Information about Asia and the Pacific Asia y el Pacífico
Journal Issue

The Fund Agreement in the Courts-IX

International Monetary Fund. Research Dept.
Published Date:
January 1967
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Information about Asia and the Pacific Asia y el Pacífico
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THE NINTH ARTICLE IN THIS SERIES discusses six cases in which certain aspects of the Articles of Agreement of the International Monetary Fund have been considered by the courts in six member countries.1 A Venezuelan case dealt with the effect of the Articles on the choice of an exchange rate by the court in awarding judgment on a claim expressed in a foreign currency. A case decided in the United States dealt with the question whether countervailing duties could be imposed because of multiple rates of exchange when they had been approved by the Fund with the concurrence of the United States. In a third case, an English court, for the first time, interpreted certain features of the English legislation giving the force of law to Article VIII, Section 2(b). A German case also dealt with that provision and is particularly interesting because of a novel development in procedure. A Netherlands court considered the relationship of Article VIII, Section 2(b), to nationalization. Finally, Philippine litigation involving the legality of certain exchange surrender requirements, in which aspects of the Fund’s Articles had been vigorously argued, has come to an end.

Judicial Application of Exchange Rates

An opinion delivered on May 15, 1961 by a Venezuelan court (the Commercial Court of First Instance of the Judicial Federal District and of the State of Miranda) in Adridtica Venezolana de Seguros S.A. v. The First National City Bank of New York2 includes a lengthy discussion of a number of legal aspects of monetary theory. The views of the court were heavily influenced by the Spanish translation of the late Professor Nussbaum’s book, Money in the Law, National and International.3 The opinion is of special interest, however, on the question of the effect of the Fund Agreement on the determination which courts must often make of the appropriate rate of exchange on which to base their judgments. This is a problem on which there is very little judicial authority.

Adriática, a Venezuelan commercial company, came into court to make a formal offer to the Caracas branch of City Bank, also domiciled in Venezuela, of the equivalent in Venezuelan bolívares of US$118,722.78 at the rate of Bs 3.35 per U.S. dollar in payment of certain bills of exchange and interest from the date of maturity to the date of formal offer. City Bank was willing to accept the offer in full discharge of one of the bills, but, in respect of the others, was willing to accept bolívares in discharge only if and to the extent that foreign exchange could be obtained with the bolívares from the Venezuelan Central Bank. Adriática rejected this counteroffer; the court ordered Adriática to deposit the amount of its offer in court, and summoned City Bank to appear and state its arguments against the offer and deposit.

The court confirmed that the U.S. dollar in which the bills were expressed was the money of account and not the money of payment, and that the defendant was entitled to tender bolívares. It also decided that under Venezuelan law the exchange rate between the bolivar and the dollar at the date of the demand, and not at the date when the obligation was incurred or matured, must be applied. This decision led the court to examine Venezuela’s exchange system at the date of the demand. The court found that before November 1960 there were two markets, “controlled” and “free.” For the controlled market before November 1960, the Central Bank fixed the rate at which foreign exchange could be obtained at Bs 3.35 per U.S. dollar, but the rate was the same in the free market because all persons needing foreign exchange could get it in the controlled market without limitation. There was thus no reason for any divergence in rate to develop.

The situation changed, however, with the exchange regime that was initiated by Presidential Decree No. 390 on November 8, 1960 and adapted thereafter, because this regime no longer ensured that even those parties who were eligible to get their foreign exchange in the controlled market would actually get it. These parties were now required to get a foreign exchange license; the issue of licenses was discretionary on the part of the authorities, who would be governed by such factors as the availability of foreign exchange in the market, the monetary reserves of the country, the general payments needs of the economy, and the particular payments needs of the applicant. The selling rate in this market remained Bs 3.35 per U.S. dollar. Other specified purchases and sales of foreign exchange, not eligible for the controlled market, could be made in the free market, to which, in addition, those who had been refused an exchange license for the controlled market could have recourse. The Central Bank was authorized to intervene in the free market and to determine the selling rate on the basis of the state of the country’s reserves and the exchange rate fluctuations in the free market. The rate was established at Bs 4.70 per U.S. dollar, and later changed to Bs 4.67 and again to Bs 4.63. Even access to the free market was possible only if the purchaser came within certain defined categories; for this reason yet a third market emerged for other transactions. This was also a legal market, and the rate in it was a little higher than in the free market.4

