The Fund Agreement in the Courts—VII
  • 1 0000000404811396 Monetary Fund

THIS ARTICLE continues the survey of cases in which the Articles of Agreement of the International Monetary Fund have been involved. The cases here considered have been decided by the United States Supreme Court, the New York courts, the Supreme Court of the Federal Republic of Germany, the Court of Appeals of Paris, and the Ontario High Court. The cases are dealt with under the general headings of inheritance and exchange control, exchange surrender requirements, the unenforceability of certain exchange contracts, and enemy property.1


THIS ARTICLE continues the survey of cases in which the Articles of Agreement of the International Monetary Fund have been involved. The cases here considered have been decided by the United States Supreme Court, the New York courts, the Supreme Court of the Federal Republic of Germany, the Court of Appeals of Paris, and the Ontario High Court. The cases are dealt with under the general headings of inheritance and exchange control, exchange surrender requirements, the unenforceability of certain exchange contracts, and enemy property.1

THIS ARTICLE continues the survey of cases in which the Articles of Agreement of the International Monetary Fund have been involved. The cases here considered have been decided by the United States Supreme Court, the New York courts, the Supreme Court of the Federal Republic of Germany, the Court of Appeals of Paris, and the Ontario High Court. The cases are dealt with under the general headings of inheritance and exchange control, exchange surrender requirements, the unenforceability of certain exchange contracts, and enemy property.1

Inheritance and Exchange Control

In the preceding article in this series,2 an account was given of the decision of the Supreme Court of Oregon and the arguments in the briefs relating to a petition to the Supreme Court of the United States for a writ of certiorari in a case involving, inter alia, certain effects of the Fund Agreement in the field of inheritance. On May 1, 1961, Mr. Justice Black delivered the opinion of the U.S. Supreme Court (Kolovrat v. Oregon).3

The facts, briefly, were as follows: S. and Z. owned personal property in Oregon where they died intestate. Their only heirs and next of kin were residents and nationals of Yugoslavia. The Oregon statutes prescribe certain conditions which must be satisfied before aliens not living in the United States can take Oregon property under a will or on intestacy, and, if, on intestacy, there are no next of kin except ineligible aliens, the property escheats to the State of Oregon. The State claimed the property of S. and Z. on the ground that there were no eligible next of kin. The Yugoslav relatives claimed that in fact and in law there were reciprocal rights of inheritance between Yugoslavia and the United States, and that the relatives were eligible to take under Oregon law. The Oregon Supreme Court held that they were not eligible on the ground that one of the conditions was not proved, namely, that there existed as a matter of law an unqualified and enforceable right of U.S. citizens to receive payment in the United States of moneys originating from the estates of persons dying in Yugoslavia. This finding was based on the fact that Yugoslav law gave the Yugoslav authorities a discretion to control foreign exchange payments in a way that might prevent Americans from receiving in the United States the full value of Yugoslav inheritances. The Oregon Court recognized that a different result would have to be reached if there were a treaty between the United States and Yugoslavia which made provision for inheritance in such circumstances as those of the present case, but concluded that this was not the effect of a treaty of 1881 between the United States and Serbia. The Oregon Court also rejected the contention of the Yugoslav relatives that their claims must succeed because the Yugoslav exchange control law was consistent with the Fund Agreement. The relatives based their petition to the U.S. Supreme Court on questions involving the 1881 treaty and the Fund Agreement.

The U.S. Supreme Court, reversing the Oregon Supreme Court, held that the 1881 treaty did entitle the next of kin to inherit personal property located in Oregon on the same basis as American next of kin. The treaty did not merely assure U.S. citizens the right to inherit the property of persons dying in Yugoslavia if the U.S. citizens were in Yugoslavia, or Yugoslav citizens the right to inherit the property of persons dying in the United States if the Yugoslav citizens were in the United States. The treaty also assured U.S. citizens the right to inherit if they were in the United States, or Yugoslav citizens the right to inherit if they were in Yugoslavia. This part of the opinion, involving the interpretation of the 1881 treaty, is not considered further here.

Having decided that the 1881 treaty gave the Yugoslav next of kin the right to inherit, the Supreme Court went on to examine the question whether this treaty right “has in any way been abrogated or impaired by the monetary foreign exchange laws of Yugoslavia.”4

On this question, Mr. Justice Black said:

… Oregon law, its Supreme Court held, forbids inheritance of Oregon property by an alien living in a foreign country unless there clearly exists “as a matter of law an unqualified and enforceable right” for an American to receive payment in the United States of the proceeds of an inheritance of property in that foreign country. The state court held that the Yugoslavian foreign exchange laws in effect in 1953 left so much discretion in Yugoslavian authorities that it was possible for them to issue exchange regulations which might impair payment of legacies or inheritances abroad and for this reason Americans did not have the kind of “unqualified and enforceable right” to receive Yugoslavian inheritance funds in the United States which would justify permitting Yugoslavians such as petitioners to receive inheritances of Oregon property under Oregon law. Petitioners and the United States urge that no such doubt or uncertainty is created by the Yugoslavian law, but contend that even so this Oregon state policy must give way to supervening United States-Yugoslavian arrangements. We agree with petitioners’ latter contention.

The International Monetary Fund (Bretton Woods) Agreement of 1945, supra, to which Yugoslavia and the United States are signatories, comprehensively obligates participating countries to maintain only such monetary controls as are consistent with the terms of that Agreement. The Agreement’s broad purpose, as shown by Art. IV, § 4, is “to promote exchange stability, to maintain orderly exchange arrangements with other members, and to avoid competitive exchange alterations.” Article VI, § 3, forbids any participating country from exercising controls over international capital movements “in a manner which will restrict payments for current transactions or which will unduly delay transfers of funds in settlement of commitments ….” Article 8 of the Yugoslavian laws regulating payment transactions with other countries expressly recognizes the authority of “the provisions of agreements with foreign countries which are concerned with payments.” In addition to all of this, an Agreement of 1948 between our country and Yugoslavia obligated Yugoslavia, in the words of the Senate Report on the Agreement, “to continue to grant most-favored-nation treatment to Americans in ownership and acquisition of assets in Yugoslavia … [and] Yugoslavia is required, by article 10, to authorize persons in Yugoslavia to pay debts to United States nationals, firms, or agencies, and, so far as feasible, to permit dollar transfers for such purpose.”

These treaties and agreements show that this Nation has adopted programs deemed desirable in bringing about, so far as can be done, stability and uniformity in the difficult field of world monetary controls and exchange. These arrangements have not purported to achieve a sufficiently rigid valuation of moneys to guarantee that foreign exchange payments will at all times, at all places and under all circumstances be based on a “definitely ascertainable” valuation measured by the diverse currencies of the world. Doubtless these agreements may fall short of that goal. But our National Government’s powers have been exercised so far as deemed desirable and feasible toward that end, and the power to make policy with regard to such matters is a national one from the compulsion of both necessity and our Constitution. After the proper governmental agencies have selected the policy of foreign exchange for the country as a whole, Oregon of course cannot refuse to give foreign nationals their treaty rights because of fear that valid international agreements might possibly not work completely to the satisfaction of state authorities. Our National Government’s assent to these international agreements, coupled with its continuing adherence to the 1881 Treaty, precludes any State from deciding that Yugoslavian laws meeting the standards of those agreements can be the basis for defeating rights conferred by the 1881 Treaty.5

It is clear that the broad sense of Mr. Justice Black’s opinion was that the adherence of the United States to the Fund Agreement had established a national policy which the individual states must respect. Nevertheless, the precise ratio decidendi of this opinion is not clear beyond question. It is not impossible, in the light of some dicta, that the ratio decidendi was that, even if the Yugoslav authorities were to restrict transfers of Yugoslav inheritances to U.S. heirs in the United States, this restriction would be consistent with the Fund Agreement, for which reason Oregon could not prevent the petitioners from succeeding to the Oregon inheritance. However, it must be observed that any such decision would be obiter because it was averred without challenge that the Yugoslav authorities were not restricting these transfers. Furthermore, the second federal question which the Supreme Court reviewed raised only the issue of the existence of exchange controls and not their exercise in a way that restricted the transfers: “… whether not-withstanding the adherence of both the United States and Yugoslavia to the Articles of Agreement of the International Monetary Fund, … a State of the United States may deprive citizens and residents of Yugoslavia of the capacity to inherit property in such State solely by reason of the existence in Yugoslavia of foreign exchange controls, imposed or maintained consistently with such Agreement….”6 The distinction between controls and restrictions was made quite clearly in the petitioners’ reply brief:

The emptiness of the respondent’s position on this score is evidenced by the fact that the complaint is merely that Yugoslavia has foreign exchange controls, and not that the American distributees of Yugoslav estates are not receiving their distributive shares in dollars in the United States.

If the ratio decidendi was not the one discussed above, a second possibility is that it was as follows: the petitioners must succeed on their petition because the Yugoslav exchange control regulations in existence were consistent with the Fund Agreement, the Fund Agreement prevented the exercise of the controls in such a way as to restrict the transfers of inheritances, and the Yugoslav authorities were observing this rule by not in fact restricting them. Thus, in stating the conclusion of the Court, Mr. Justice Black said:

For reasons to be stated, we hold that the 1881 Treaty does entitle petitioners to inherit personal property located in Oregon on the same basis as American next of kin and that these rights have not been taken away or impaired by the monetary policies of Yugoslavia exercised in accordance with later agreements between that country and the United States.7

This statement could mean that “the monetary policies” did not involve restriction of the transfers in fact. Alternatively, it could mean that, because of the “later agreements,” those monetary policies could not validly have been other than they were, so that restriction of the transfers was not legally possible.

