The Fund Agreement in the Courts—X
  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund

ALL THE CASES discussed in this latest contribution to the jurisprudence involving the Articles of Agreement of the International Monetary Fund † deal with Article VIII, Section 2(b):

Abstract

ALL THE CASES discussed in this latest contribution to the jurisprudence involving the Articles of Agreement of the International Monetary Fund † deal with Article VIII, Section 2(b):

ALL THE CASES discussed in this latest contribution to the jurisprudence involving the Articles of Agreement of the International Monetary Fund deal with Article VIII, Section 2(b):

Exchange contracts which involve the currency of any member and which are contrary to the exchange control regulations of that member maintained or imposed consistently with this Agreement shall be unenforceable in the territories of any member. 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.

All the cases were decided by the highest tribunal within the jurisdiction in which the proceedings were conducted.

In the first of the cases to be discussed, the Court of Appeals of the State of New York examined the relationship of the act of state doctrine to exchange control. The other five cases dealt with the unenforceability of certain exchange contracts. Three were decided by the Federal Supreme Court of Germany, and the other two by the Court of Cassation of France.

Exchange Control and Act of State

In French v. Banco Nacional de Cuba 1 the Court of Appeals of New York considered the relationship of exchange control to the act of state doctrine, and held by a decision of four judges to three that an act of state of Cuba prevented the plaintiff from succeeding on her claim. The Currency Stabilization Fund of Cuba had issued certificates to Ritter, an investor in Cuba, in respect of the proceeds of his investment in that country. The certificates stated that the owner of them, on tendering a certain number of Cuban pesos, would receive a check drawn on the defendant’s New York account for an equal number of U.S. dollars. The certificates had been signed by both the Currency Stabilization Fund and the defendant. Ritter presented certificates but was refused dollars under Decision No. 346 of the Currency Stabilization Fund. The Decision suspended the processing of certificates “for the time being.” It had been adopted pursuant to decrees of the Cuban Government which prevented U.S. and other investors from receiving currency other than Cuban pesos in respect of their Cuban investments.2 Ritter assigned the certificates to the plaintiff, who obtained a judgment on them in an action in the Supreme Court of New York. In an appeal from this judgment to the Appellate Division, which failed, one of the defenses was that Decision No. 346 was an act of state of the sovereign Government of Cuba which U.S. courts could not question. This defense was reargued before the Court of Appeals of New York.

It has been affirmed by the Sabbatino case 3 that courts in the United States will not inquire into the validity under the law of a foreign government of acts performed by the government within its own territory. The Supreme Court said in the Sabbatino case that:

… [R]ather than laying down or reaffirming an inflexible and all-encompassing rule in this case, we decide only that the Judicial Branch will not examine the validity of a taking of property within its own territory by a foreign sovereign government, extant and recognized by this country at the time of suit, in the absence of a treaty or other unambiguous agreement regarding controlling legal principles, even if the complaint alleges that the taking violates customary international law.4

The Court of Appeals noted that although the Cuban action had imposed losses on Ritter, they resulted from an exchange control regulation that did not amount to a “taking” or “expropriation” as in the Sabbatino case.5 The court held that the Sabbatino principle must surely apply to the lesser action of the imposition of exchange control.

If Cuba had been a member of the Fund at the time of the suit, would the Fund’s Articles have been considered “a treaty or other unambiguous agreement regarding controlling legal principles” on the ground that the Articles apply to exchange control and Decision No. 346 was an exchange control regulation? The question did not arise, but the court noted that it might have arisen. A footnote to the opinion of Chief Judge Fuld, who delivered the opinion of the majority of the Court of Appeals, states that no treaty had been cited:

In point of fact, Cuba withdrew, in 1964, from the International Monetary Fund Agreement, the only arguably applicable international instrument, and the defendant does not claim its benefits.6

Article VIII, Section 2(b), requires courts to deny the enforcement of exchange contracts when they are contrary to exchange control regulations that are consistent with the Articles. The provision is intended to ensure that a forum will recognize exchange control regulations for this purpose even though, before the country in which the forum is situated became a member of the Fund, recognition would have been refused on the principle that the exchange control regulations of other countries offended the public policy of the forum. The decision of the New York Court of Appeals recognized the effect of the exchange control regulations of Cuba even though they might offend the public policy of New York and even though the Articles were inapplicable.

The act of state doctrine as applied by the Court of Appeals produces a liberal attitude to the exchange control regulations of other countries. The attitude might be less liberal if it implied some limitation by analogy to the concept of the “taking” or “expropriation” of property within Cuba. A limitation of this kind, however, is not consistent with the court’s treatment of the Hickenlooper Amendment to the U.S. Federal Foreign Assistance Act of 1961,7 which the U.S. Congress passed as a result of the Sabbatino decision. The amendment declares that no court in the United States shall decline on the ground of the act of state doctrine to make a determination on the merits giving effect to the principles of international law in a case in which “a claim of title or other right to property” is asserted by any party, including a foreign state, “based upon (or traced through) a confiscation or other taking” by an act of that state in violation of the principles of international law. The court pointed out that before Decision No. 346, Ritter had pesos and a contract made in Cuba, governed at all times by the law of Cuba and to be performed there by the delivery of a check for U.S. dollars in return for the pesos. He had not held any specific fund of dollars which had been taken from him. Neither had his pesos or his contract right been taken from him and vested in the Cuban Government or anyone else. Therefore, in the opinion of the majority, there was no confiscation or other taking of property within the meaning of the Hickenlooper Amendment. Those concepts in the amendment were not intended to include breaches of contract.

With this conclusion, it was not necessary for the majority to consider whether the action of the Cuban Government violated principles of international law, but Chief Judge Fuld decided to examine this question because the minority took the view that there was a taking within the meaning of the Hickenlooper Amendment. He concluded that exchange control was an essential function of government and that the exercise of it had become common practice. An exchange control measure was not contrary to international law if it was “reasonably necessary” to “protect the foreign exchange resources of the state,”8 and this was the nature of Decision No. 346.

Judge Hopkins, who concurred in the opinion of Chief Judge Fuld, held that the act of state in this case was the refusal of the defendant, an instrumentality of the Cuban Government, to perform its obligations under a contract to be performed within Cuba, and it was not necessary to regard the exchange control regulations as the act of state. They were merely the basis on which the defendant justified its refusal to perform. On the view taken by Judge Hopkins, it could not be said that the case established that exchange control in itself was an act of state. It does not necessarily follow from this view of the case, however, that Judge Hopkins would have held that the act of state doctrine could apply to a refusal to perform by the instrumentality of a government but not to a refusal by a private party.9 The impression that Judge Hopkins was not narrowing the doctrine in this way is strengthened by the concurrence of Chief Judge Fuld in this separate opinion. If in the opinion of Judge Hopkins there is a bias in favor of the defense of an act of state when asserted by governmental instrumentalities, it is in contrast to the dissenting opinion of Judge Keating. In that opinion, there are dicta which indicate a greater readiness to allow private parties to rely on the defense.10

Judge Keating and two other judges dissented on the ground that the evidence did not establish that Decision No. 346 applied to the certificates held by the plaintiff. But even if the Decision did apply to them, the defense of act of state would not be available because the facts showed not merely a breach of contract but “a confiscation clothed in the disguise of a valid currency regulation.” 11 In their view, the word “property” in the Hickenlooper Amendment included contractual rights.

In the main dissenting opinion, Judge Keating said that New York law had “always recognized the validity of regulations by foreign countries to protect their economies,” but Decision No. 346 was not “a legitimate exercise of a sovereign nation’s right to protect its international economic position.”12

There is sufficient authority in international law for the proposition that a taking of property can occur without first depriving the owner of legal title if the foreigner is effectively deprived of all benefit of the property…. Moreover, simply because Decision No. 346 was initially necessitated by Cuba’s need to protect its foreign exchange, it does not follow that it remains valid under international law permanently…. I see no reason to determine the validity of Decision No. 346 by a simple reference to the date it was enacted, July 15, 1959. Though this might be justified when the currency regulations of a country are in accord with the principles of the International Monetary Fund, even though the enacting country is not a member or has subsequently withdrawn, this view is not justified when these monetary policies are inconsistent with the purpose of the Fund. (International Monetary Fund … art. VI, § 3. This section contains the limitation that “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.”) 13

Judge Keating seems to be asserting a number of propositions in this passage. First, exchange control regulations are valid under international law if they are imposed by a member of the Fund and are consistent with its Articles. Second, the exchange control regulations of a non-member or former member of the Fund may be valid under international law. In this connection, it should be recalled that Cuba withdrew from the Fund on April 2, 1964. Third, exchange control regulations may be valid when adopted but may become invalid later. It is certainly true that exchange control regulations may cease to be consistent with the Articles, for example, by the withdrawal or expiration of the Fund’s approval of them. Fourth, in no circumstances will exchange control regulations be valid under international law if they are inconsistent with the principle of Article VI, Section 3, of the Articles.

The last proposition appears to treat Article VI, Section 3, as declaratory of nontreaty international law and therefore applicable to the exchange control regulations of all countries, whether they are members or ex-members of the Fund or never have been members. The provision reads as follows:

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.