The court held that the burden was on Adriática to prove that the rate of Bs 3.35 per U.S. dollar was the appropriate one unless this was established by some legal text of which the court should take judicial notice. Adriática argued that two decisions of the highest Venezuelan tribunal in 1950 and 1951 constituted a text of that character. The court found, however, that these decisions, which took judicial notice of the official rate established by the Central Bank, were distinguishable, because they were delivered when the Central Bank was regulating the rate in both the controlled and the free markets at Bs 3.35 per U.S. dollar by supplying unlimited amounts of foreign exchange at that rate. The situation was now different: exchange could be obtained in the controlled market for certain specific purposes only, and even for these purposes a license had to be sought and might be refused. As a result, the rates in the two markets had diverged. Therefore, the courts could continue to take judicial notice of the rate in the controlled market, but it did not follow that this was the rate at which to value foreign currencies in terms of the bolívar.

The court held that the appropriate valuation could be made only in the free market:

The general norm in matters of assessment of a foreign currency in terms of a local currency is the one which places reliance on the exchange rate operating in the “spontaneous” market, namely, the one which results from the free play of supply and demand—with the possible softening action of the official authorities—provided that this “spontaneous,” parallel, or free market is permitted under the law as is our situation and does not therefore constitute a black or illegal market.

In support of this statement, it should be pointed out that the above principle wholly satisfies the demands of equity. Equity requires that the creditor can, in the same place and on the same day as he is paid, obtain with the Venezuelan bolívares that he receives, the amount of foreign currency which constitutes the object of the debt. This result can only be achieved when the conversion is affected at the exchange rate prevailing in the “spontaneous,” parallel, or free market.5

The importance of this conclusion is enhanced by the fact that the debt which was the source of Adriática’s offer was included within the categories of payments for which foreign exchange could be obtained in the controlled market. The court held that this fact did not affect its conclusion because the debtor was not able to get foreign exchange automatically on proof that his payment was eligible for the controlled market. It was still necessary for him to apply for a license, and the authorities might refuse his application. There is no evidence in the report of the case that he had applied for a license.

The court gave a further reason for its view. Exchange control and the official rate that it implies is established to regulate international transactions involving the movement of foreign exchange from one country to another. However, when the debtor pays in foreign exchange the amount of a debt incurred in foreign exchange and the creditor receives the amount within the same country, this transaction does not necessarily imply a transfer of foreign exchange from one country to another. The payment is an internal operation which is outside the orbit of exchange control and of the official rate established by it. This second reason is much less persuasive than the first. It is difficult to believe that payments in foreign exchange or payments in domestic currency to a nonresident are not of legitimate concern to exchange control authorities until withdrawal of the balance across the boundary is contemplated.

The court concluded that Adriática had not discharged the burden of proof that rested on it, for which reason its offer and deposit were null. In reaching its conclusion, the court dealt with the impact of the Fund Agreement in two passages of its lengthy opinion. Before these passages are examined, it must be recalled that the par value for the bolivar agreed by Venezuela with the Fund on April 15, 1947, with effect from April 18, 1947, was Bs 3.35 per U.S. dollar, and that this has remained the par value at all times since then.

In the more theoretical part of its opinion, the court spoke as follows, after dealing with the difficulties of ascertaining the value of one currency in terms of another when there are multiple rates or black markets:

… all these problems of valuation of foreign exchange under the exchange control system have apparently been very much simplified through the establishment of “par values” by the International Monetary Fund. These values will largely replace the “official values” of the past but they have not yet entirely eliminated the basic problem. Although it seems probable that courts will have recourse to the “par values", this is not binding upon them, says Professor Nussbaum…. And tax authorities will be even less bound by this. There exist, on the other hand, numerous currencies which lack “par values". Besides, the regulations of the International Monetary Fund have nothing to do with valuation when there are multiple rates for a foreign currency. Moreover, this is so even with respect to transactions in foreign exchange because the enforcement of par values will necessarily encounter resistance in the ever-changing conditions of our shaky present. Early in 1948 tension generated by the pressure of financial conditions against the rigid “par value” system led to an explosion. France introduced a dual market system for certain foreign currencies over the Fund’s disapproval, a measure which actually destroyed the proclaimed par value of the French franc, and through the years Canada has been allowed to maintain divergent “official” and “free” rates for her dollar at odds with the par value. Generally, whenever “free” or “parallel” markets exist, deviations from the par value are bound to appear….