Again, in response to the argument that the Yugoslav exchange controls made it possible for the Yugoslav authorities to restrict the transfers in question, Mr. Justice Black replied:

Petitioners and the United States urge that no such doubt or uncertainty is created by the Yugoslavian law, but contend that even so this Oregon state policy must give way to supervening United States-Yugoslavian arrangements. We agree with the petitioners’ latter contention.8

As was shown in the earlier article cited above, the arguments of the United States and the petitioners were not the same. The United States argued that the Fund Agreement “clearly obligates the countries participating to maintain only such controls as are permitted by its terms and within such limitations as are provided therein. There is nothing in the Agreement which would allow Yugoslavia to preclude the inheritance by an American citizen and resident of the estate of a Yugoslav.”9 The petitioners, however, argued only that the existence of exchange controls in Yugoslavia was consistent with the Fund Agreement, and that there were no restrictions in fact on transfers of inheritances.

It is, of course, true that the Court held that the petitioners’ argument had to be accepted even if there were doubt or uncertainty with respect to the right to receive transfers of inheritances in the United States. However, the doubt or uncertainty referred to was that “created by the Yugoslavian law,” and it is still possible to read the opinion as meaning that the Fund Agreement disposed of that doubt or uncertainty.

It is hardly likely that the transfer of an inheritance is anything but a capital transfer under the Fund Agreement.10 Members of the Fund are entitled to restrict capital transfers in accordance with Article VI, Section 3:

Controls of capital transfers.—Members may exercise such controls as are necessary to regulate international capital movements, but no member may exercise these controls in a manner which will restrict payments for current transactions or which will unduly delay transfers of funds in settlement of commitments, except as provided in Article VII, Section 3(b), and in Article XIV, Section 2.

It is perhaps significant that Mr. Justice Black quoted directly, not the words recognizing the authority of members to regulate capital transfers, but the words limiting this authority so that it is not to be exercised “in a manner which will restrict payments for current transactions or which will unduly delay transfers of funds in settlement of commitments.” However, as already pointed out, the transfer of an inheritance should not be regarded as a current transaction; and even if it were, Yugoslavia was taking advantage of the transitional arrangements of Article XIV, under which provision there is authority to restrict payments and transfers for current international transactions. As for the special mention of the duty to avoid undue delay in the transfer of funds in settlement of commitments, whatever may be the scope of the word “commitments” in this context, there is good reason to believe that the commitments referred to are those entered into in connection with current transactions. The purpose of the language is to establish that, even though payments and transfers for current transactions are not prohibited by a member, undue delay in permitting the settlement of these transactions resulting from the member’s exchange control procedures is nevertheless a “restriction” on such payments and transfers for the purposes of the Articles.

If neither proposition already discussed was the ratio decidendi, then it could have been the proposition that the petitioners were entitled to succeed because the Yugoslav authorities were not restricting transfers of inheritances to U.S. heirs in the United States, and because the exchange control regulations in existence were consistent with the Fund Agreement. The fact that these regulations could be exercised to restrict these transfers, and that if this were done it would be consistent with the Fund Agreement, did not defeat the petitioners’ case, up to the point at which the regulations were in fact exercised in such a way as to restrict the transfers.

Probably the strongest case can be made for this reading of the opinion of Mr. Justice Black. It is to be noted that, after stating the contention of the petitioners and the United States that Oregon state policy must give way to supervening treaty arrangements, it was the petitioners’ contention that he explicitly accepted. This contention, unlike the one put forward by the United States, was consistent with the rationale here discussed. Furthermore, the paragraph beginning “These treaties and agreements …” quoted above from Mr. Justice Black’s opinion emphasized the fact that federal policy, as manifested by treaty arrangements, had not established complete freedom and certainty in the field of exchange practices, but “stability and uniformity in the difficult field of world monetary controls and exchange” “so far as can be done.”11 It is true that the opinion goes on to speak of the “valuation” of currencies, an issue not debated in the case; but this might well have been a not too exact reference to the “world monetary controls” of the preceding sentence and “the policy of foreign exchange” in a later sentence.

Whatever may have been the precise ratio decidendi of the Kolovrat case, it is of the greatest interest, within the scope of this series of articles, to point out that all of the three versions that have been suggested rely on the consistency of the Yugoslav exchange control regulations with the Fund Agreement. That is to say, federal policy, as evidenced by the acceptance of the Fund Agreement by the United States, made it necessary for the individual states to give due effect to the circumstance that the Yugoslav exchange control regulations were consistent with the Fund Agreement. This shows that the principle that the foreign exchange controls of a member which are consistent with the Fund Agreement cannot be deemed offensive to the public policy of another member is a principle that can go far beyond the recognition of exchange controls which is prescribed by Article VIII, Section 2(b). In this respect, the case would powerfully reinforce the decision of the New York Court of Appeals in Perutz v. Bohemian Discount Bank in Liquidation if the Perutz case is taken to be decided on some basis other than Article VIII, Section 2 (b).12

Exchange Surrender Requirements

Banco do Brasil, S.A. V. A.C. Israel Commodity Co., Inc., et al.,13 raises for the first time in New York the question whether the exchange control regulations of another member of the Fund can be the basis, not of a defense, but of an affirmative claim to recover. In this case, the claim was for damages equivalent to the dollar proceeds that Brazilian exporters were required by their law to surrender to the Brazilian exchange authorities. The plaintiff in its complaint stated that it was a Brazilian banking corporation and quasi-governmental agency with functions that included the supervision of all matters relating to foreign exchange and powers to act independently and in its own name for the enforcement of Brazilian foreign exchange laws and the recovery of moneys due to Brazil under them. The exchange laws provided that, before an exporter of coffee from Brazil could make a shipment, he was required to sell to the plaintiff the U.S. dollars payable by importers, in return for payment by the plaintiff at the rate of 90 Brazilian cruzeiros for each dollar. The payment of cruzeiros was to be made on presentation of shipping and other documents, and after the cruzeiro payment the dollars belonged to Brazil. The plaintiff alleged that certain Brazilian and U.S. corporations, including a Delaware corporation (hereinafter referred to as the defendant), had entered into a conspiracy to deprive the plaintiff of the dollar proceeds of certain coffee exports in violation of Brazilian law. The plaintiff alleged that the object of the conspiracy on the part of the Brazilian corporations was to obtain the free market rate for the dollar in Brazil (220 cruzeiros per dollar), and on the part of the U.S. corporations a lower purchase price for the coffee than the minimum price established by Brazilian law. The plaintiff claimed damages of more than $1.3 million against the defendant, and of more than $1.8 million against the defendants collectively, the total amount of the dollar proceeds of the exports in question.

The Supreme Court of New York made an order granting a warrant of attachment of the defendant’s New York property.14 Subsequently, the Court made an order vacating the warrant of attachment, and the opinion, delivered on March 27, 1961, contained the following passage:

The primary argument advanced in support of the motion is that plaintiff has failed to state a cause of action which the courts of this State would entertain in that it would require the enforcement of internal exchange laws and regulations of the United States of Brazil in derogation of the public policy of the United States and the State of New York.

[1] It cannot be disputed that, as a general rule, laws furthering foreign governmental interests are not enforced in this jurisdiction, … even if they be laws of a sister state, … or countries with which the United States has traditionally had friendly and close relationships….

However, recent decisions in this jurisdiction have beclouded this once clear rule since the United States enacted into law the “Bretton Woods Agreement” (Bretton Woods Agreement Act, 59 Stat. 512, 22 U.S.C.A. § 286 et seq.) effective December 27, 1945. Section 286k thereof provides:

“Further promotion of international economic relations

“In the realization that additional measures of international economic cooperation are necessary to facilitate the expansion and balanced growth of international trade and render most effective the operations of the Fund and the Bank, it is hereby declared to be the policy of the United States to seek to bring about further agreement and cooperation among nations and international bodies, as soon as possible, on ways and means which will best reduce obstacles to and restrictions upon international trade, eliminate unfair trade practices, promote mutually advantageous commercial relations, and otherwise facilitate the expansion and balanced growth of international trade and promote the stability of international economic relations * * *.”

In accordance with the foregoing, it has been held in this State that foreign exchange regulations are not against public policy if they are used as a defense to the enforcement of a contract which was entered into and was to be performed in a foreign county [sic] (Perutz v. Bohemian Discount Bank in Liquidation, 304 N.Y. 533, 110 N.E. 2d 6). It has also been held that the Bretton Woods Agreement prevents the courts of this State from enforcing illegal transactions in the field of international currency exchange (see Southwestern Shipping Corp. v. National City Bank of New York, 6 N.Y. 2d 454, 190 N.Y.S. 2d 352).

The question presented in the instant case is whether or not the Bretton Woods Agreement and the cases cited above justify this court in granting a warrant of attachment upon an action in which plaintiff seeks affirmative relief based on foreign currency regulations which were not heretofore enforceable in the courts of this State. So far as has been ascertained this is the first time this issue has been presented to a court of this State.