Article VI, Section 3, authorizes members to regulate international capital movements, provided that this authority is exercised without restricting payments for current transactions or unduly delaying transfers of funds in settlement of commitments. These qualifications do not require a member to permit transfers in settlement of all commitments without regard to the restrictions that it is applying consistently with the Articles. If it applies restrictions on capital movements or applies restrictions on payments and transfers for current international transactions under the authority of some provision of the Articles, it may rely on those restrictions in order to refuse to permit settlements whether the commitments are entered into before or after the adoption of the restrictions. In particular, the member is not bound to relax restrictions on balances of its currency which it has controlled as capital because the holders wish to use them for settlements. The function of the clause referring to undue delay is to make it clear that if payments and transfers for current transactions are permitted, they are, nevertheless, being subjected to restriction if there is undue delay in permitting the settlement of commitments connected with these transactions.14 It was useful to clarify this point in the Articles because the application of capital controls necessitates administrative procedures that segregate movements of capital from payments for current transactions, and these procedures could produce delays in the settlement of commitments to make the latter payments.

If this analysis were being applied to Cuba at a date on which it was a member of the Fund, the results would be as follows. Cuba had accepted the obligations of Article VIII, Sections 2, 3, and 4. To the extent that Decision No. 346 involved restrictions on payments and transfers for current international transactions, the restrictions would be consistent with the Articles only if the Fund had approved them under Article VIII, Section 2(a). To the extent that controls on the movement of capital were involved, the controls would be consistent with the Articles without the necessity for approval by the Fund, provided that they were exercised in a manner which did not delay unduly the settlement of payments and transfers for current international transactions that were in other respects unrestricted. The case before the court related to the proceeds of the liquidation of an investment in Cuba, the purchase of a farm, and therefore what was in issue was a control on the transfer of capital.15

In concluding that Decision No. 346 was not valid under international law, Judge Keating held that it must be examined together with all the related economic regulations applied by Cuba, because they were elements in a single consistent pattern. The design was not to protect Cuba’s balance of payments by preventing the flight of capital or devaluation of the currency but to eradicate foreign private capital. The effect of the regulations had been the complete and prolonged blocking of the peso balances of Americans.16

Four cases involving Czechoslovak exchange control regulations had been cited by the appellant,17 including Perutz v. Bohemian Discount Bank in Liquidation, from which Judge Keating quoted the following statement by the New York Court of Appeals:

A contract made in a foreign country by citizens thereof and intended by them to be there performed is governed by the law of that country. … Our courts may, however, refuse to give effect to a foreign law that is contrary to our public policy….18 But the Czechoslovakian currency control laws in question cannot here be deemed to be offensive on that score, since our Federal Government and the Czechoslovakian Government are members of the International Monetary Fund….19

Judge Keating distinguished these cases from the one before the Court of Appeals on the ground that the earlier cases had been argued solely on the basis of exchange controls and not in relation to Czechoslovak nationalization decrees.

The decision of the Court of Appeals applying the act of state doctrine raises the question of the relationship of that doctrine to Article VIII, Section 2(b), in New York courts. In a case in which the exchange control regulations of a member are consistent with the Articles, a plaintiff seeking performance of a contract that is contrary to the regulations would be denied a remedy under the doctrine and under the provision. If the regulations are inconsistent with the Articles, the plaintiff again would be denied a remedy under the doctrine. Two questions then arise. First, is the court bound in such a case to ignore the effect of the Articles? Second, if the court does not ignore the Articles, what is the result under them? The answer to the first question appears to be that the court is not required to ignore the Articles, because the Sabbatino decision makes a reservation in favor of “a treaty or other unambiguous agreement regarding controlling legal principles.” The Articles of Agreement could come within that reservation. If the Articles are considered, it would seem that Article VIII, Section 2(b), does no more than declare that a contract is unenforceable if it is contrary to regulations that are consistent with the Articles. It does not provide for enforceability if the regulations are inconsistent with the Articles, and it can be assumed that the question of enforceability is determined by the law of the forum. On this view, there would be no conflict between the refusal of a remedy under the doctrine and the effect of the provision, because the provision does not require that the contract be treated as enforceable. With this analysis, it is not apparent that there would be any conflict in New York between its application of the doctrine of the act of state to exchange control regulations and Article VIII, Section 2(b).

Discussion of the case can be concluded with a final comment on the opinion of Judge Keating. In explaining why he felt that the Cuban regulations were invalid, he said: “The Cuban Government, by rescinding the tax certificates, has simply added to its currency reserves by this ploy.”20 The conscription of foreign exchange is as much a purpose of exchange control as the prohibition or limitation of payments and transfers. The conscription is not in itself a confiscation, and it is necessary to examine other facts to see whether it has this effect. The statement of Judge Keating need not be understood to imply a general principle but can be taken to relate to the facts of the case, in which, it has been seen, he concluded that the plaintiff had been deprived for a prolonged period of any use of her holdings of pesos.

The Unenforceability of Certain Exchange Contracts

Germany

The Federal Supreme Court Judgment of April 27, 1970 21

The plaintiff bank sought to recover the amounts of two bills of exchange from the drawee, a Dutch company. The bills had been made by K, a nonresident of the Netherlands, accepted by B, a member of the defendant’s board of directors, and endorsed by K to the plaintiff. The bills had been dishonored and protested. One of the defenses was that the acceptance was invalid because the license required by Dutch law had not been obtained. The Oldenburg State Court gave judgment for the plaintiff, but this was reversed by the Oldenburg State Court of Appeal. An appeal was taken to the Federal Supreme Court, which delivered a judgment on April 27, 1970 in the course of which it made an important statement of its understanding of various aspects of Article VIII, Section 2 (b).

(i) The Supreme Court agreed with the Court of Appeal that Article VIII, Section 2(b), affects only the enforceability of claims under a contract to which the provision applies. It dismissed the view, for which there had been minor support in the past, that the provision prescribes invalidity for exchange contracts that are contrary to the exchange control regulations of members of the Fund if those regulations are consistent with the Articles. The court noted that its view was in keeping with the authoritative English text (“shall be unenforceable”) and the German translation of it. The purpose of the provision, the court continued, was to reverse former judicial rulings and ensure that members of the Fund would recognize each other’s exchange control regulations when they were consistent with the Articles whatever might be the law governing the contract under the law of the forum (lex fori) and notwithstanding the principle of the nonrecognition of foreign public law. For this purpose, it was sufficient for the courts and administrative authorities of members of the Fund to refrain from helping contracting parties to get the performance of contracts that are forbidden by exchange control regulations, and it was not necessary to declare contracts invalid. On this and other aspects of its opinion, the court cited with approval certain published views, including some expressed in articles on the “Fund Agreement in the Courts” that had first appeared in Staff Papers and later in Rabels Zeitschrift für auslandisches und internationales Privatrecht.22

The principle that Article VIII, Section 2(b), does not declare contracts invalid because they are entered into in defiance of exchange control regulations means that the circumstances at the time when a contract is made are not necessarily decisive for the purposes of suit on the contract. Article VIII, Section 2(b), in declaring contracts unenforceable but not invalid because they are entered into in defiance of exchange control regulations, makes it possible to examine the facts at the date when enforcement is sought. Moreover, it will be seen from the discussion in (iv) below that the effect on the balance of payments or exchange resources of a member is a criterion in the understanding and application of certain aspects of the provision. It is not contracts but the performance of obligations under them that affects the balance of payments or exchange resources. The purpose of Article VIII, Section 2(b), will be promoted, therefore, if the effect on the balance of payments or on exchange resources at the time when the performance of obligations is sought is taken into account in applying the provision.

If a contract was contrary to exchange control regulations when made but by the time of suit the regulations are abrogated or amended so that the contract is no longer contrary to them, the contract becomes enforceable even though it was originally unenforceable. If the contract had been invalid when made, it could not become valid simply by the revocation or modification of exchange control regulations. Unenforceability produces the obviously sensible result that when a member no longer seeks protection for its balance of payments, other members are no longer required to give protection.

It is possible that the law of the foreign exchange control regulations prescribes that contracts contrary to them are invalid. This does not alter the meaning of unenforceability in Article VIII, Section 2(b). That provision still binds the forum to do no more than treat the contract as unenforceable. If, however, the foreign law is the law governing the contract under the private international law of the lex fori, the forum may treat the contract as invalid, but that result will follow from the private international law of the forum and not from the Articles. There is nothing in the Articles to suggest that Article VIII, Section 2(b), is substituted for private international law beyond ensuring that contracts will not be treated as enforceable in circumstances in which the provision requires that they be unenforceable.

It has been seen that a contract that was unenforceable when made may cease to be unenforceable under Article VIII, Section 2(b). The reverse may happen. A contract that was not contrary to exchange control regulations when made may become unenforceable as a result of the modification or introduction of exchange control regulations before suit is brought.