These considerations show that in the concrete realities of international life, the “par values” fixed by convention in the Agreement that created the International Monetary Fund cannot be taken as the only criteria for the purpose of the evaluation of one currency in terms of another, because of the necessity to prove beforehand that the monetary legislation under which the currencies are issued conform in effect to the provisions of the Articles.6

In the final part of its opinion, in which the court reached its conclusion, it returned to the subject of the Fund as follows:

The reference to the Agreement of the International Monetary Fund signed at Bretton Woods in 1944 and ratified by Venezuela is not relevant in this matter. It is true that in such Articles “par values” have been established for the currency of all the signatory states. But it is also evident that this “fixing", even if it had been complied with by all the countries (which in fact has not occurred), does not by any means bind the courts of a specific country to matters which are not included within the object of the Agreement. The payment of debts stipulated in foreign currency and the method of conversion of a currency for these purposes is not taken into account within the Articles. “The regulations of the International Monetary Fund, besides, have nothing to do with valuation when there are multiple currency rates for a foreign currency” …7 as is our situation. Equally, it should be remembered that the imposition of this “par value” did not by any means disturb the existence of “dual” markets in France, Italy and Canada, despite the opposition of the International Monetary Fund.8

Much of these two passages is irrelevant to the legal issue. There is not much logic in arguing that, in principle, currencies should not be valued on the basis of par values because from time to time one or another member may fail in its duty to make its par value effective in accordance with the Articles.9 What is really involved in this argument, and the further argument that there may be multiple rates for a currency, is that the par value, or rates based on it, may fail to do justice between the parties. There can be no dispute about that proposition, and there will be no difficulty in accepting what it implies unless some provision in the Articles compels members to make sure that their courts apply par values when faced with the need to determine the value of one currency in terms of another. The only relevant point made in the two passages is that the Articles contain no provision dictating the use of par values as conversion factors when courts must calculate the value of one currency in terms of another. This is true. It is true even if both of the currencies involved have effective par values, and it would remain true even if the currencies of all members of the Fund had effective par values.

What the Articles seek to do, substantially, is to have members establish viable par values, which will mean that members will have little or no economic difficulty in observing their obligations to adopt appropriate measures to make those par values effective in exchange transactions in their territories. If this result is achieved, the courts will apply the effective rates of exchange, not because there is an obligation to do so under the Articles, but because it is the logical and equitable consequence of the obligations that are laid on members. What the courts must do, as is indicated by the Venezuelan case, is render justice between the parties, and this obligation will mean the application of the prevailing rate of exchange on the appropriate date. If the rates are not unified or if they fluctuate, the choice of the appropriate rate may be difficult; and the rate that is chosen may have no connection with any par value that has been agreed under the Articles.

A less important point, but nevertheless one worth making, is that it is misleading to speak of the par value as the appropriate rate of exchange for a court to select. The Articles intend that a par value shall be the basis for exchange rates, in the sense that members have obligations to permit exchange transactions in their territories only within the prescribed margins of par. Therefore, even where there are par values that are effective in this sense, the courts should apply the actual rates that are quoted for transactions, not the par values which are the basis for these quotations but at which transactions will occur only by chance.

In connection with its own jurisdiction over exchange rates, the Fund has always been meticulous in distinguishing between rates of exchange and conversion factors. The Fund’s jurisdiction over rates of exchange applies not only to par values as the bases for exchange rates but also to multiple rates of exchange. Initial par values must be agreed with the Fund, and later changes must be the subject of consultation with the Fund and, normally, may be made only if the Fund concurs. In addition, the introduction or change of multiple rates of exchange, which by definition will depart from the prescribed margins around a par value if there is one, must receive the Fund’s approval in order to be valid under the Articles. In applying these principles of jurisdiction, the Fund satisfies itself that it is really dealing with exchange rates. This means that it is dealing with rates at which one member currency is to be exchanged for another.