The only provision of the Bretton Woods Agreement which refers to acts of private individuals is Article VIII, Section 2(b), 60 Stat. 1411, which reads: “(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. In addition, members may, by mutual accord, 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.”

[2, 3] It is clear from the language of section 2(b) that before the provisions and purposes of the Bretton Woods Agreement can be affirmatively enforced in the courts of this country, it is necessary that additional accord be entered into between this country and other signatory nations. No such additional accord between the United States and Brazil has been indicated in the papers submitted. In the absence of such accords, it is the opinion of this court that the existence of a cause of action has not been shown ….

Moreover, it appears on the face of the moving papers upon which the attachment was obtained that the computation of plaintiff’s alleged damages depends upon the internal currency regulations of Brazil which, as indicated above, are not enforceable in the instant action.15

The plaintiff appealed from this order, arguing, in support of the sufficiency of the complaint, that the defendant had participated in a common law conspiracy to defraud the plaintiff committed within the jurisdiction of the New York courts, and that, as a result of the acceptance by the United States of the Fund Agreement and of the decision in the Perutz case, New York must give effect to the exchange laws of Brazil. In supporting this argument, the plaintiff contended that the Perutz case was not based on Article VIII, Section 2(b), and that the Court of Appeals in that case had proclaimed a new policy of international comity and respect for the exchange laws of other members of the Fund that were maintained or imposed consistently with the Fund Agreement. The defendant argued in reply that New York courts will not enforce by affirmative action governmental rights created by the foreign exchange laws of another country.16 The Fund Agreement did not change this rule. It did not create new causes of action, and the only provision relating to the enforcement of rights was Article VIII, Section 2(b), which established a defense but not an affirmative right based on foreign exchange controls. The Perutz case was not inconsistent with this analysis, the defendant’s argument continued, because it was merely an application of Article VIII, Section 2(b).17

On April 25, 1961, the Appellate Division, First Department, without opinion, unanimously affirmed the order vacating the warrant of attachment. Leave has been granted for appeal to the Court of Appeals.18

In its brief to the Court of Appeals, the plaintiff has argued that the lower court, in holding that there was no cause of action for affirmative relief based on Brazilian exchange control laws, held in effect that the recognition of those controls was against New York public policy for affirmative purposes. The plaintiff referred to certain cases, in which New York State and federal courts had recognized the affirmative effect on intangible property in New York of sequestration decrees of the Netherlands Government in exile,19 in order to support the proposition that New York courts, by virtue of the modern comity of nations, gave affirmative effect to the financial laws of foreign countries where they were not offensive to the public policy of New York. The Fund Agreement had removed any doubt that exchange control laws of other countries were per se contrary to U.S. public policy. The change in public policy resulting from the Fund Agreement was not confined to Article VIII, Section 2(b), but had to be derived from the Agreement as a whole. The plaintiff quoted a number of provisions to show that members of the Fund had agreed that exchange controls might be necessary and even vital on occasion. It was illogical to hold that it was not contrary to public policy to recognize exchange controls for defensive purposes, but that it was contrary to public policy to recognize them for affirmative purposes. In fact, the argument continued, recognition had not been confined to the situations covered by Article VIII, Section 2(b). For example, it was doubtful that the Perutz case came within that provision, but what was more important was that the New York Court of Appeals had not found it necessary to settle this point, or even to refer to the provision, as a condition of recognizing Czechoslovak exchange controls. The necessity to give broad recognition to exchange controls as a result of the Fund Agreement had now been supported by the U.S. Supreme Court in the Kolovrat case, which had no possible connection with Article VIII, Section 2(b).

The plaintiff then took up the finding of the lower court that there could be no affirmative enforcement of the Brazilian exchange controls in the absence of a “mutual accord” under the second sentence of Article VIII, Section 2(b): “In addition, members may, by mutual accord co-operate 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.” The “mutual accord” in this sentence did not mean that a further formal treaty was required. The sentence meant that members could, if they wished, extend further assistance in making exchange controls effective among themselves whenever and however they might be so requested. This cooperation might be among the executive financial institutions, or it might be given by the courts on receipt of a request for cooperation, and a request had been made in this case by the institution of the claim.

Finally, the plaintiff’s argument went beyond the proposition that the affirmative relief as requested was not contrary to the public policy of the United States. The plaintiff also asserted that the denial of that relief would be detrimental to the positive interests and public policy of the United States. The United States had given financial assistance to Brazil both directly and indirectly, in that the Fund had made its resources available to Brazil. This financial assistance was for the express purpose of supporting Brazil’s economic program, including its exchange measures. If U.S. courts enabled parties to defeat those measures, the courts would be nullifying the public policy of the United States.

Unenforceability of Certain Exchange Contracts


On December 17, 1959 the Supreme Court (Seventh Chamber) of the Federal Republic of Germany adopted an important decision on the recognition of foreign exchange control laws.20 A loan contract was entered into between two residents of Eastern Germany (referred to in the case as the Soviet Zone of Occupation). Later, the borrower became a resident of the Federal Republic, and the plaintiff, also a resident, to whom the lender had assigned her claim, instituted proceedings there against the borrower. Under Article 8 of the East German Regulation of Intra-German Payments of December 15, 1950, which was adopted after the contract was made but before the assignment, the disposition of pecuniary claims against debtors resident in the Federal Republic required the license of the East German Finance Ministry. A license had not been given, and the assignment was void under East German law.

The Court of Appeal of Hamburg, applying choice of law criteria and the principle of the autonomy of the will of the parties, decided that the law of the Federal Republic applied, so that the question of the recognition of the East German Regulation did not arise. The Supreme Court, however, followed a different line. In the field of contract, the basic principle was that the parties were allowed a wide measure of autonomy in selecting the private law governing their relations, on the theory that the law thus selected would be the most equitable one for their purposes. However, this theory did not apply to foreign public law, which fundamentally was no more than territorial in effect. It was conceivable that restrictions on the disposition of property, and particularly prohibitions of assignment, under a foreign law might be for the exclusive or predominant purpose of safe-guarding the interests of private parties, and thus might be entitled to recognition. This was clearly not the situation where the purpose of the foreign law was the pursuit of the economic or political aims of the legislating state instead of the fair regulation of private relationships. In such circumstances, the private law of the foreign state would be recognized, if it were the applicable law, as governing private relationships, but this recognition would not extend to the public law of that state. These principles were not confined to expropriations, but applied in addition to restrictions for exchange control reasons.

The Court decided that the Regulation of December 15, 1950 was intended exclusively to serve the economic objectives of the state and not the protection of the interests of individuals. Accordingly, the legal effects of the Regulation were confined to East German territory, and its effects could not be recognized where the debtor had ceased to be an East German resident.

The Court then went on to make the following exception:

… The application of the principle of territoriality in cases of the present kind may be made subject to limitations vis-à-vis fellow contracting parties to international agreements (cf., for instance, the Bretton Woods Agreement (1944); on this cf., Staudinger-Coing, 11th Edit., Note 20 to Art. 134, Civil Code). Such a limitation of the above mentioned principle is not, however, operative vis-avis the Soviet Zone; for this is not a party to any such agreement….

The Court held that the effectiveness of the assignment to the plaintiff was not impaired by the Regulation of December 15, 1950.

This decision is said to depart from the pre-existing rule that the courts of the Federal Republic recognize the exchange control provisions of a foreign legal system where it is the governing law (and provided there is no reason of ordre public to refuse recognition).21 The rule, as derived from the opinion of the Court, would now seem to be that exchange control provisions affecting contracts will not be recognized, except (a) to the extent that the issue relates to effects that are confined to, or can be enforced solely within, the territory of the foreign legal system; or (b) where the Fund Agreement imposes a duty of recognition. In addition, it is possible that the Court held that there were two other exceptions to the basic rule of nonrecognition: (c) where it can be concluded that the exchange control provisions are intended for the protection of private individuals; or (d) where some other special justification for recognition is demonstrated. Whatever might be the scope of some of these exceptions, it would seem that the general approach to the recognition of the exchange controls of other countries has changed, and that the former attitude in favor of recognition is now displaced by one in opposition to it.

A learned commentator has noted,22 with some surprise, this change of attitude on the part of the Supreme Court of the Federal Republic toward the recognition of the foreign exchange controls of other countries apart from such recognition as is required by Article VIII, Section 2(b), of the Fund Agreement. He has remarked that the Court could have reached the same result in the case before it on the basis of other, and already well established, principles. Although this is no doubt true, it is possible that the Court intended quite deliberately to give a new direction to jurisprudence because of a process of ratiocination somewhat as follows. The Fund Agreement contains rules for determining the compatibility of exchange controls with the Agreement, and these rules are now subscribed to by an overwhelming majority of the countries of the world. Thus, it is logical that the recognition of exchange controls which is explicitly required by the Agreement is based on the condition that the controls must be consistent with the Agreement. It would also be logical, although this is not explicitly prescribed by the Agreement, if recognition were refused in the case of members’ exchange controls that were inconsistent with the Agreement. Controls of this kind fail to comply with the rules that have been internationally agreed for the maintenance or imposition of controls. Therefore, it could also be argued that, because the exchange controls of nonmembers have not been submitted to the rules of the Fund Agreement, there should at least be no general presumption in favor of their recognition by members, and the burden should be on any party seeking such recognition to prove some special justification.