Similarly, changes in the consistency of exchange control regulations with the Articles may affect the enforceability of a contract. Article VIII, Section 2(b), provides that a contract shall be unenforceable if it is contrary to exchange control regulations “maintained or imposed consistently with this Agreement.” Regulations may have been approved by the Fund as restrictions under Article VIII, Section 2(a),23 before a contract was made but approval may expire or be withdrawn before suit is instituted. Regulations may have lacked approval when a contract was entered into but may receive approval later. Changes in the consistency of regulations with the Articles may also occur under other provisions of the Articles.

A distinction similar to the one involving changes in exchange control regulations or in their consistency with the Articles can be based on changes in the circumstances of the contracting parties. Exchange control regulations may be unchanged but they may cease to apply to a party because he has become a nonresident of the member country maintaining the regulations although he was a resident when he entered into the contract.24 The contract is no longer unenforceable under Article VIII, Section 2(b), even though it was unenforceable when made. Once again, the reverse may happen. A contract originally enforceable may become unenforceable because a party has changed his status from a nonresident to a resident of the member maintaining exchange control regulations in accordance with the Articles.

Finally, a contract may cease to be unenforceable under Article VIII, Section 2(b), because the exchange control regulations that have not been observed are those of a country that is no longer a member of the Fund. Cuba, Czechoslovakia, and Poland have all withdrawn from the Fund. Indonesia withdrew for a time but rejoined the organization. Cases have occurred in the courts of members of the Fund involving the exchange control regulations of Cuba 25 and Czechoslovakia 26 after the withdrawal of those countries. The decisions have been consistent with the principle that unenforceability under Article VIII, Section 2(b), is determined by the facts at the time of suit, that the provision is for the benefit of members, and that if a country withdraws from the Fund it loses the protection of the provision.27

(ii) In arriving at its conclusion on the meaning of unenforceability under Article VIII, Section 2(b), the Supreme Court noted that its view was in accord with the Fund’s “official interpretation” of June 10, 1949. The court did not examine the question whether it was bound by the interpretation, perhaps because its opinion was consistent with it. The judgment adds little, therefore, to the body of jurisprudence on the question whether interpretations adopted by the Fund under Article XVIII are binding on tribunals in member countries under their domestic law as it stands at the time of decision.28

When a country joins the Fund it deposits an instrument which states that it accepts all the obligations of the Articles and has taken all the steps necessary to give effect to those obligations under its law. A member which becomes a participant in the Special Drawing Account deposits a similar instrument with respect to the obligations of that Account.29 The Fund decides with finality any question of the interpretation of the Articles that arises between members or between a member and the Fund.30 The obligation of Article VIII, Section 2(b), means the obligation as interpreted by the Fund under Article XVIII. The obligation under Article VIII, Section 2(b), to treat certain contracts as unenforceable can be performed only through a member’s courts and administrative agencies. If the courts and agencies of a member do not consider themselves bound under their domestic law by the Fund’s interpretation of the provision and if they take actions that are inconsistent with the interpretation, the member will not be performing an obligation in accordance with the instrument that it deposited on joining the Fund. If domestic law does compel the courts and agencies to act inconsistently with the obligation as interpreted under Article XVIII, the member must take action to make good its declaration that it has taken all necessary steps under its law to enable it to perform its obligations. In short, it must take whatever steps are necessary to ensure that its courts and agencies will act in accordance with the interr pretation.

(iii) An argument that has been made for the minority view that unenforceability must mean invalidity has been the principle of Anglo-American domestic law which leaves it to the defendant to decide whether or not to raise the defense of unenforceability, whereas Article VIII, Section 2(b), requires respect for foreign exchange regulations in the public interest. The fallacy in this argument is obvious: there is no reason why the concept of unenforceability under the Articles must carry with it the idiosyncrasies of the concept in a particular system of private law. The Supreme Court rejected the argument and held that, in order to give effect to the public law purposes of the Articles, a court must raise the objection based on Article VIII, Section 2(b), even though neither party to the litigation has relied on the defense. If the contract on which an action is brought is contrary to exchange control regulations that are consistent with the Articles, an essential “precondition” of the suit is lacking and the court must reject the claim. By its decision on this aspect of the case, the court held that the public interest which induces it in certain cases to raise the defense of invalidity on its own initiative justified a similar procedure even though it was dealing with an unenforceable and not an illegal contract.

The Supreme Court held that the duty of a court to raise the issue of the enforceability of a claim does not affect the rules relating to the burden of proof. The Court of Appeal had decided correctly, on the basis of information provided by the Nederlandsche Bank, the central bank of the Netherlands, that under Dutch exchange control regulations a resident must obtain a license to accept a bill of exchange drawn by a nonresident if the purpose of the transaction was to give or to secure credit given to the nonresident. A license was not required if bills were accepted for certain other purposes. The Court of Appeal had acted on the defendant’s statement that the bill of exchange had been accepted by the defendant to secure credit given to the nonresident K by the plaintiff. For the plaintiff to succeed, it was necessary, therefore, for it to prove, if it could, that the bills had been given for some purpose that did not require a license under the Dutch exchange control regulations. The plaintiff had not inquired into the underlying transaction between the defendant and K, but the court held that

[a]s long as account must be taken domestically of foreign exchange restrictions, the complication of discounting acceptances by persons whose domicile or place of business is abroad, feared by the appellant, cannot be avoided, and is to be remedied by means of appropriate investigation and verification.

(iv) The Supreme Court also expressed a view on the meaning of “exchange contracts” in Article VIII, Section 2(b). It held that obligations deriving from bills of exchange were within the meaning of that concept “since it is just such obligations that can especially affect the balance of payments, and therefore if they were not included in this concept, it would hardly be feasible to restrict foreign exchange transactions effectively.” This passage deserves closer analysis.

The two elements of “exchange contracts” and the currency “involved” in the provision have been regarded sometimes as the duplication of a single element but, although they are associated, they are distinct. The first element identifies the contracts to which the provision applies, and the second identifies the member which is entitled to have its exchange control regulations recognized for the purposes of the provision when exchange contracts are contrary to these regulations. The alleged duplication arises from the fact that sometimes “exchange contracts” have been defined in such a way that the definition also identifies the currency “involved.”

A number of definitions of “exchange contracts” have been attempted. For example, it has been said that they are contracts that affect,31 or in any way affect,32 the exchange resources of a country. In the case discussed here, the Supreme Court defined them as contracts that affect the balance of payments. These formulations recognize quite properly that the concept must be given an economic meaning. It is possible that any contract that is not purely domestic in all its aspects can be shown to have some effect of an economic character on two or more countries, although the effect may be remote. The purpose of the qualifying word “exchange” must serve to eliminate contracts that have no obvious economic content, although the contracts that remain will still be diverse. Five basic types of economic transaction have been distinguished:

  • (a) purchases and sales of goods or services against financial items (the exchange of goods or services for means of payment);

  • (b) barter (the exchange of goods or services for goods or services);

  • (c) the exchange of means of payment for other means of payment;

  • (d) the provision or acquisition of goods or services without requital (e.g., grants-in-kind);

  • (e) the provision or acquisition of the means of payment without requital (e.g., gifts).33

Transactions in any of these categories may enter into the balance of payments or affect the exchange resources of a country. They can affect exchange resources because they represent an addition to or diminution of the assets or liabilities of a country in the sense that ultimately they could increase, reduce, or forgo an increase in the reserves of the monetary authorities of a country. Therefore, “exchange contracts” are not restricted to category (c) above. Moreover, they are not confined to transactions that give rise to transfers of money. For example, they may provide for barter. If a transfer of money is involved, it need not be made through the banking system in which the contracting party resides. For example, an importer may pay for his import with a credit from the exporter’s country. If a transfer is made, it may be in the domestic currency of the payor or payee or in a currency that is foreign to the importer. An understanding of “exchange contracts” on these lines has been described as “liberal,” 34 although with approbation, but this understanding does no more than reflect the economic character of the Articles in which the concept of “exchange contracts” is embedded and the function it is meant to serve.

When the discussion is directed to the currency “involved,” the connection with “exchange contracts” is obvious. The currency “involved” is the currency of the member in which there is an effect on the balance of payments or on exchange resources. It has been the practice to speak of “the” currency that is involved, but a balance of payments is a statement of the transactions of a country with other countries. Therefore, any exchange contract will involve two currencies, i.e., the currencies of the two members in which the parties to the exchange contract are resident. It does not follow that both members have exchange control regulations. Either or both of them may maintain exchange control regulations, or neither of them. If both have exchange control regulations, the courts will apply their own country’s regulations. If the domestic regulations do not deny a remedy, the forum will still have to treat a contract as unenforceable if it is contrary to the regulations of the other member,35 and the courts of a third member will have to treat a contract as unenforceable if it is contrary to the regulations of either of the two countries issuing the currencies involved.

