the regulations. This would seem to mean that the regulations control the transactions of residents or transactions dealing with assets situated within the member’s territory. In order to conclude that Article VIII, Section 2(b), has created a further norm of legislative jurisdiction, it would be necessary to show that a member’s exchange resources are affected by transactions that do not involve residents or local assets. (See pp. 27–35.)

6. The Blanco case and cases like it are consistent with the view that a member’s currency is not involved in contracts between nonresidents that do not require the transfer of an asset situated in the member’s territory. The Ugalde case cannot be reconciled with this view except on the assumption that the plaintiff was a resident of Cuba. The fact that nonresident parties have agreed that payment should be made in pesos in Cuba should not lead to the conclusion that Cuba’s currency would be involved in performance of the contract elsewhere with assets outside Cuba and therefore that Cuba was entitled to adopt exchange control regulations forbidding performance elsewhere that would be entitled to recognition under Article VIII, Section 2(b). This does not prevent a finding by the forum that the regulations must nevertheless be recognized as part of Cuban law because it is the governing law under the private international law of the forum. (See pp. 27–35.)

7. The currency of payment, whether foreign or domestic, is not a test by which to determine whether a currency is “involved” in a contract. Whether a member’s resources are affected will be determined by other facts relating to the contract. (See pp. 34–35.)

8. “Exchange control regulations” should not be understood to include legal tender laws (cours légal or cours forcé). Some of the legislative provisions treated as relevant in the cases were of this character. (See pp. 35–37.)

9. The cases raise the question whether exchange control regulations affecting life insurance control payments for current transactions or capital transfers. If the payments for current transactions or capital transfers of Cuba were involved in any of the cases, the classification of Cuba’s regulations as controlling the one or the other would have determined whether the regulations were maintained or imposed consistently with the Articles. The classification of the payment of premiums may depend on the type of life insurance that is in issue. If there is an element of insurance against risk, and not solely an element of savings and investment, one view might be that the premium is paid in part for a current service. It has also been suggested that all premiums involve payment for a current service to the extent that they recompense the insurer for administrative cost. The payment of the cash surrender or maturity value of a life insurance policy may be regarded as a capital transfer, although there may again be present a minor element of a current nature, i.e., to the extent that recent interest is included. (See pp. 37–42.)

10. The words “transfers of funds in settlement of commitments” in Article VI, Section 3, should be understood to refer to current transactions. (See pp. 42–45.)

11. Withdrawal from membership in the IBRD does not affect the benefits that a member of the Fund is entitled to under Article VIII, Section 2(b). (See p. 47.)

12. A member’s enjoyment of the benefits of Article VIII, Section 2(b), does not depend on a demonstration to the forum that the member is giving reciprocal treatment under that or other provisions of the Articles. (See pp. 47–48.)

13. Remedies in quasi-contract or the fragmentation of an agreement into two or more contracts should not be resorted to as techniques for frustrating the purpose of Article VIII, Section 2(b). (See pp. 48–49.)