This analysis can be supported to some extent by the analogy of the contrast between the rules with respect to the maintenance or imposition of exchange controls by members on transactions with other members and on transactions with nonmembers. The rules with respect to members are to be found in Articles VI, VII, VIII, and XIV, and they spell out with care the conditions in which exchange controls may validly affect other members. However, with respect to exchange controls on transactions with nonmembers, Article XI, Section 2, recognizes that members have freedom of action, although again this freedom stops short at the point where the interests of members would be harmed:

Restrictions on transactions with non-member countries.—Nothing in this Agreement shall affect the right of any member to impose restrictions on exchange transactions with non-members or with persons in their territories unless the Fund finds that such restrictions prejudice the interests of members and are contrary to the purposes of the Fund.23

Finally, Stephen v. Zivnostenska Barika National Corporation24 should be recalled. There, the New York Supreme Court held that the referee’s decision that the plaintiffs could not obtain relief because of the effect of Article VIII, Section 2(b), had to be reversed on the ground that the laws in question were those of Czechoslovakia and that country had ceased, after the referee’s decision, to belong to the Fund. Accordingly, the Court held that:

… No valid reason currently exists to frustrate our public policy, as expressed in the controlling statute, and thereby allow Czechoslovakia to take advantage of one of the privileges of fund membership when it is no longer a member25


In Moojen v. Von Reichert,26 the Court of Appeals of Paris (First Chamber) delivered an opinion on June 20, 1961 which was distinguished by an obvious familiarity with the literature on Article VIII, Section 2(b), and by a willingness to take a position on some of the most intensively debated issues of interpretation of that provision. This was an action by Mrs. Moojen, the widow of Moojen, for a French exequatur of a judgment rendered by the Dutch courts, in dealing with the estate of Moojen, declaring that an assignment of shares in the Gutenberg Corporation by Moojen to Mrs. Von Reichert was null. The defendants cross-petitioned that the assignment be declared valid.

The assignment was dated Paris, April 12, 1950, although it was alleged to have been executed in the Netherlands, and was made in return for a payment of French francs. The deed of assignment stated that the assignor (Moojen) was a Dutch national living in France and the assignee (Mrs. Von Reichert) a German national resident in Bonn; that the Gutenberg Corporation, which was incorporated under French law, had its seat in France, and had as its object the exploitation of certain French real estate; and that any litigation involving the assignment was to be brought in the French courts.27 The deed of assignment was registered and deposited with the Commercial Tribunal of Paris. The By-Laws of the Corporation provided that the French courts were to have jurisdiction over all differences among the shareholders relating to corporate affairs. The assignor had instituted proceedings in the Dutch courts to declare the assignment null on the ground that it was in violation of Dutch exchange control legislation. The Dutch courts held that they had jurisdiction; that at the date of the assignment the assignor was a resident of the Netherlands; and that the assignment was void because no license had been sought or obtained as required by Dutch law for the disposition of foreign assets by a resident.

The Civil Tribunal of the Seine, Fifth Chamber, rejected the petition for exequatur on December 23, 1957. The Court found from all the circumstances of the case that the parties had intended French law to govern the assignment. The Court recognized that Dutch exchange control had to be “considered,” but found, presumably because the parties had made their assignment subject to French law, that it could re-examine the question of the assignor’s domicile, on the basis of which the Dutch courts had held that Dutch exchange control applied:

It is true that under the Bretton Woods Agreements French courts cannot neglect to take into consideration the provisions invoked by the Dutch courts, although these provisions are purely Dutch, since these provisions have been enacted in connection with foreign exchange control and by virtue of those Agreements.

However, since these decisions fail to pay due regard to the French conflict rules this Court is entitled to review the finding made by the Dutch courts regarding the domicile of Moojen.

The Court made a detailed examination of the facts relating to the assignor’s domicile at the date of the assignment and concluded that it was France and not the Netherlands. Accordingly, it held that the Dutch courts had erred in not applying French law and in finding that the assignor was domiciled in the Netherlands.

The principle in the decision of the court of first instance seems, therefore, to have been that, before the question of recognition of the exchange controls of another member of the Fund can be decided, it must first be decided, in accordance with the governing law as selected by the private international law of the forum, whether the exchange controls were applicable. In other words, French law was the law governing the assignment, and it had to be decided according to that law and not Dutch law whether the assignor was a resident of the Netherlands and, therefore, whether Dutch exchange controls declared applicable by the Dutch courts on the basis of residence were in fact applicable. It will be observed that this was not the same as a principle that Dutch exchange controls were applicable if Dutch law was the governing law.

On appeal, the Court of Appeals of Paris pointed out that France and the Netherlands had adhered to the Fund Agreement, and quoted both Article VIII, Section 2(b), and the Fund’s authoritative interpretation of that provision addressed to members on June 14, 1949.28 The Court said:

It follows from these provisions that the court could not deny effect to Dutch decisions founded on the provisions of the Dutch decree of October 10, 1945 on the ground that they would be contrary to French international public policy or for the reason that the foreign jurisdiction had not paid due regard to the French conflict rules….

Notwithstanding this finding, the Court went on to hold that it was necessary to examine the question whether the Dutch courts were entitled on the facts of the case to apply Dutch exchange control. Thus, the finding of residence was again held to be subject to review, although not for the reason adopted by the lower court, namely, that French law governed the assignment and had been ignored.

It is submitted that the position of the Court of Appeals on this aspect of the case is more defensible than that of the lower court, although it provokes doubts of another kind. The Court of Appeals appears to have held that, in view of Article VIII, Section 2(b), which imposes a governing law of its own for the special purpose of that provision, it was not correct to decide the question of domicile according to what was the governing law in other respects under private international law. Instead, the Court of Appeals held that the question of domicile was one of fact, which it could determine for itself. However this latter proposition is formulated, it will certainly often be necessary for a forum to decide the issue of domicile. This results from the fact that in applying Article VIII, Section 2(b), a court will have to determine whether the currency of a particular member was “involved.” As will be seen later, the test for this adopted by the Court of Appeals was whether the exchange resources of a member are affected. This will depend, in such circumstances as those of the present case, on whether a party was a resident disposing of his domestic or foreign assets, or entering into liabilities, to nonresidents. No problem arises where this question is unresolved; for example, because the party did not apply for an exchange license, and there is no obvious alternative to resolution by the forum of the question whether he was a resident and required to apply for a license. The doubt which arises, however, is whether the forum of one member should re-examine the question where another member has already decided it. In the Paris case, the Dutch courts had decided that Moojen was a resident, was subject to Dutch exchange controls, and had not observed them. Why should it not be held that the policy of Article VIII, Section 2(b), requires a forum to accept such determinations when made by the judicial or administrative authorities of another member with respect to their own exchange controls?

Having found that at the date of the assignment the assignor had his “effective residence” in the Netherlands, the Court continued as follows:

The defendants argue that the deed of April 12, 1950 concerning the sale of shares in a French real estate corporation, the price of which is expressed in French francs, that is to say in the legal tender of the country where the corporation has its seat and conducts its business, does not constitute an exchange contract in the sense of Article VIII, Section 2 of the Articles of the International Monetary Fund.

They point out that the Bretton Woods Conference was designed to assure the stability of monetary parities, and that it is only to the extent absolutely required for such stability that the maintenance or introduction of exchange control measures is tolerated, especially on what is customarily called “capital flight.” These measures must therefore be applied restrictively. Control over the movement of holdings abroad by itself can have no effect on the desired monetary stability, for the violation of exchange control measures consists of the exchange of the national currency against foreign exchange or against values situate abroad. In this case there was no reason to fear flight of Dutch capital and the operation had no direct or indirect effect on the stability of the Dutch guilder or the exchange resources of the National Bank of the Netherlands.

The questions of interpretation of Article VIII, Section 2(b), raised in this passage were as to the meaning of “exchange contract” and “which involve the currency” of the member whose exchange controls are in issue. On these questions, the Court adopted the following conclusions:

The Bretton Woods Agreements have as their principal purpose, in accordance with the terms of their Article I “To promote international monetary cooperation”; it is therefore necessary, in order to insure maximum effectiveness for this collaboration, to examine whether the contract can have a prejudicial effect on the financial situation of the member state; in other words, if it can affect in any way the exchange resources of this country.

There is no doubt that, although the transfer was expressed in French francs, it could have an effect on the Dutch economy, for the Treasury of that country has an interest in the resident’s repatriation of the foreign currency obtained after selling the shares for a just price….

In holding that an “exchange contract” does not necessarily mean the exchange of one currency against another, and that the test of whether the currency of a member is “involved” is not whether its national currency is transferred, but whether the contract affects the exchange resources of that member, the Court took a position consistent with the decisions in the Hamburg case29 and the Luxembourg case30 discussed in earlier articles, and with the opinion of Dr. Mann31 and others.

The Court then took up further arguments with respect to the scope of Article VIII, Section 2(b), that had been advanced by the defendants:

It was also argued by the defendants that it follows from the text of Article VIII and from the general spirit at Bretton Woods, that the notion expressed by the term “exchange contract” used in paragraph (b) of this Article covers only part of the operations to which restrictions in the sense of paragraph (a) can apply—or at most coincides with those—namely transfers and payments for current international transactions.

From this the defendants concluded that the transfer of shares by Moojen was neither a transfer of capital in the sense of Article VI, Section 3 of the Articles of the Fund, nor a transfer or payment for current operations as defined in Article XIX(i) of the same Articles. As a result, they argued, the prohibition of this transfer by Dutch law was not in accordance with the Bretton Woods Agreements.