It is sometimes said that the test for determining whether or not the currency of a member is involved turns on whether exchange control regulations are for the protection of the balance of payments of that member.36 A definition of exchange control which is often referred to, even though it does not involve the application of Article VIII, Section 2(b), stresses the test of the defense of the balance of payments:

In my judgment, these courts must recognise the right of every foreign state to protect its economy by measures of foreign exchange control…. [T]his court is entitled to be satisfied that the foreign law is a genuine foreign exchange law, i.e., a law passed with the genuine intention of protecting its economy in times of national stress and for that purpose regulating (inter alia) the rights of foreign creditors, and is not a law passed ostensibly with that object, but in reality with some object not in accordance with the usage of nations…37

The test of “protection” of the balance of payments is adequate in most cases but it can be misleading. It is not the test of the Supreme Court, which preferred to speak of exchange control regulations as regulations which control transactions that “affect” the balance of payments. The test as expressed by the Supreme Court is more precise because Article VIII, Section 2(b), requires recognition for the purposes of that provision of exchange control regulations that are “maintained or imposed consistently” with the Articles if they are authorized by any one of a number of provisions.38 The authority conferred by these provisions is related most frequently, but not invariably, to the protection of the balance of payments. For example, a member may impose exchange control regulations for reasons of national or international security, and the Fund has made it clear that a member must obtain the Fund’s approval of them, which means, of course, that they can be authorized under the Articles.39 In some circumstances, a member may impose exchange control regulations as a sanction against another country or territory in accordance with a resolution of the United Nations. A number of members imposed exchange control regulations against Rhodesia, and these were approved by the Fund under Article VIII, Section 2(a). In cases such as these, the purpose of the exchange control regulations is not to protect the balance of payments of the member adopting them but to produce an adverse effect on the balance of payments of the country or territory against which they are directed.

Language which refers to protection of the balance of payments may be misleading in another way. It may suggest that exchange control regulations are imposed only by members in deficit in their balances of payments, and that a member in surplus will not impose exchange controls or will not be entitled to have them recognized under Article VIII, Section 2(b), if it does impose them. None of these propositions is correct. A member may impose exchange control regulations because it has a troublesome surplus, for example, as the result of an inflow of capital, and these regulations will be recognized no less than the regulations of a member in deficit.

Although the test that the performance of a contract would affect a member’s balance of payments normally will serve to determine whether its currency is involved, the question may be raised whether the test produces the same results in all cases as two other tests. One of these is jurisdiction to adopt regulations and the other is effect on exchange resources. It has been suggested that the concept of the currency “involved” is simply another way of stating that a member has legislative jurisdiction in accordance with familiar legal principles to apply regulations on the basis of residence within the member’s territory or the location of assets within its control.40 There are circumstances in which the equivalence of jurisdiction of this kind and effect on the balance of payments may not be obvious. For example, a member has jurisdiction to control contracts for the transfer between nonresidents of an asset within its territory. If the nonresidents are residents of different countries, the transfer would not enter into a member’s global balance of payments, although the transfer might enter into the member’s regional balances of payments, and for this reason the transfer might have economic importance for the member. If the transfer is between two nonresidents who are residents of the same country, a change in the class of obligee might have economic relevance. The transfer of a bank deposit in a member’s territory between a foreign central bank and a private resident of the country of the central bank is an example of a change of this character. The significance of other transfers of assets situated in a member’s territory between nonresidents who are residents of the same country may be even less obvious, although the member has jurisdiction to control these transfers.41 Finally, transfers between a member’s residents must not be overlooked. It can control transfers among them of assets situated abroad, but the transfers would not affect its balance of payments.

In those cases that have been mentioned in which an effect on the balance of payments is not obvious, not only has the member legislative jurisdiction according to familiar ideas but, in addition, its exchange resources can be said to be affected. They are affected in the sense that contracts relate to them, usually by providing for their transfer. The difference between the test of the balance of payments and the other tests is that the latter are not confined to cases in which there may be changes in a member’s assets or liabilities.

The Federal Supreme Court Judgment of February 17,1971 42

In a judgment of February 17, 1971 the Federal Supreme Court followed the judgment of April 27, 1970 but applied it to new facts. The exchange control regulations that had applied to a contract when made were repealed before suit and, as noted above, this is one of the cases that illustrate the difference between the unenforceability of a contract under Article VIII, Section 2(b), and invalidity.

The plaintiff, a firm operating in the Federal Republic, in July and August 1963 supplied the defendant, a French firm, with hog sides from Eastern Germany under a contract entered into in East Berlin. The price was in excess of a quarter of a million U.S. dollars. Under French foreign exchange control regulations in force at that time, payment for goods from Eastern Germany could not be made to the seller in the Federal Republic but had to be credited to a “bilateral franc account” held with an East German bank. An account of this type could be operated by the holder only in a specified manner and for specified purposes. The plaintiff received bilateral francs for an amount outstanding under the contract, and in September 1963 the parties agreed in Switzerland with a third party on a switch transaction which involved a discount of 7 per cent. The court found that the defendant undertook to bear this disagio. The plaintiff claimed the balance, after deduction of a counterclaim, in proceedings instituted in the Federal Republic. The defendant argued that the agreement was void under French exchange control regulations.

The agreement of September 1963 was contrary to French exchange control regulations then in effect. After January 30, 1964 such a transaction ceased to be unlawful under French regulations, but a license was necessary for transfers to the Federal Republic. From January 31, 1967 these transfers were no longer subject to any kind of control.

In its opinion, the Supreme Court noted that both France and the Federal Republic of Germany were members of the Fund and cited Article VIII, Section 2(b). The court accepted the conclusions that the contract by which the defendant undertook to absorb the disagio was contrary to French exchange control regulations when made and that the currency of France was involved. The court held that the purpose of Article VIII, Section 2(b), was to protect the foreign exchange reserves of the member of the Fund that had issued the exchange control regulations by ensuring that the courts of other members would not ignore them on the basis of the public law character of the regulations or conflict with the public policy of the forum. The Supreme Court’s decision of April 27, 1970 had decided that the provision prevented the enforcement of contractual claims but did not require that they be regarded as void. If a member repeals exchange control regulations, it declares thereby that it no longer needs the protection of the regulations. The court held, therefore, that other members should be bound no longer to give protection, and contractual claims could be enforced. The court, in support of its conclusions, referred once again to the views expressed in the articles that had appeared in Rabels Zeitschrift für auslandisches und internationales Privatrecht, as well as to the work of other authors.

The Supreme Court went on to decide other issues connected with the claim. First, the conclusion that Article VIII, Section 2(b), was no longer a bar to the enforcement of the claim would stand even if it could be shown that under French domestic law the contract remained void after the repeal of the exchange control regulations. It was the purpose of Article VIII, Section 2(b), to ensure that all other members would not enforce exchange contracts that were contrary to any member’s exchange control regulations, but it was not the purpose of the provision to ensure that other members would give these contracts the same treatment that they received under the law of the member that had adopted the regulations.

Second, because the claim was not unenforceable under Article VIII, Section 2(b), it was admissible, but whether it was well-founded depended on the domestic law which governed the contract. The facts showed that the parties intended German law to apply, and there was no provision of that law which prohibited the agreement. It was not relevant under German law that the contract violated French exchange control regulations when it was made. The legal consequences of a violation did not go beyond those prescribed by Article VIII, Section 2(b).

Third, under German law a contract having as its object an impossible act is void, but the payment of the disagio was to be made in Germany, and it was possible there.

The Federal Supreme Court Judgment of March 11,1970 43

The plaintiff, a credit institution in Germany, financed the purchase in early 1965 of equipment for a coin-operated laundry by a Dutch firm, which on January 22, 1965 agreed to be a surety for the loan. The agreement declared: “The surety recognizes the provisions of German law under which the suretyship may be invoked against him.” The plaintiff brought this action against the defendant to recover the outstanding balance of the loan.

The State Court of Appeal of Düsseldorf treated the defendant’s contract of suretyship as an “exchange contract” and the Dutch foreign exchange law as “exchange control regulations” for the purpose of Article VIII, Section 2(b), and the Supreme Court accepted these findings.

The parties agreed that under the Dutch foreign exchange control regulations, the defendant’s contract of suretyship was subject to approval by the Nederlandsche Bank. Approval was not requested or given when the contract was entered into, but, on the request of the plaintiff, approval was given on February 2, 1968.

The parties disagreed on the question whether under Dutch law the subsequent approval validated the contract which originally was invalid under that law. Under German law, a contract would be validated in these circumstances. The Supreme Court confirmed the view of the Court of Appeal that the question of validation must be decided according to German law because the defendant had recognized that the provisions of German law were applicable. It was unnecessary, therefore, to decide what was the effect of the subsequent approval under Dutch law.

