united states

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

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

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

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

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

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

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

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

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

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

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

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

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

The Supreme Court then approached the nub of its decision:

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

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

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

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

	Dollar Value of SDR 1
November 1983	1.0506
December 1983	1.0470
January 1984	1.0341
February 1984	1.0601
March 1984	1.0642

View Table

	Dollar Value of SDR 1
November 1983	1.0506
December 1983	1.0470
January 1984	1.0341
February 1984	1.0601
March 1984	1.0642

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

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

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

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

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

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

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

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

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

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

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

france

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

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

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

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

italy

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

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

Article 9 provides as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

the netherlands

The Convention on the Contract for the International Carriage of Goods by Road of May 19, 1956, for which the acronym based on the French title is CMR, is one of a number of conventions on unimodal transit concluded under the auspices of the United Nations Economic Commission for Europe (ECE). The liability of carriers under these conventions is limited by reference to the Germinal franc, which is defined as $\raisebox{1ex}{$10$}\!\left/ \!\raisebox{-1ex}{$31$}\right.$ gram of gold nine-tenths fine. Agreement was reached on July 5, 1978 on Protocols to the CMR and the other conventions, so that when the Protocols become effective the SDR will be substituted for the Germinal franc as the unit of account. The substitution is based on the ratio between the definition of the SDR in terms of gold before the Second Amendment and the definition of the Germinal franc.⁴⁶

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

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

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

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

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

austria

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

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

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

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

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

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

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

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

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

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

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