These arguments can be restated as follows. First, Article VIII, Section 2(b), applied only to exchange contracts that are contrary to exchange control regulations that affect the payments and transfers for current international transactions that are covered by Article VIII, Section 2(a). Second, the assignment of shares was not a current international transaction or a capital transfer, and the Netherlands’ restriction of it was thus inconsistent with the Fund Agreement. This latter argument was a novel one in the jurisprudence involving the Fund Agreement. The Court accepted neither of these arguments:

However, if one takes into account all the texts invoked and more especially their heading, it appears on the contrary that whereas the signatories of the Agreements intended to prohibit member states from imposing, without the approval of the Fund, restrictions on the payment for current international transactions, they did not have the same intention with respect to acts not within this category, such as the transfer by a resident of holdings abroad.

Moreover the use of the term “contract” must be noted instead of a term which would have been more restrictive, namely “exchange of currencies.”

The Court’s reasoning in this passage was that the Fund Agreement seeks to eliminate restrictions on payments and transfers for current international transactions, but allows members freedom to control other transactions, whether they be regarded as capital transfers or some third category. Controls pursuant to this freedom are not inconsistent with the Fund Agreement, and they are thus covered by Article VIII, Section 2(b). The result, to the extent that it establishes that Article VIII, Section 2 (b), is not confined to restrictions on payments and transfers for current international transactions, is consistent with the history of the provision and the decision of the Maastricht court in Frantzmann v. Ponijen.32

A final issue as to the meaning of Article VIII, Section 2(b), was stated by the Court as follows:

Basing themselves on the expression “non exécutoire” used in Article VIII as well as on that of “unenforceable” which one finds in the corresponding English text, the defendants argue that the only sanction provided for is a lack of executory force of the contract in question and not its nullity, adding that the claim thus deprived of judicial action would remain valid as a kind of natural obligation.

To this, the Court replied:

This distinction cannot be made since exchange control rules are instituted for the purpose of prohibiting certain operations, which are prejudicial to the stability of a State’s currency, whether executed or not, from the moment that they are concluded in violation of the law, and not for the purpose of allowing one of the parties to invoke the foreign exchange regulations at its discretion in order to paralyze the execution of the contract.

These passages raise issues of great importance, but unfortunately they are not as clear as the rest of the opinion. It is possible that the defendants were arguing that the concept of “unenforceability” can apply only to an executory and not an executed contract, and that because the parties had performed all of their obligations in relation to the assignment, their contract had been executed. Moreover, unenforceability did not mean nullity, and therefore the contract remained valid and gave rise to a natural obligation, which the Court could recognize in order to deny the relief requested by the plaintiff and grant the relief sought by the defendants on their cross-petition. The Court’s response may be understood to mean that exchange controls always provide for the nullity of transactions that are contrary to them. It is true that the Court referred to exchange control regulations as “prohibiting” certain operations, which does not necessarily mean their invalidation. However, there is also a reference to the “violation of the law,” and the whole passage is in response to an argument that there was no nullity. If this is a correct reading of the Court’s view, it is also possible, in view of the context, that the Court held that unenforceability in Article VIII, Section 2 (b), means nullity.

This last would seem to be the basic issue in the passages thus restated. Even if unenforceability in Article VIII, Section 2 (b), means something other than nullity, it does not necessarily follow that the provision is inapplicable because the parties have performed their obligations under a contract. It is still possible to hold that there may be circumstances in which courts can be called upon to give assistance in connection with such a contract which would fall within the scope of the following language in the Fund’s interpretation of Article VIII, Section 2(b):

Parties … 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.

In Moojen v. Von Reichert, the defendants were cross-petitioning for a declaration of the validity of the assignment, and such a declaration could readily be considered as implementing the obligations of the contract and assisting in obtaining its performance within the meaning of the interpretation. It is even possible that the relief requested by the cross-petition was not merely a reflex resistance to the plaintiff’s claim but was needed by the defendants quite apart from that claim, because there is mention in the opinion of the lower court of independent proceedings by the assignee against the Gutenberg Corporation. It is possible, therefore, that although nothing remained to be done by the parties in order to perform the obligations of their contract, the assignment had nevertheless not been perfected, for example by registration of the assignee as holder of the shares. It will be seen later in the discussion of this case that the assignee had not obtained the license required by French law for the acquisition by a nonresident of shares in a French corporation. Whether or not this surmise is correct, it would be a surprising result if Article VIII, Section 2(b), permitted a party to a contract that was contrary to exchange controls to obtain a declaration of the validity of that contract. The withholding of such a declaration should not depend on a demonstration that Article VIII, Section 2(b), itself renders the contract invalid, or even that the exchange control regulations declare the contract invalid. Whether or not the contract is thus invalid, the court’s declaration of validity would undoubtedly assist parties to flout applicable exchange controls. Of course, the argument is even stronger if the exchange control regulations do provide for the invalidity of the contract. It would be difficult to reconcile the grant of such relief as a declaration of validity with the objective of the drafters that members should cooperate by withholding aid to parties ignoring applicable exchange controls.

In a sense, the cross-petition may have been a fortuitous circumstance in the case. More fundamental questions are raised if it is assumed for the purposes of argument that there had been no cross-petition. Then the question would be whether the concept of unenforceability in the provision enables a party to rely on the provision as a defense to a contractual claim but not to get the positive remedy of an exequatur of a judgment declaring the contract invalid. It is, of course, irrelevant in the analysis of Article VIII, Section 2(b), that the French courts might have found that Dutch law governed the contract under French private international law, and might have granted the exequatur on this basis. If this consideration is set aside, and it is assumed that the plaintiff’s request was denied because compliance with it was not required by Article VIII, Section 2(b), such a result would again prompt the question whether this was what the drafters intended. Such a decision would, to say the least, give indirect assistance in making the contract effective, and it would not differ essentially from declaring the contract valid.

There is obviously a need to examine the unenforceability concept of the provision more closely. It has been argued by some commentators33 that this concept means invalidity. That is to say, the provision itself must be understood to declare that contracts falling within its scope must be treated as invalid. The arguments for this conclusion have not been wholly persuasive. It has been argued that unenforceability is an idiosyncrasy of Anglo-American law, but others have pointed out that this is too narrow a view.34 It has also been argued that there are incidents of the concept in Anglo-American law, such as the requirement that a defendant must plead unenforceability before a court can declare a contract unenforceable, that would be anomalous in the application of the provision. It has been insisted, and with much cogency, that the effectiveness of the collaboration among members established by the provision should not depend on the course of the pleadings between private parties, who may even be refraining from raising the defense in order to have their contract enforced by the courts in calculated circumvention of applicable exchange controls. However, there is no reason why unenforceability in Article VIII, Section 2 (b), even if it derived exclusively from Anglo-American law, must carry with it all of the incidents attached to it in that law.

The argument, which seems to have been given by the Court of Appeals of Paris, that exchange controls always provide for the invalidity of contracts inconsistent with them, is the least persuasive of all. Whether or not this was the Court’s view, the argument is demonstrably not correct. For example, Lord Radcliffe, in interpreting Section 33(1) of the English Exchange Control Act, 1947, in Contract and Trading Co. (Southern) Ltd. v. Barbey,35 has said:

I think that probably the main reason for its introduction was to protect the general run of obligee from being met with a defence by his obligor to the effect that a contract involving Treasury consent for its performance was void in its inception for impossibility or illegality.

The fact that exchange control regulations do not invariably provide for the invalidity of contracts that are contrary to the regulations has been a strong argument for resisting the conclusion that the provision itself prescribes invalidity. It is not apparent why the courts of other members should be required to attach to breaches of exchange control regulations legal consequences different from and more severe than those enunciated by the regulations themselves. However, this now suggests the possibility of a new approach in clarifying the meaning of the unenforceability feature of Article VIII, Section 2(b). The possibility should be considered that the provision is to be regarded as a kind of “full faith and credit” clause. In accordance with this approach, if the courts of one member were requested to give a remedy on a contract contrary to the exchange control regulations of another member, the courts in classifying the contract as valid or invalid could follow the lead of the foreign exchange control regulations. The courts would treat the contract as invalid only if it were declared invalid by the regulations. The courts would not go this length where the contract was not declared invalid. This would not mean that in these latter instances the courts would assist parties to get performance of their contracts, but the action of the courts in these cases would not be based on the postulate that Article VIII, Section 2(b), prescribes invalidity.

If this approach were adopted, courts might give positive relief in certain cases where contracts were invalid. There is no doubt that the disposition of some courts is to give an extensive interpretation to the provision. The action of the Paris Court of Appeals is one example. The decision of the Luxembourg Court in Société ‘Filature et Tissage X. Jourdain’ v. Epoux Heynen-Bintner36 is another example. That case did not involve an attempt to enforce a contract that was contrary to exchange controls. The claim was to the exequatur of a judgment by a French court on a contract authorized by the French exchange control authorities, which it was alleged had been discharged. The Luxembourg Court held that it could not refuse the exequatur on the ground that the contract had been discharged. It refused to hold that there had been a discharge, because the alleged performance relied on for this purpose was contrary to French exchange controls, and the Luxembourg Court felt itself bound by Article VIII, Section 2(b), to take this position. The principle of this case is that, as a result of Article VIII, Section 2(b), courts will not only refuse to enforce certain claims, but will also refuse to recognize certain defenses. The two cases show that the boundaries of the provision are not yet marked out, and that the courts may find that those boundaries embrace a larger area than is sometimes assumed.