At first sight, it might seem that the question whether the suretyship contract was contrary to Dutch exchange control regulations was decided according to German law. On closer analysis, this is not what the Supreme Court decided, and its decision is consistent with the other two decisions by it which have been discussed in this article. The basic thesis of all three decisions is that Article VIII, Section 2(b), deals with the unenforceability of contracts and not with their validity. This principle is stated most forcefully in the decision of April 27, 1970. If a contract is invalid when made, it cannot become valid later, but unenforceability under the provision can be determined in relation to the facts at the time of suit. Therefore, the decision of February 17, 1971 established the proposition that if exchange control regulations are repealed before suit, a contract that was contrary to them when made ceases to be unenforceable. In the earlier decision of March 11, 1970, the grant of approval by the Nederlandsche Bank after the contract was made but before suit meant that at the time of suit the contract ceased to be contrary to the exchange control regulations of the Netherlands and, therefore, ceased to be unenforceable in Germany. As a result, Article VIII, Section 2(b), had no further function, the claim was admissible, and the question whether it was sound had to be determined by German law as the law governing the contract under the lex fori. Under German law, a contract which depended for its validity upon the grant of a license was validated by the grant of a license after the contract was entered into. This aspect of the case resembled the treatment of the repeal of French exchange regulations in the decision of February 17, 1971. That decision held that after the repeal the contract ceased to be unenforceable under Article VIII, Section 2(b), and because the contract was governed by German law the question whether it remained invalid under French law after the repeal was irrelevant.

In both cases, it must be assumed that the contract ceased to be contrary to exchange control regulations, in the one case because a license was granted in the Netherlands and in the other because the regulations were abrogated in France. The contracts then became enforceable in Germany even though they may have continued to be invalid in the Netherlands or in France because the contract had been contrary to the regulations of those members when made. It is necessary, however, to clarify what is meant by invalidity. If the contract is invalid in the Netherlands or France because of the general law, there is no reason why continuing invalidity there should require other members to treat the contract as unenforceable under Article VIII, Section 2(b). Their only obligation is to decree unenforceability if a contract is contrary to exchange control regulations. If, however, the contract remained invalid in the Netherlands or in France because exchange control regulations remained in existence, even if their only remaining purpose was to perpetuate the invalidity of past contracts, there would still be an obligation on Germany to treat the contract as unenforceable.

The cases clarify the extent to which Article VIII, Section 2(b), has modified the pre-existing law, including private international law, of members of the Fund. If the provision results in the unenforceability of a contract, the pre-existing domestic law under which it was enforceable has been changed. If, however, for whatever reason, the provision does not require that a contract be treated as unenforceable, the provision does not establish a new principle of law which requires that the contract be regarded as enforceable. The lex fori, including its private international law, continues to apply, with the result that in some cases a contract may be treated as valid and in others as invalid. In the two cases in which the Federal Supreme Court held that the contract was not unenforceable under Article VIII, Section 2(b), it then held that under the private international law of the forum German law applied and the contract was valid under that law.

France

Basso v. Janda44

The First Civil Chamber of the Court of Cassation of France adopted a decision on October 16, 1967 which affirms the proposition that Article VIII, Section 2(b), does not prescribe unenforceability for an exchange contract which is contrary to the exchange control regulations of a country that has never been a member of the Fund. The proposition is not surprising, but it is surprising that the country involved was Czechoslovakia, which was a member of the Fund from December 27, 1945, the date on which the Articles of Agreement took effect, until December 31, 1954, when Czechoslovakia withdrew.

In March 1948, Janda, a resident of Czechoslovakia, entrusted US$30,000 to Kosek, a citizen of the United States who was about to leave Prague, with the agreement that Kosek would retransfer the money to Janda abroad. Later, both Janda and Kosek became domiciled in Nice, and on July 1, 1951 Kosek signed a document acknowledging that he held the amount in question on behalf of Janda. Kosek died in New York in 1960, and Janda brought suit against Basso as Kosek’s executor in Nice, where Janda was able to attach some assets belonging to Kosek. The Court of Appeal of Aix-en-Provence gave judgment for Janda on May 10, 1965, and Basso appealed to the Court of Cassation on the ground that the Court of Appeal had neglected Article VIII, Section 2(b), and the Fund’s interpretation of it. Basso argued that the decision of the Court of Appeal was based on the finding that Czechoslovakia had not adhered to the Articles of the Fund, whereas Czechoslovakia was an original member and did not withdraw until after the date of the contract. The claim should be treated as unenforceable because Czechoslovakia’s currency was involved within the meaning of the provision. The transfer affected Czechoslovakia’s reserves by depriving it of foreign currency at a time when foreign currency was vital for its economy. Janda argued that the acknowledgment of 1951 was distinct from the original verbal contract made in Prague and was governed by French law. Basso replied that the acknowledgment could not be dissociated from the original contract which had violated Czechoslovak exchange control regulations. Basso contended, therefore, that the Court of Appeal was wrong in deciding that Janda could recover because the acknowledgment was valid under French law.

The finding of fact by the Court of Appeal that Czechoslovakia had participated in the Bretton Woods Conference but had not adhered to the Articles was binding on the Court of Cassation, and the court concluded, as a consequence, that the finding of law that the effects of the exchange control regulations of Czechoslovakia could not be recognized in France was correct.45 The judgment was based on a patent error of fact, but the result should have been the same even if the error had been avoided or corrected, because Czechoslovakia had left the Fund before the action was instituted. Janda had not failed to advance this argument before the Court of Cassation.

The terse refusal of the court to consider the effect of Czechoslovak exchange control regulations once it was determined that Article VIII, Section 2(b), did not apply is in sharp contrast to the more amiable attitude of the New York Court of Appeals in French v. Banco Nacional de Cuba to the exchange controls of other countries. The contrast is even sharper because Basso argued that it was against French public policy to enforce a contract which had been invalidated by the legislation of another sovereign state. The Court of Cassation announced its view without even asking what law governed the contract under French private international law. The case differs therefore from the two cases decided by the Federal Supreme Court of Germany in which the court determined that German law governed the contract under the private international law of Germany and refused to give effect to the foreign exchange control regulations of another country for that reason.

Constant v. Lanata 46

The facts in Constant v. Lanata are very similar to those in Basso v. Janda, except that the exchange control regulations in issue were those of a member and not a former member of the Fund. In the course of 1964, Constant, a French citizen, who appears to have been a resident in Algeria, handed 420,000 Algerian dinars to Lanata, another French citizen, who seems to have been a nonresident of Algeria. The transfer was made in Algeria, apparently in currency notes, with the intention that they would be transferred to intermediaries in return for French francs to be delivered in France. As a result of these arrangements, Lanata gave Constant a postdated check drawn on a French bank, in the amount of 300,000 French francs. The official rate for the dinar was equal to the par value for the franc. Unless there was some other obligation of Lanata to Constant, the amount of the check may reflect the purpose of the transaction, which was to evade Algerian exchange control regulations, or a commission Constant agreed to pay Lanata, or both of these circumstances. Constant smuggled the check out of Algeria and presented it for encashment in France, but Lanata’s account was overdrawn and the check was dishonored. It is possible that Constant had become a nonresident of Algeria by the time he presented the check, but the residence of the parties from time to time is not clear.

Constant brought an action to recover the amount of the check, and on October 21, 1965, the Marseille court (tribunal de grande instance) gave judgment for him. An appeal was taken to the Court of Appeal of Aix-en-Provence, which set aside the judgment on December 15, 1966. Lanata had contended that the claim must be rejected because it was based on an illegal transaction. Constant had replied that, because exchange control regulations were territorial, the Algerian prohibition of the export of capital could not be taken into account by a French court in a suit between French citizens. The Court of Appeal decided that, in principle, the exchange control regulations of another country were inapplicable in France, but the principle could be displaced by a treaty. The court noted that both France and Algeria were members of the Fund, and it referred, therefore, to Article VIII, Section 2(b). It referred also to the Evian Agreement between France and Algeria, which authorized Algeria to regulate transfers of funds from Algeria to France.47 The court concluded that Algerian exchange control regulations were applicable to legal relationships involving payments and transfers from Algeria to France. The court held that as Constant’s claim was based on a check which was the counterpart of an illegal transfer of funds from Algeria, the contract had an illegal purpose (cause), and the claim must fail. Constant’s only remedy was to claim restitution of the 420,000 dinars from Lanata in Algeria.

Constant appealed to the Court of Cassation (First Civil Chamber), which reversed the decision of the Court of Appeal on June 18, 1969. In a brief opinion, the court began with the proposition that under Article 1376 of the Civil Code an action for money not due may be brought by a claimant who requests the return of payments made in performance of a contract which is void because of the illegality of its purpose. The court noted that Constant’s claim had been dismissed on the ground that, pursuant to Article VIII, Section 2(b), Algerian exchange control regulations, which were consistent with the Evian Agreement, applied to transfers from Algeria to France; that therefore the check had an illegal purpose; and that Constant’s sole remedy, if he wished to resort to it, was to claim restitution in Algeria. The next step in the opinion was the Delphic statement that by adjudicating as it did the Court of Appeal implied that it had not been impossible for Lanata to perform the contract because of the exchange control regulations of Algeria, supervening circumstances, or force majeure, but that instead of performing Lanata had misappropriated the funds he should have delivered.

The Court of Cassation did not challenge the determination by the Court of Appeal that the purpose of the contract was illegal under French law because the parties had intended to violate applicable Algerian exchange control regulations. The Court of Cassation drew from this determination the conclusion that the Court of Appeal had treated the contract as illegal because of the rule of French law that a contract is void if it has an illegal purpose (Articles 1108, 1131, and 1133 of the Civil Code). The Court of Cassation also concluded that the Court of Appeal had failed to grant Constant the remedy to which he was entitled as a result of this determination, because under French law a party to an illegal contract may obtain the restitution of any payment that he has made under the contract (Article 1376). The Court of Cassation pointed out that because the proceedings were between French nationals, the Court of Appeal should not have refused to exercise jurisdiction by withholding the remedy of restitution from Constant.

The decision was based on the thesis that because of Article VIII, Section 2(b), the Algerian exchange control regulations governed the transfer of funds from Algeria to France. French law was then applied, and it was held that because the purpose of the contract was to contravene Algerian regulations the contract was illegal and Constant was entitled to restitution. If this analysis of the decision is correct, however, Article VIII, Section 2(b), did not simply require the French courts to recognize the relevance of Algerian exchange control regulations to the transfer. It also required the courts to hold that the contract which provided for the transfer was unenforceable. The provision does not prescribe illegality. If it had been held that the contract was unenforceable, Constant would not have been entitled to restitution under the rules which govern the restitution of payments made under illegal contracts.

The cause of action appears to have been on the check and, therefore, was an attempt to get enforcement of the contract. It is possible, however, that Constant relied on another cause of action in which the contract was a necessary circumstance but in which enforcement of the contract was not requested. The other cause of action which Constant might have been pursuing was a claim to the restitution of money paid under a contract void for illegality. Whether or not Constant did advance this claim, the Court of Cassation proceeded as if he had. The court’s willingness to consider Constant’s claim as one for restitution led to the paradoxical result that he might receive treatment that would be even more favorable to him than a judgment on the contract. If he were given judgment on the contract, he would recover 300,000 francs, but if he were entitled to restitution he might be able to recover the value in francs of 420,000 Algerian dinars. The equivalent in French francs at something like the official rate of exchange would be highly profitable to Constant when compared with the contract he had made. As a result, the French courts, having found that the contract was void for the illegality of its purpose, would be giving Constant a remedy which, in its effect, more than carried out the illegal purpose of the contract. If, by restitution, the court meant not the restoration of the 420,000 dinars handed over to Lanata or the equivalent in French francs of that amount but the 300,000 French francs which he probably realized as a result of his dealings with intermediaries and after deducting the amount of his commission, the court would be executing not only the purpose of Constant but also of Lanata.

The case is another in a small group of cases in which the courts have held that a claim could be sustained by distinguishing the basis for it from a contract affected by Article VIII, Section 2(b). Sometimes, the courts have held that the plaintiff’s claim was ex contractu but based on a contract that could be severed from the contract that violated exchange control regulations even though the contract treated as severable was part of a single design of evasion.48 Sometimes, the courts have held that the plaintiff could recover on a noncontractual basis, usually the unjust enrichment of the defendant.49 The effect of both techniques has been to give remedies that were equivalent to, or better than, the enforcement of a contract that was unenforceable under Article VIII, Section 2(b). Often, in these cases, the courts appear to be favoring some other legal purpose or to be expressing their disapproval of one party. In the case discussed here, Lanata would have to account for his misappropriation but Constant would be helped to carry out his evasion of Algerian exchange control regulations.

The difficulty with denying a claim to the restitution of a payment made under a contract which is unenforceable under Article VIII, Section 2(b), on the ground that restitution would be equivalent to or better than enforcement, is that the provision appears to deal only with the contract. It could be argued, therefore, that it does not deal with remedies outside the contract. Nevertheless, the effect of granting restitution may be to encourage the violation of exchange control regulations because a party making a payment incurs no financial risk. It would seem that courts should refuse such a privileged position to parties either by holding that their domestic doctrines of restitution do not permit recoveries in these cases or by holding that the concept of unenforceability in Article VIII, Section 2(b), is broad enough to deny restitution. The latter attitude would be consistent with the decision of the Federal Supreme Court of Germany that it should itself raise the objection of Article VIII, Section 2(b), because of the public interest served by that provision.

It is likely that when the suit was brought both Constant and Lanata had become residents of France, and the question arises whether, on the test of impact on the balance of payments, the currency of Algeria was still involved under Article VIII, Section 2(b). It has been said that changes in exchange control regulations, the consistency of regulations with the Articles, and membership in the Fund which occur by the time of suit must be taken into account in applying the provision. These facts are not related to the question whether a currency is “involved” but changes in the residence of parties are. Does it follow that all other changes in the facts related to this question must be taken into account? In particular, would it be proper to hold that Algeria’s currency was no longer involved because the only obligation that remained unperformed could not affect its balance of payments, even though the obligations that had affected, or could have affected, its balance of payments—such as the transfer of the dinars (to unreported intermediaries) and removal of the check from Algeria—had been performed? An approach of this kind would mean that whenever the parties succeeded in carrying out that part of the contract which was peculiarly within the mischief against which Article VIII, Section 2(b), was directed, the courts would be available to assist in completing their design. To avoid this result, it would be necessary to consider the contract on which a suit was brought as consisting of all the obligations for which it had provided and not simply of those that remained unperformed.

Les Statuts du Fonds devant les tribunaux - X

Résumé

L’article VIII, section 2 b) a été évoqué devant les plus hautes juridictions de trois pays. La Cour d’Appel de l’Etat de New York a décidé que l’effet de certaines règles cubaines de contrôle des changes ne constituait pas la “prise d’un bien”, et qu’il convenait donc d’autant plus d’appliquer le principe énoncé dans l’affaire Sabbatino que les tribunaux des Etats-Unis refusent d’apprécier la validité, selon la loi d’un Etat étranger, d’actes accomplis par celui-ci sur son territoire. Ce principe comporte une réserve : les tribunaux peuvent apprécier la validité de ces actes si un traité est applicable. Mais, Cuba s’étant retiré du Fonds, cette réserve n’a pas permis à la Cour d’apprécier la validité de la réglementation cubaine de contrôle des changes par rapport aux Statuts. Dans la décision, la principale opinion dissidente sous-entend que l’article VI, section 3 est déclaratoire de droit international général. Un arrêt de la Cour Suprême de la République Fédérale d’Allemagne a décidé que le caractère non exécutoire de certains contrats en vertu de l’article VIII, section 2 b) ne signifie pas qu’ils sont invalidés par cette disposition et a souligné que cette conclusion était conforme à l’interprétation adoptée par le Fonds le 10 juin 1949. La Cour a en outre déclaré que les tribunaux doivent soulever l’exception de caractère non exécutoire même si aucun des contractants n’en a excipé. La Cour a estimé que c’était là le seul moyen de faire respecter l’objet de droit public de cette disposition. Elle a donc refusé de donner au caractère non exécutoire le même effet qu’en droit anglo-américain où il incombe au défendeur de soulever l’exception. Finalement, la Cour a décidé que les obligations qui découlent de lettres de change rentrent dans la définition des “contrats de change” parce qu’elles peuvent affecter la balance des paiements.

Dans une autre instance, la Cour Suprême allemande a refusé de déclarer qu’un contrat était non exécutoire comme étant contraire lors de sa passation à une réglementation étrangère de contrôle des changes, car à la date du procès cette réglementation était abrogée. Etant donné que l’article VIII, section 2 b) prévoit le caractère non exécutoire de certains contrats mais non leur invalidité, ce sont les faits tels qu’ils se présentent au moment du procès qui doivent déterminer l’effet de cette disposition sur un contrat. Le caractère non exécutoire en vertu de l’article VIII, section 2 b) doit disparaître alors même que le contrat serait nul selon la loi de l’Etat membre qui avait imposé la réglementation de contrôle des changes, mais ce contrat pourrait être nul pour une raison complètement indépendante, à savoir que cette loi régit le contrat conformément au droit international privé du for.

Dans une troisième instance, la Cour Suprême de la République Fédérale d’Allemagne a admis une action fondée sur un contrat de cautionnement qui était originellement non exécutoire pour avoir été conclu sans l’autorisation des autorités néerlandaises de contrôle des changes. Le raisonnement semble avoir été que l’octroi ultérieur, avant le procès, d’une autorisation par les autorités néerlandaises, signifiait que le contrat cessait d’être non exécutoire en vertu de l’article VIII, section 2 b). Par conséquent, la disposition n’avait plus d’effet et la validité du contrat devait être déterminée conformément à la loi allemande, celle-ci régissant le contrat selon le droit international privé du for allemand.

Dans une affaire jugée en France, la Cour de cassation s’est déclarée liée par les constatations de la cour d’appel selon lesquelles la Tchécoslovaquie n’était jamais devenue membre du Fonds; l’article VIII, section 2 b) ne pouvait donc pas s’appliquer à un contrat qui contrevenait à la réglementation des changes de ce dernier pays. La Cour a refusé de donner effet à la réglementation et n’a examiné aucun principe similaire à la doctrine de l’acte d’Etat appliquée dans l’instance new yorkaise.