After dealing with the problem of unenforceability and invalidity, the Court took up a final issue, the effect of French law. In overruling the lower court, and granting the exequatur, the Court of Appeals held that even if the controversy were decided without regard to Dutch law, the transfer would have been declared null for failure to observe French exchange control:

Moreover, if this suit had been brought before French courts which could have had jurisdiction, the transfer would have been annulled for violation of Article 51 of the Decree No. 47.1337 of July 15, 1947 which prohibits the acquisition by a non-resident of French movable assets or shares in French corporations except with a license from the Minister of Finance. Mrs. Von Reichert, a German national, who, it is not contested, resided abroad at the date of transfer, did not obtain a license from the French Minister of Finance.

This finding does not render the rest of this important opinion obiter. Noncompliance with the French law referred to would have been sufficient to deny relief to the defendants on the cross-petition. It would not have been sufficient to grant the relief requested by the plaintiff and given by the Court, i.e., exequatur of the Dutch decision.

In view of the importance and interest of the case, it is useful to attempt to summarize the leading propositions involved in the opinion of the Court of Appeals of Paris:

1. Recognition of the exchange control regulations of a member under Article VIII, Section 2(b), does not depend on a finding that the regulations are part of the governing law according to private international law.37

2. In applying Article VIII, Section 2(b), a forum, whether or not it is a forum of the governing law, can review a finding of residence on the basis of which the courts of another member have held that their exchange control regulations were applicable.

3. “Exchange contracts” are not confined to contracts for the exchange of one currency in return for another.

4. The currency of a member is “involved” if the exchange contract affects the exchange resources of that member or the stability of its currency.

5. The exchange control regulations referred to in Article VIII, Section 2(b), are not confined to those regulations, consistent with the Fund Agreement, that affect payments and transfers for current international transactions, but include all exchange control regulations of whatever character that are not inconsistent with the Fund Agreement.

6. In declaring that certain contracts are unenforceable, Article VIII, Section 2(b), means that they are invalid (semble).

7. The recognition of the invalidity of such contracts may take the form of the grant of some forms of positive relief (semble).

New York

Brill v. Chase Manhattan Bank,38 decided on November 14, 1961 by the Appellate Division, First Department of the New York Supreme Court, dealt with Article VIII, Section 2(b), in relation to the exchange control regulations of Cuba. Brill did business in Cuba and knew that since September 23, 1959 Cuba had treated the removal of Cuban pesos from Cuba without the authority of the National Bank as a criminal act. In July 1960, Brill arranged with a Chase branch in Havana, on payment to the branch of 33,200 pesos, for the delivery of its manager’s check made out to the order of Brill. The check, which was for the same amount of pesos, was delivered in Havana to Brill’s brother, who gave it to Brill in the United States. The Cuban authorities were never asked to approve the removal of the check from Cuba. After Cuba vested the assets and liabilities of the Chase branch in the National Bank of Cuba, Brill presented the check to Chase’s head office in New York for payment. This was refused on the ground that the check was payable only in Havana.

The complaint in this action sought recovery of the amount of the check. Chase moved, pursuant to Rule 113 of the New York Rules of Civil Practice, for an order granting summary judgment in its favor dismissing the complaint. Brill opposed the motion and asked for an order granting summary judgment in dollars in his favor. Rule 113 provides a procedure by which summary judgment can be given for the plaintiff or defendant, as the case may be, if a complaint or answer is proved by documentary evidence or official record and no triable issues appear. On June 15, 1961, the New York Supreme Court awarded summary judgment to Brill in an amount of dollars equivalent to the peso amount of the check.

On an appeal from the decision of the Supreme Court, a number of issues were raised, of which one raised by Chase was as to the place of payment of the check. It argued that this was Havana, and, moreover, that a peso check payable outside Cuba was illegal under Cuban law, and accordingly under New York law as a contract for the payment of foreign currency in contravention of the exchange regulations of the issuing sovereign. Chase based this proposition on Article VIII, Section 2(b), of the Fund Agreement, which had been accepted by both the United States and Cuba, and referred to the Perutz case in support.

The Appellate Division vacated the order granting summary judgment to Brill. It found that there were a number of triable issues, of which one was whether the check was payable in dollars as well as pesos and another related to Article VIII, Section 2 (b):

… There are triable issues presented which should be determined by trial and not by affidavits. At the least, an issue is posed as to the illegality of the transaction as being in contravention of the exchange regulations of Cuba, and thus in violation of the Articles of Agreement of the International Monetary Fund (Bretton Woods Agreements Act, 22 US.C.A. § 286)… 39

Two members of the Court were willing to go further and grant summary judgment to Chase:

… In so doing we do not reach the question of whether the check was payable in pesos or in dollars. Assuming that it was payable, as plaintiff maintains, in dollars, it is clearly an exchange contract. The check was issued in return for a deposit with the defendant bank in Cuba of pesos. It naturally followed that, if it were payable in dollars, it represented a purchase of the equivalent amount of dollars for Cuban pesos. This is what an exchange contract is. By the Articles of Agreement of the International Monetary Fund (22 U.S.C.A. § 286), all such contracts are subject to the exchange control regulations of the government of the country in which the transaction was made, and enforceable in the territories of all member governments. By the exchange regulations of Cuba, the removal of the check from Cuba was a violation of its monetary regulations and, hence, the transaction, if sought to be enforced here, would be illegal… 40

There has been no report so far of further proceedings in this case.

Enemy Property

Brown, Gow, Wilson et al v. Beleggings-Societeit N.V.,41 decided by the Ontario High Court on June 29, 1961, involved the determination, pursuant to the procedure established by two wartime decrees of the Netherlands Government, that certain shares in a company were held in trust for certain German nationals, and consequently passed into the ownership of the Netherlands Government under the decrees as reparations to compensate Netherlands subjects who had suffered at the hands of the enemy during the war. The facts and issues in the case were complicated, and only one issue is noted here. This was whether the decrees were of such a confiscatory, penal, or revenue nature that they conflicted with the public policy of the courts of Ontario, with the result that the courts would refuse to recognize the vesting of ownership in the Netherlands Government under the decrees.

The Court held that the penal or revenue objection was not applicable:

… They are wartime decrees similar to those in force in Canada and other Allied countries, the effect of which has been freely recognized in several international treaties. While the war was on such decrees in Allied countries not occupied operated not only to provide reparations but also to provide economic assistance to the Allies, and economic restraints on the enemy. I do not think because these decrees were proclaimed by the Government of the Netherlands at or near the conclusion of hostilities affects their character. The decrees are not dissimilar to foreign exchange laws which have been freely recognized in the English Courts.42

In rejecting the objection based on confiscation, the Court said:

So far I have considered this case with only incidental reference to the treaty obligations that have more than incidental importance to the matter which involves the right of the Courts of Canada to recognize the wartime legislation of an Ally.

In July, 1944, the Bretton Woods Agreement was signed. This agreement was evolved by a conference of representatives of 46 nations and Canada and the Netherlands were both signatories, together with 35 other nations which included Great Britain, the United States of America and France. Under the agreement it was recommended that the Governments of the countries represented at the conference take action consistent with their relations with the countries at war to call upon the Governments of neutral countries, (a) to take immediate measures to prevent disposition or transfer of assets of any individuals within those United Nations occupied by the enemy; and (b) to take measures to prevent the concealment by fraudulent means or otherwise of assets belonging to Governments of and individuals or institutions within enemy countries.

This aspect of the agreement was designed principally to reach looted property which might have found its way to neutral countries. In principle it established an effort to create an international control with the object of providing reparations for devastated countries. The fact that this principle has been established and accepted by the law of the lex fori is important in considering whether alleged confiscatory or revenue law of a foreign country should be recognized.

In Zivnostenska Banka National Corp. v. Frankman, [1950] A.C. 57, at pp. 71-2, Lord Simons [sic] said:

It was urged that, even if the law of Czechoslovakia was the proper law of the contract and by that law the bank could not legally deliver up the debentures, yet the courts of this country should not enforce that law. It was sought to apply to the circumstances of the present case the principle that an English court will not enforce a penal or confiscatory law of another country. I do not exclude the possibility of this principle applying where it appears that the law, which is sought to be enforced or relied on, is in reality confiscatory though in appearance regulatory of currency. But I see no reason why it should be applied in the case of a law which does not appear to differ in material respects from the legislation contemplated by the Bretton Woods Agreement which is now part of the law of this country.43

The mention of the Bretton Woods Agreement in the extract quoted from the Court’s opinion should not be understood to refer to the Articles of Agreement of the Fund, which do not deal with the vesting of enemy property or the restoration of looted property. The reference is to a Resolution of the Conference on Enemy Assets and Looted Property, adopted on July 21, 1944 and included in the Final Act of the Conference, which takes note of and supports the efforts of the United Nations to trace and deal with enemy or looted property and recommends that the countries represented at the Conference call on neutral countries to collaborate in this general undertaking.44


La cour suprême des Etats-Unis a décidé dans l’affaire Kolovrat c Orégon que comme un traité entre les Etats-Unis et la Yougoslavie donnait aux héritiers yougoslaves le droit d’hériter de biens situés dans l’Orégon aux mêmes conditions que des héritiers américains, l’Orégon ne pouvait pas contester ce droit en se fondant sur l’existence de contrôles des changes yougoslaves dont l’effet pourrait être de restreindre le transfert de biens dépendant d’une succession ouverte en Yougoslavie à des héritiers américains. Les deux pays étant membres du Fonds et les contrôles yougoslaves étant compatibles avec l’accord du Fonds, la politique des divers états américains ne peut s’écarter de la politique fédérale telle qu’elle est démontrée dans l’affiliation des Etats-Unis au Fonds. Il convient de noter qu’en fait la Yougoslavie ne restreignait pas les transferts de successions aux héritiers américains.