Dans une autre décision, la Cour de cassation a conclu à la nullité, pour cause illicite, d’un contrat passé en vue de se soustraire à la réglementation algérienne des changes, au motif que, d’après l’article VIII, section 2 b), c’était la loi algérienne qui régissait le transfert prévu par le contrat. La Cour a cependant estimé que le demandeur avait droit à la restitution du paiement versé à la partie qui n’avait pas exécuté le contrat. L’effet de la restitution serait de procurer au demandeur un avantage égal, voire peut-être supérieur, à celui qu’il pouvait attendre du contrat.

El Convenio del Fondo ante los Tribunales—X

Resumen

El apartado b) de la Sección 2 del Artículo VIII ha sido objeto de análisis por los más altos tribunales de tres países. La Corte de Apelaciones de Nueva York resolvió que el efecto de determinadas disposiciones de control de cambios dictadas por el Gobierno cubano no constituía una “incautación de bienes” y que, por tanto, se justificaba aún más la aplicación del principio invocado en el caso Sabbatino, o sea, que los tribunales de Estados Unidos se abstendrán de juzgar a la luz de la legislación de un país extranjero sobre la validez de los actos que el Gobierno de dicho país haya ejecutado dentro de su propio territorio. En el principio aplicado en el caso Sabbatino hay la excepción de que tal examen será procedente cuando exista un tratado que rija la materia. Esta excepción no permitió a la Corte examinar a tenor del Convenio la validez de las disposiciones de control de cambios dictadas por Cuba, porque dicho país se había retirado del Fondo. En el principal voto disidente se sugiere que la Sección 3 del Artículo VI contiene una declaración universal de Derecho internacional.

La Corte Suprema Federal de Alemania decidió en un caso que la inexigibilidad de ciertos contratos según lo dispuesto en el apartado b) de la Sección 2 del Artículo VIII, no significaba que ese precepto los invalidara y señaló que esta conclusión coincidía con la interpretación que el Fondo había emitido el 10 de junio de 1949. La Corte Suprema declaró también que los tribunales debían considerar la cuestión de la inexigibilidad aun cuando ninguna de las partes contratantes la hubiera invocado en su defensa. La Corte sostuvo que únicamente así quedaba salvaguardada la finalidad de orden público que encierra la disposición. Por consiguiente, rehusó aplicar el concepto de inexigibilidad según el procedimiento que se observa en el Derecho anglo-americano, conforme al cual es privativo del demandado invocarlo en su defensa. Finalmente, la Corte resolvió que las obligaciones emanadas de letras de cambio se hallaban comprendidas dentro del concepto de “contratos de cambio”, porque esas obligaciones podían afectar a la balanza de pagos.

En otra decisión, la Corte Suprema Federal rehusó declarar que un contrato era inexigible por el fundamento de que cuando había sido concertado contravenía disposiciones de control de cambios extranjeras, dado que esas disposiciones habían quedado derogadas al tiempo del juicio. El que el apartado b) de la Sección 2 del Artículo VIII prescriba la inexigibilidad pero no la invalidez de ciertos contratos, hace que el efecto que dicha disposición haya de surtir sobre un contrato lo determinen los hechos que medien en el momento del juicio. La conclusión de que un contrato ha dejado de ser inexigible según lo dispuesto en el apartado b) de la Sección 2 del Artículo VIII no resulta afectada aun cuando dicho contrato no sea válido a tenor de las leyes del país miembro que hubiera impuesto los controles cambiarios; pero podría resultar inválido por el argumento, ajeno al anterior, de que conforme al Derecho internacional privado del foro el contrato está sometido al imperio de tales leyes.

En una tercera decisión, la Corte Suprema declaró que podía prosperar una reclamación emanada de un contrato de fianza, que originalmente era inexigible porque había sido concertado sin autorización de las autoridades holandesas encargadas del control de cambios. El fundamento parece haber sido que la ulterior concesión de la autorización por parte de las autoridades holandesas antes de la promoción del juicio entrañaba que el contrato había dejado de ser inexigible según el apartado b) de la Sección 2 del Artículo VIII. Por tanto, dicho precepto no afectaba ya al contrato y la cuestión de la validez de éste debía ser resuelta con arreglo a las leyes alemanas por ser éstas las aplicables al contrato según el Derecho internacional privado del foro alemán.

En un caso resuelto en Francia, la Corte de Casación resolvió que estaba obligada a aceptar el pronunciamiento del tribunal inferior de que Checoslovaquia nunca había sido miembro del Fondo y que, sentado este hecho, el apartado b) de la Sección 2 del Artículo VIII no podía ser aplicado a un contrato que transgredía las disposiciones de control de cambios de dicho país. La Corte rehusó aplicar dichas disposiciones y no entró a considerar ningún principio similar al de la doctrina del acto de estado, según fue aplicada en el caso resuelto por la Corte de Apelaciones de Nueva York.

En otra decisión, la Corte de Casación declaró que un contrato concertado con el propósito de evadir las disposiciones de control de cambios de Argelia era nulo debido al fin ilícito que perseguía, en razón de que en virtud del apartado b) de la Sección 2 del Artículo VIII la legislación argelina regía la transferencia prevista en el contrato. No obstante, la Corte declaró que el demandante tenía derecho a que le fuera restituido el pago que había hecho a la parte que no había cumplido el contrato. El efecto de la restitución sería dar al demandante un ingreso que al menos fuera tan favorable como lo pactado en el contrato o quizá aún más ventajoso.

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*

Mr. Gold, the General Counsel and Director of the Legal Department of the Fund, is a graduate of the Universities of London and Harvard. He is the author of The Fund Agreement in the Courts (Washington, 1962) and The Stand-By Arrangements of the International Monetary Fund (Washington, 1970), as well as various pamphlets and articles.

Earlier articles were published in Staff Papers: Vol. I (1950-51), pp. 315-33; Vol. II (1951-52), pp. 482-98; Vol. Ill (1953-54), pp. 290-312; Vol. V (1956-57), pp. 284-301; Vol. VI (1957-58), pp. 461-75; Vol. VIII (1960-61), pp. 287-312; Vol. IX (1962), pp. 264-95; Vol. XI (1964), pp. 457-89; Vol. XIV (1967), pp. 369-402. The first seven articles, and one which appeared in Vol. IV (1954-55), pp. 330-38, were subsequently issued in book form: The Fund Agreement in the Courts (Washington, 1962).

1

295 N.Y.S.2d 433, 23 N.Y.2d 46 (1968).

2

Joseph Gold, The Cuban Insurance Cases and the Articles of the Fund, International Monetary Fund, Pamphlet Series, No. 8 (Washington, 1966; hereinafter referred to as Cuban Insurance Cases); Joseph Gold, “The International Monetary Fund and the International Recognition of Exchange Control Regulations: The Cuban Insurance Cases,” Revue de la Banque (1967), pp. 523-38.

3

Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S. Ct. 923 (1964). See Joseph Gold, “The Fund Agreement in the Courts—IX,” Staff Papers, Vol. XIV (1967), p. 397 and also pp. 391-96.

4

376 U.S., p. 428; 84 S. Ct.|, p. 940.

5

“The Government of Cuba, by its Decision No. 346, has actually done nothing more than enact an exchange control regulation similar to regulations enacted or promulgated by many other countries, including our own…. A currency regulation which alters either the value or character of the money to be paid in satisfaction of contracts is not a ‘confiscation’ or ‘taking’” (295 N.Y.S.2d, p. 442).

6

295 N.Y.S.2d, p. 442.

7

U.S. Code, tit. 22, § 2370, subd. (e), par. (2); 78 U.S. Stat. 1009 (1964), as amended 79 U.S. Stat. 653 (1965).

8

295 N.Y.S.2d at p. 449, citing Restatement of the Law, Second, Foreign Relations Law of the United States, § 198,

9

There is an ambiguous footnotes on this question on p. 452 of 295 N.Y.S.2d.

10

For example, 295 N.Y.S.2d, p. 470.

11

295 N.Y.S.2d, p. 460.

12

Ibid., p. 469.

13

Ibid., p. 470.

14

For a full discussion of the provision, see Cuban Insurance Cases, pp. 42-45.

15

See Article XIX (i) for a definition of payments for current transactions for the purposes of the Articles. (References to particular Articles are to provisions of the Articles of Agreement of the International Monetary Fund.)

16

Even the use of pesos by nonresidents within Cuba was subject to authorization by the National Bank. 295 N.Y.S.2d, p. 473, fn. 5, par. (5).

17

Kahler v. Midland Bank, Ltd., 2 All E. R. 621 (1949); Zivnostenska Banka National Corporation v. Frankman, 2 All E. R. 671 (1949); Kraus v. Zivnostenska Banka, 187 Misc. 681, 64 N.Y.S.2d 208 (1946); Perutz v. Bohemian Discount Bank in Liquidation, 304 N. Y. 533, 110 N.E.2d 6 (1953). See Joseph Gold, The Fund Agreement in the Courts (Washington, 1962; hereinafter cited as The Fund Agreement in the Courts), pp. 14-19, 28-30, 50-55, 75-76, 78-79, 124, 134-35, 137-39, 155.

18

295 N.Y.S.2d, p. 471.

19

304 N. Y., p. 537; 110 N. E.2d, p. 7, quoted by Judge Keating, 295 N.Y.S.2d, pp. 471-72. See also the reference to In the Matter of Heddy Brecher-Wolff, Title Claim No. 41668, Docket No. 1698; The Fund Agreement in the Courts, pp. 78-79; 295 N.Y.S.2d, p. 472, fn. 4.

20

295 N.Y.S.2d, p. 471.

21

BGH, Urt. v. 27.4.1970—II ZR 12/69 (Oldenburg), Neue Juristische Wochen-schrift, Vol. 23 (August 20, 1970), pp. 1507-08.

22

Joseph Gold, “Das Währungsabkommen von Bretton Woods vom 22.7.1944 in der Rechtsprechung—II,” Zeitschrift für ausländisches und internationales Privatrecht (RabelsZ.), Vol. 22 (1957), pp. 601-36, at p. 629. See also, Joseph Gold, “Das Währungsabkommen von Bretton Woods vom 22.7.1944 in der Rechtsprechung,” Zeitschrift für ausländisches und internationales Privatrecht (RabelsZ.), Vol. 19 (1954), pp. 601-42; “Das Währungsabkommen von Bretton Woods vom 22.7.1944 in der Rechtsprechung–III,”, Rabels Zeitschrift fär ausländisches und internationales Privatrecht, Vol. 27 (1962), pp. 606-65.

23

“Subject to the provisions of Article VII, Section 3(b), and Article XIV, Section 2, no member shall, without the approval of the Fund, impose restrictions on the making of payments and transfers for current international transactions” (Article VIII, Section 2(a)).

24

Cuban Insurance Cases, pp. 29-30.

25

Ibid., pp. 1-52. See also fn. 45, below.

26

Cermak et al. v. Bata Akciova Spolecnost, 80 N.Y.S.2d 782 (1948) (The Fund Agreement in the Courts, pp. 15-17); Stephen v. Zivnostenska Banka National Corporation, 140 N.Y.S.2d 323 (1955) (The Fund Agreement in the Courts, pp. 77-78; see also fn. 17 at p. 31); Basso v. Janda, Recueil Dalloz Sirey, July 3, 1968, Jurisprudence, p. 445.

27

Stephen v. Zivnostenska Banka National Corporation, 140 N.Y.S.2d 323 (1955) (The Fund Agreement in the Courts, p. 142, and Cuban Insurance Cases, pp. 45 and 46).

28

Joseph Gold, Interpretation by the Fund, International Monetary Fund, Pamphlet Series, No. 11 (Washington, 1968), pp. 31-42.

29

Article XX, Section 2(a), and Article XXIII, Section 1.

30

Article XVIII.

31

Lessinger v. Mirau, Jahrbuch filr Internationales Recht, Vol. 5, Part 1 (1955), pp. 113-23 (The Fund Agreement in the Courts, p. 91).

32

E.g., Sharif v. Azad, 3 W. L. R., pp. 1289-90 (1966), 3 All E. R., p. 787 (1966) (“The Fund Agreement in the Courts—IX,” Staff Papers, Vol. XIV (1967), p. 383).

33

International Monetary Fund, Balance of Payments Manual, 3rd ed. (Washington, 1961), pp. 1-2; Balance of Payments Concepts and Definitions, International Monetary Fund, Pamphlet Series, No. 10, 2nd ed. (Washington, 1969), pp. 2-3.

34

Sharif v. Azad, 3 W. L. R., p. 1293 (1966); 3 All R R., p. 789 (1966).

35

The discussion deals with the exchange control regulations of other members. Article VIII, Section 2(b), does not deal with the exchange control regulations of the lex fori.

36

Sharif v. Azad, 3 W. L. R., p. 1293 (1966); 3 All E. R., p. 789 (1966).

37

Re Helbert Wagg & Co., Ltd., 1 All E. R., p. 142 (1956).

38

Article VI, Section 1; Article VII, Section 3(b); Article VIII, Section 2(a); Article XI, Sections 1 and 2; Article XIV, Section 2.

39

International Monetary Fund, Selected Decisions of the Executive Directors and Selected Documents, Fifth Issue (Washington, 1971), pp. 94-95.

40

Cuban Insurance Cases, pp. 27-35.

41

Ibid., p. 31.

42

BGH, Urt. v. 17.2.1971—VIII ZR 84/69 (Frankfurt), Neue Juristische Wochenschrift, Vol. 24 (June 1, 1971), pp, 983-85; Wertpapier^Mitteilungen, No. 14 of April 3, 1971, pp. 411-12.

43

BGH, Urt. v. 11.3.1970—VIII ZR 147/68 (Dusseldorf), Neue Juristische Wochenschrift, Vol. 23 (May 27, 1970), p. 1002.

44

Recueil Dalloz Sirey, July 3, 1968, Jurisprudence, p. 445.

45

In Confederation Life Association v. Vega y Arminan, 207 So.2d 33 (1968), 211 So.2d 169 (1968), 393 U.S. 980 (1968), a Cuban refugee, resident in Florida, claimed the cash surrender value of a life insurance policy issued in Cuba by the defendant, a Canadian insurance company, when the plaintiff was resident there. All payments under the policy were to be made in Havana. Cuban exchange control laws required the payment in pesos of all obligations payable in Cuba, and the defendant refused to make any payment of the cash surrender value except in pesos in Havana. The court held that the cash surrender value clause was a continuing offer which matured when accepted by the insured, in Florida, and that the law of Florida governed as the lex loci contractus. The defendant had relied on Article VIII, Section 2(b), and had cited Confederation Life Association v. Ugalde, 151 So.2d 315 (1963); 163 So.2d 343 (1964); 164 So.2d 1 (1964); 379 U.S. 915 (1964); 85 S. Ct. 263 (1964). The court held that Article VIII, Section 2(b), did not apply because Cuba had withdrawn from the Fund, and relied on Pan American Life Insurance Company v. Blanco, 362 F.2d 167 (1966): “It is settled that the laws of a nonmember nation are not given extraterritorial effect by the terms and conditions of the Bretton Woods Agreement” (207 So.2d, p. 38).

46

Revue critique de droit international prive, Vol. LIX, No. 3 (1970), pp. 464-74.

47

There is no evidence that, in its treatment of the Evian Agreement, the court relied on the second sentence of Article VIII, Section 2(b).

48

Southwestern Shipping Corporation v. National City Bank of New York, 173 N.Y.S.2d 509 (1958), 178 N.Y.S.2d 1019 (1958), 190 N.Y.S.2d 352 (1959), cert. den. 361 U.S. 895, 80 S. Ct. 198 (1959) (Cuban Insurance Cases, p. 49; The Fund Agreement in the Courts, pp. 97-100, 102-108); Varas v. Crown Life Insurance Co., 83 Montg. Co. L. R. 71 (1963), 204 Pa. Super. 176, 203 A.2d 505 (1964), 382 U.S. 827, 86 S. Ct. 62 (1965) (Cuban Insurance Cases, pp. 16-18); Sharif v. Azad, 3 W. L. R. 1285 (1966), 3 All E. R. 785 (1966) (“The Fund Agreement in the Courts—IX,” Staff Papers, Vol. XIV (1967), p. 387).

A decision of the German Federal Supreme Court of May 21, 1964 (VII ZR 23/64) resisted the tendency noted in the text. The plaintiff, a corporation organized under the law of Liechtenstein, entered into an agreement with the defendant, a resident of Germany, under which the plaintiff was to transfer an amount of deutsche mark to the defendant in Hamburg and receive in return an amount in French francs from firms in France. The defendant guaranteed that the payment in French francs would be made within a fixed period. The plaintiff alleged that the payment had not been made and brought this action under the guarantee. Most of the facts were contested, but both parties admitted that the contract was intended to evade French exchange control regulations.

Although the contract was governed by German law, the court held that Article VIII, Section 2(b), must be taken into account. It declared that normally an obligation such as the obligation of the defendant to the plaintiff in this case to pay in deutsche mark outside France would not be affected by French exchange control regulations, but the obligation was to arise only if the French firm failed to make the payment.

The guarantee agreement, therefore, was so “closely and inseparably” linked with the principal and prohibited obligation that it must share the fate of that obligation (Aussenwirtschaftsdienst des Betriebs-Beraters: Recht der Interna-tionalen Wirtschaft, No. 7 (July 1964), p. 228).

49

Varas v. Crown Life Insurance Co., 83 Montg. Co. L. R. 71 (1963), 204 Pa. Super. 176, 203 A.2d 505 (1964), 382 U.S. 827, 86 S. Ct. 62 (1965) (Cuban Insurance Cases, pp. 17 (fn. 26), 48-49). Cf. Lessinger v. Mirau, Jahrbuch fur Internationales Recht, Vol. 5, Part 1 (1955), pp. 113-23 (The Fund Agreement in the Courts, pp. 90-94, 118, and Cuban Insurance Cases, pp. 48-49); White v. Roberts, 33 Hong Kong Law Reports (1949), pp. 231-82 (The Fund Agreement in the Courts, pp. 87-94, 118, and Cuban Insurance Cases, p. 49).