Un procès qui se déroule à New York soulève la question de savoir si les lois imposant l’obligation de remettre les avoirs en devises étrangères à des organes officiels de l’Etat peuvent être reconnues par les tribunaux d’un autre membre comme pouvant former une base suffisante à une action intentée devant eux. Une institution officielle brésilienne réclame des dommages-intérêts à cause de l’entente délictueuse des accusés qui cherchaient à éviter de remettre à l’institution demanderesse les recettes en dollars d’exportations de café, comme requis par la loi brésilienne. La demanderesse fait valoir qu’un refus de la part des tribunaux de New York d’accorder aux contrôles brésiliens la même reconnaissance dans le cas d’actions que celle qui est accordée par voie de défense serait en contradiction avec l’ordre public des Etats-Unis en tant que pays membre du Fonds. Les juridictions inférieures se sont prononcées contre l’institution demanderesse; celle-ci, dont l’appel est actuellement en instance, s’attache à invoquer l’affaire Kolovrat à l’appui de son argumentation.

La cour suprême de la République fédérale d’Allemagne a adopté une nouvelle règle de droit qui semble poser en principe que les contrôles des changes d’autres pays ne seront pas reconnus sauf en cas de justification spéciale, telle que l’affiliation au Fonds.

En interprétant l’Article VIII, Section 2(b), la cour d’appel de Paris a décidé que la reconnaissance des contrôles des changes d’un autre pays membre ne dépend pas de la question de savoir si la loi de ce pays est la loi applicable d’après les règles de conflit du for; “les contrats de change” ne se limitent pas aux ventes de devises ; la monnaie d’un membre est “en cause” si le contrat touche aux ressources en devises de ce membre; et la reconnaissance des contrôles des changes n’est pas limitée à ceux qui concernent les transactions courantes. La cour a également décidé qu’elle a la compétence de réviser une décision concernant la résidence de l’intéressé, décision rendue par les tribunaux d’un autre pays membre et sur la base de laquelle ces tribunaux ont fondé l’application de leurs propres contrôles des changes. L’espèce soulève des questions intéressantes quant au sens de l’expression “caractère non-exécutoire”, particulièrement par rapport à des actions.

Un autre litige est actuellement pendant devant les tribunaux de New York et a trait à la reconnaissance des contrôles des changes cubains. Un jugement de l’Ontario se réfère à une résolution de la conférence de Bretton Woods afin d’appuyer une décision d’après laquelle certains décrets néerlandais du temps de guerre ne sont pas contraires à l’ordre public de l’Ontario.


En el caso Kolovrat contra Oregon, la Corte Suprema de los Estados Unidos ha resuelto que si el tratado celebrado entre los Estados Unidos y Yugoslavia concede a los yugoslavos el derecho de heredar bienes situados en Oregon bajo las mismas condiciones que los herederos de los Estados Unidos, Oregon no podía negar ese derecho apoyándose en la existencia de controles de cambio en Yugoslavia que pudieran restringir el traspaso de herencias yugoslavas a herederos de los Estados Unidos. Ambos países eran miembros del Fondo y los controles que Yugoslavia imponía eran compatibles con el Convenio Constitutivo del Fondo. Por tanto, la política particular de un estado de los Estados Unidos no podía desviarse de la política nacional patentizada en la participación de los Estados Unidos como miembro del Fondo. Debe también hacerse notar que Yugoslavia no estaba, en efecto, restringiendo las transferencias a herederos de los Estados Unidos.

Un litigio que se lleva a cabo actualmente en Nueva York suscita la cuestión de si la obligación de entrega de divisas extranjeras exigida por un país miembro habrá de ser reconocida por los tribunales de otros países miembros como suficiente para apoyar demandas positivas. Una institución oficial brasileña reclama daños por conspiración de parte de los demandados para evitar la entrega a dicha institución del producto en dólares de las exportaciones de café, como lo exige la ley del Brasil. La institución demandante alega que la denegación de los tribunales neoyorquinos de dar a los controles impuestos por Brasil el mismo reconocimiento para demandas positivas que se da para fines de defensa, sería contraria a la política pública de los Estados Unidos. Los tribunales inferiores han dictaminado contra la demandante, pero está todavía pendiente una apelación de ésta que se apoya en alto grado en el caso Kolovrat.

La Corte Suprema de la República Federal de Alemania ha adoptado un principio de derecho que parece sostener que los controles de cambio de otros países no habrán de ser reconocidos a menos que se presente una justificación especial, tal como la de ser miembro del Fondo.

El Tribunal de Apelación de París, al interpretar el Artículo VIII, Sección 2(b), ha resuelto: el hecho de reconocer los controles impuestos por otro país miembro no depende de que la ley de ese país sea la que se aplique de acuerdo con el derecho internacional privado; los “contratos en divisas” no se limitan a la venta de divisas; la moneda de un país miembro está “implicada” si el contrato afecta en alguna forma los recursos en divisas de ese miembro; y el reconocimiento de controles no se limita solamente a los controles impuestos a transacciones corrientes. El tribunal también concluye que es competente para reexaminar una providencia sobre residencia emitida por los tribunales de otros países miembros en la que ellos hubieran basado la aplicación de sus propios controles. El caso presenta problemas interesantes sobre el significado del término “inejecutoriedad,” particularmente en lo que atañe a demandas por satisfacciones positivas.

Otro juicio pendiente en Nueva York trata del reconocimiento de los controles de cambio impuestos por Cuba. En Ontario, para apoyar una decisión de que ciertos decretos holandeses del tiempo de la guerra no se oponían a la política pública de Ontario, se invoca el caso de una resolución tomada en la Conferencia de Bretton Woods.

A NEW PUBLICATION BY THE FUND Central Banking Legislation

A collection of Central Bank, Monetary and Banking Laws

Statutes and related materials selected and annotated by

Hans Aufricht

Preface by Per Jacobsson

Any person who has had occasion to use Central Bank or Monetary Laws has undoubtedly experienced difficulties in obtaining versions of those laws that are both comprehensive and up’ to date. If the laws are officially published in a language other than English, many people may also have the problem of finding translations.

The present volume attempts to meet these difficulties. It presents, in English, the complete texts of Central Banking and Monetary Laws of 21 countries; it gives summaries of general banking laws and selected provisions of these laws which are of special significance in the relationship of the Central Bank to the banking sector.

The laws reproduced have been selected mainly for the following reasons: (1) They represent both the oldest (United Kingdom) and the most recent types of central bank and monetary legislation (e.g., Ceylon, Costa Rica, Guatemala, Philippines); (2) they represent laws couched in very broad terms (e.g., Union of South Africa), laws which regulate central bank functions and powers in considerable detail (e.g., Ceylon, Guatemala, Philippines), and laws which fall between these two groups (e.g., Burma, Honduras) ; (3) they reflect the central banking and monetary regimes of countries at different levels of economic development.

The laws of these 21 countries constitute a representative cross section of both the traditional and the most recent attitudes on the legal techniques employed for regulating money and credit. These legal techniques are of interest not only to lawyers and economists in general, but also to all persons currently engaged in the administration of individual central banking organizations; to the historian of central banking, who will find here significant material; to the general student of central banking; and to legislators and technicians charged with revising present central bank regimes or with setting up such institutions in countries where none have existed.

For convenience of comparison, the laws included in this volume have been arranged in three groups:

Group I: Australia, Canada, Rhodesia and Nyasaland, Union of South Africa, United Kingdom;

Group II: Burma, Ceylon, India, Indonesia, Japan, Korea, Pakistan, Philippines;

Group III: Costa Rica, Cuba, Dominican Republic, El Salvador, Guatemala, Honduras, Mexico, Nicaragua.

Pp. xxii + 1012 $10.00

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Balance of Payments Yearbooks

These Yearbooks provide comprehensive information on international transactions in the postwar period for some 70-75 countries. They contain basic statistics, with explanatory notes, for the various countries, and a systematic statement of the concepts and definitions employed throughout the Yearbook series.

Beginning with Volume 13, which covers the years 1956-60, a new form of basic presentation was introduced; it is designed to make the statistics more readily usable for balance of payments analysis and to increase their comparability with national account and sector finance statistics. Since Volume 12 covers the years 1956^59, a comparison of the figures for these four years in the new and old forms of presentation may easily be made.

A feature of recent Yearbooks is the inclusion of provisional statements, making available the latest data for the various countries shortly after the Fund receives the underlying statistics.

Volume 14, which will cover the years 1957-61, will consist of a series of loose-leaf sections, issued monthly, beginning in August 1962.

The subscription price is US$7.50 a volume; a binder for filing the loose-leaf sections may be purchased for US$3.50.

International Financial Statistics

This monthly publication of the International Monetary Fund is a standard source of statistics on all aspects of domestic and international finance. Issues contain about 300 pages each. They present for most countries of the world current data useful for analyzing international payments and problems of inflation and deflation. Among the data included are exchange rates, gold and foreign exchange holdings, and the monetary system’s assets and liabilities including the money supply; also international trade, prices, production, government finance, and interest rates. In addition, data are presented in international tables, giving area and world aggregates.

Charts for the various countries show recent changes in important series; the scales for the charts are selected in order to facilitate comparison between all the charts for one country and between similar data for the various countries. Many issues also carry feature charts and articles.

The subscription rate for one year (12 issues and an annual supplement) postpaid is US$10.00; schedules of the equivalent in other currencies will be furnished on request. The price quoted covers regular mail; the publication will be sent by airmail if desired, at the expense of the subscriber. Single copies may be purchased for US$1.50.

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Mr. Gold, General Counsel, is a graduate of the Universities of London and Harvard, and was formerly a teacher of law and a member of a wartime British Government mission in Washington, D.C. He is the author of articles published in various law journals.


References to articles in Staff Papers that are identified by a prefatory Roman numeral and not by title are to the earlier six articles on “The Fund Agreement in the Courts.” Quotations in the present article from the German and French cases are, of course, translations from the original language.


VI, Staff Papers, Vol. VIII (1960-61), pp. 306-10.


81 S.Ct. 922 (1961).


81 S.Ct., p. 927.


81 S.Ct, pp. 927-28.


The Fund Agreement distinguishes between exchange controls and exchange restrictions. For example, under Article VI, Section 3, members may regulate capital transfers but not in such a way as to restrict payments for current transactions. This distinction in the treatment of the two categories means that, if a country wishes to restrict capital transfers, its controls may have to be applied to all transactions so as to segregate the one category from the other. Thus, controls may be applied to payments and transfers for current international transactions even though these payments and transfers may not be restricted under Article VIII, Section 2(a).


81 S.Ct., p. 925.


81 S.Ct., p. 928.


This is, of course, literally true in the sense that the Fund Agreement does not deal at all with the question of who may be an heir or with other questions of inheritance as such. However, this was probably not the point that the United States intended to make. Presumably, the argument was that the Fund Agreement did not permit Yugoslavia to restrict the transfer of inheritances to U.S. heirs in the United States. For a fuller statement of the arguments in the briefs, see VI, Staff Papers, Vol. VIII (1960-61), p. 310.


Article XIX(i): “Payments for current transactions means payments which are not for the purpose of transferring capital, and includes, without limitation:

  • (1) All payments due in connection with foreign trade, other current business, including services, and normal short-term banking and credit facilities ;

  • (2) Payments due as interest on loans and as net income from other investments;

  • (3) Payments of moderate amount for amortization of loans or for depreciation of direct investments;

  • (4) Moderate remittances for family living expenses.

The Fund may, after consultation with the members concerned, determine whether certain specific transactions are to be considered current transactions or capital transactions.”


81 S.Ct., p. 928.


304 N.Y.533,110 N.E. (2d) 6 (1953). See III, Staff Papers, Vol. Ill (1953-54), p. 305. See also pp. 273-75, infra.


215 N.Y.S. (2d) 3.


N.Y. Civil Practice Act:

Ҥ 902. In what actions attachment of property may be had. A warrant of attachment against the property of one or more defendants may be granted upon the application of the plaintiff, as specified in the next section, in any action for the recovery of a sum of money only.

§ 903. What must be shown to procure warrant of attachment. To entitle the plaintiff to such a warrant, he must show that a cause of action specified in the last section exists against the defendant, and, if the action is to recover damages for breach of contract, that the plaintiff is entitled to recover a stated sum, over and above all counter-claims known to him. He must also show that the defendant

1. Is either a foreign corporation or not a resident of the state; …”


215 N.Y.S. (2d), pp. 4-6.


The brief supported this by reference to § 610 of the Restatement of the Law of Conflicts of Laws (“No action can be maintained on a right created by the law of a foreign state as a method of furthering its own governmental interests.”), and by the following argument:

“… The reason for the public policy against enforcement of such claims is well illustrated by the present case. If plaintiff herein were to succeed in having this court enforce Brazilian foreign exchange regulations, the courts of New York, a world trade center, would be swamped with cases from the scores of nations having foreign exchange control laws, with which the inhabitants of this state do business. Foreign governments or their agencies would sue for dollars against Americans here rather than seek to fine or recover from their own residents in local currency.

“Many of such exchange laws are extremely detailed and complicated. The exact extent and validity of such laws are many times questioned even within the foreign jurisdiction and if they were enforceable here, New York courts might have to decide the validity of such laws under foreign constitutions. For example, it appears arbitrary that coffee exporters should receive from Banco do Brasil, S.A., 90 cruzeiros for each United States dollar assigned to said Bank while the value of the dollar on the free market in Brazil is 220 cruzeiros … All this would not only increase the burden on the courts of New York but might also lead to embarrassment in the international relations of the United States. …”


“… Plaintiff contends that the Perutz case could not have intended to apply Article VIII, Section 2(b) for the reason that it involved a pension claim and not an ‘exchange contract.’ The history of the development of the Bretton Woods Agreement indicates that the phrase ‘exchange contract’ was not intended to be used in a narrow sense but rather to cover any transaction having its basis in contract and involving exchange. (See Meyer, “Recognition of Exchange Controls after the International Monetary Fund Agreement,” 62 Yale Law Journal 867.) In speaking of the Perutz case, Meyer states that it involved an exchange contract ‘because the pension agreement was a deliberate contractual arrangement, enforcement of which was sought in dollars rather than in kronen.’ (p. 901).”


216 N.Y.S. (2d) 669; 218 N.Y.S. (2d) 545 (June 6,1961).


Anderson v. N.V. Transadine, etc., 289 N.Y. 9 (1942). State of Netherlands v. Federal Reserve Bank, 79 F. Supp. 966 (1948), 99 F. Supp. 655 (1951), 201 F 2d 455 (2 Cir., 1953). Cf. the Ontario case, pp. 290-92, infra.


Neue Juristische Wochenschrift, June 10,1960, pp. 1101-03.


See Ulrich Drobnig, “Die Anwendung des Devisenrechts der Sowjetzone durch westdeutsche Gerichte,” in Neue Juristische Wochenschrijt, June 10 1960 pp. 1088-93.


Ernst Mezger in Revue Critique de Droit International Prive, Vol. LI (1961) pp. 318-26.


See also Rules M-3 through M-6 of the Fund’s Rules and Regulations.


140 N.Y.S. (2d) 323 (1955). IV, Staff Papers, Vol. V (1956-57), pp. 292-93.


140 N.Y.S. (2d), p. 326.


Revue Critique de Droit International Prive, Vol. LI (1962), p. 67; Note by Yvon Loussouarn, p. 72. The decision of the lower court can be found in Journal du Droit International (Clunet), Vol. 85 (1958), pp. 1050-53.


The Court of Appeals agreed that this did not oust the jurisdiction of the Dutch courts where the issue was the validity of the assignment itself rather than questions raised by the assignment.


Annual Report of the Executive Directors, 1949, pp. 82-83; cf. I, Staff Papers, Vol. I (1950-51), pp. 326-27.


IV, Staff Papers, Vol. V (1956-57), pp. 297-301.


V, Staff Papers, Vol. VI (1957-58), p. 470.


Juristenzeitung (Tubingen), Vol. 8 (1953), pp. 442-16; The Legal Aspect oj Money (London, 2nd ed„ 1953), p. 382; IV, Staff Papers, Vol. V (1956-57), p. 299.


VI, Staff Papers, Vol. VIII (1960-61), pp. 298-300.


For a discussion of this argument, see Joseph Gold, “Article VIII, Section 2(b), of the Fund Agreement and the Unenforceability of Certain Exchange Contracts: A Note,” Staff Papers, Vol. IV (1954-55), pp. 331-32; IV, Staff Papers Vol. V (1956-57), p. 300.


G. R. Delaume, “De Pelimination des conflits de lois en matiére monetaire realisée par les Statuts du Fonds Monetairé International et de ses limites,” Journal du Droit International (Clunet), Vol. 81 (1954), pp. 338-45.


1960 A.C. 244, 255. Section 33(1) of the Act reads as follows:

“It shall be an implied condition in any contract that, where, by virtue of this Act, the permission or consent of the Treasury is at the time of the contract required for the performance of any term thereof, that term shall not be performed except in so far as the permission or consent is given or is not required: Provided that this subsection shall not apply in so far as it is shown to be inconsistent with the intention of the parties that it should apply, whether by reason of their having contemplated the performance of that term in despite of the provisions of this Act or for any other reason “


Pasicrisie Luxembourgeoise (1957), pp. 36-39. V, Staff Pavers, Vol. VI (1957-58), pp. 468-70.


This proposition has a bearing on the following passage in V, Staff Papers, Vol. VI (1957-58), p. 463: “… 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 article 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 Estate 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.”


220 N.Y.S. (2d) 903.


Ibid., p. 904.


Ibid., p. 904.


(1961) 29 D.L.R. (2d) 673.


Ibid., pp. 710-11.


Ibid., pp. 712-13.


US. Department of State Publication 2187 (Conference Series 55), pp. 22-24.