Sometimes, however, a conversion factor is needed for translating one currency into another without the exchange of the one currency for the other. The factor applied by courts in translating the foreign currency of a claim into the domestic currency of the forum because the latter is the only currency which the courts can award is a good example of circumstances in which no exchange transaction is involved. The Fund has never held that the rate which courts adopt for this purpose must be approved by the Fund. Of course, as indicated above, courts tend to recognize rates already in existence, and presumably, therefore, their legal status under the Articles will have arisen in another context.10 It remains true, nevertheless, that the Fund would not assert jurisdiction over the practices of the courts in evaluating currencies in terms of each other, whatever rates the courts might think fit to apply. This would be equally true in other circumstances, e.g., where customs authorities adopted factors for levying duties without the actual exchange of currencies.11 The Fund’s practice indicates that the rates adopted for these computations are not subject to the Fund’s exchange rate jurisdiction in any immediate sense.12 It follows, therefore, that the courts should conclude that the Fund Agreement does not bind them to apply any particular rates when they make their computations.13

This last conclusion raises a further issue. It will be recalled that the Venezuelan court noted that the exchange rates in effect were legal and had not developed in an illegal black market. It is not at all clear that the court was announcing a doctrine that only legal rates should ever be applied. If it is accepted that the essential task of a court is to apply a rate of exchange that does justice between the parties, this may conflict with the undeviating selection of a legal rate. For example, if there is an exchange system in which most exchange transactions are carried out at legal rates but in which there is also a peripheral black market, the rates in the latter may reflect the risks of evading the law and not the economic value of the currency. The implications of such an exchange system may differ greatly from those of a system in which most or all exchange transactions are conducted at illegal rates. In any event, what is meant by legality in this context is ambiguous. It may mean rates that are consistent with the lex fori, or it may mean rates that are consistent with the Articles of the Fund; although in the Venezuelan case the rates in issue were consistent with both. A rate can be consistent with the former but not with the latter. It is possible, however, that in some legal systems rates are not consistent with the lex fori unless they are also consistent with the Articles. The principle of selecting the rate that does justice between the parties will probably induce courts, whenever possible, to select realistic rates even though those rates may be inconsistent with the Articles. It is likely that courts will not want to penalize private litigants because governments have failed to observe their international obligations.

What has been said in the preceding paragraph about the legality of rates may have a different aspect when rates of exchange are established by other members. A forum may hold that it will apply a rate of exchange established by its own monetary authorities even though that rate is inconsistent with the Fund Agreement; but If rates of exchange are established by another member, Article VIII, Section 2(b), may come into play. If particular rates of exchange are prescribed by the exchange control regulations of another member but have not been approved by the Fund, a court may be disposed to refuse recognition of them on the ground that the exchange control regulations are not maintained or imposed consistently with the Articles. However, it is also conceivable that a court may hold that it is not being asked to apply the exchange control regulations of the other member, but rather to apply the rates of exchange between its currency and the domestic currency that have developed in the domestic market of the forum. Even though these rates may reflect the other member’s unapproved foreign exchange control regulations, the court may still hold that it is recognizing market facts and not foreign regulations.

Multiple Rates of Exchange and Countervailing Duties

It has been seen that the Venezuelan court referred to the domestic validity of exchange rates in determining the rate to which the plaintiff was entitled, and this reference led, in the foregoing discussion of that case, to some reflections on the relevance of the international validity of exchange rates to the issue before the court. In Energetic Worsted Corporation v. The United States14 one aspect of the case was the international validity of Uruguay’s multiple rates of exchange under the Fund’s Articles in relation to the imposition of countervailing duty under section 303 of the U.S. Tariff Act of 1930.15 The importer in this case appealed against the judgment of the Third Division of the U.S. Customs Court overruling the importer’s protest against the assessment of countervailing duty on five entries of wool tops exported from Uruguay and entered at Philadelphia during 1953. The assessment had been based on a notice promulgated by the Secretary of the Treasury on May 6, 1953 and determining under section 303 that Uruguay was paying a net bounty or grant of 18 per cent of the invoice value and dutiable charges on wool tops. A majority of the trial court agreed that this was the effect of Uruguay’s multiple rates of exchange, and a third judge dissented.16

In supporting the position of the Treasury Department, the majority of the trial court stated:

It is clear from the record in this case that the Treasury Department imposed the countervailing duty on wool tops only after careful consideration of the entire situation and after circumstances had changed sufficiently to show that the preferential exchange rate had given such an advantage to Uruguayan exporters as to constitute a bounty or grant within the meaning of section 303. Although the United States and other countries may have recognized or approved multiple exchange rate systems in general and although there may have been various causes for Uruguay’s action, nevertheless, section 303 of our tariff act imposing countervailing duties in certain circumstances has not been repealed. It must be applied whenever it is shown that a bounty or grant has been bestowed. The fact that United States representatives on the International Monetary Fund and the National Advisory Council did not object to Uruguay’s multiple exchange rate system in general is not relevant. Whether or not such a system is objected to, whenever the result is a bounty as to any particular article, the statute requires that countervailing duties be imposed. The facts here show that the preferential exchange rate did result in a bounty to the Uruguayan exporter.17

One feature of the opinion of the majority on which the dissenting judge disagreed was the relevance of the Fund, and on this feature he said:

The exchange rate governing the involved exportations was preceded by a number of fiscal events of international significance, the importance of which cannot be overlooked in the total appraisal of currency controls as a basis of subsidization of exports…. One such event was the emergence, in 1945, of the International Monetary Fund, of which organization the United States and Uruguay were charter members. One of the principal purposes of the Fund is “To promote exchange stability, to maintain orderly exchange arrangements among members, and to avoid competitive exchange depreciation.” Thus, through participation in the Fund, Uruguay gained multilateral recognition and support for its currency system and practices from Fund members which, of course, included the United States. It is said that in the matter of foreign exchange controls “the Bretton Woods agreements have somewhat enlarged the field of recognition.”18

In the light of this development, it is difficult to understand how the majority could brush aside the United States participation in the Bretton Woods agreements as being irrelevant to this matter of subsidization through currency manipulation…. The International Monetary Fund and the United States, acting through the Secretary of the Treasury and others constituting the National Advisory Council on International Monetary and Financial Problems, gave approval to Uruguay in no uncertain terms for the use of the multiple exchange rates governing its imports and exports. This attitude was not formulated in a vacuum. It was formulated with a conscious awareness of the impact of such currency reforms on all phases of American activities of an economic and fiscal nature involving intercourse with Uruguay in such matters. Indeed, the Treasury Department’s earlier defense of Uruguay’s currency system against the claim here made was based upon knowledge and information derived from United States participation in Fund activities and investigations of monetary activities of Fund members.19

The dissenting judge distinguished certain earlier cases relied on by the majority as based on unilateral action by the German Government before the existence of the Fund and decided therefore at a time when rates carried no international endorsement.20

To recapitulate, the trial court held, notwithstanding the dissent of one of its three members, that the approval of multiple rates by the Fund, with the concurrence of the U.S. Executive Director, did not prevent a finding that the rates constituted a bounty in respect of which countervailing duty could be imposed. The U.S. Court of Customs and Patent Appeals reversed the decision of the trial court but did so on the ground that it did not agree with the method used by the Treasury Department to calculate the bounty that Uruguay was alleged to have granted. The court quoted the passage from the majority opinion set forth above, but did not comment on it. Once the court determined that there was no satisfactory proof that the multiple rates actually resulted in a bounty, it became unnecessary to decide whether multiple rates approved by the Fund, with the concurrence of the U.S. Executive Director, could be treated in law as involving a bounty under section 303 of the Tariff Act.

Unenforceability of Certain Exchange Contracts


Sharif v. Azad, decided by the Court of Appeal on October 5, 1966,21 is an important case not only because it is the first close scrutiny of Article VIII, Section 2(b), by an English court, but also because an eminent English court has now confirmed a number of interpretations of that provision which give effect to its purpose within the framework of the Articles. Latif, a resident of Pakistan, had an account with the Habib Bank in Karachi, on which he could draw rupees. Under Pakistan’s exchange control regulations, he could not take those rupees out of Pakistan or exchange them for sterling without the permission of the exchange control authorities. Early in 1964, Latif came on a short visit to England and in Manchester met a Pakistani named Sharif, the plaintiff, who was living in England. Latif, needing sterling, obtained £300 in sterling from Sharif; in return, Latif gave Sharif a check for 6,000 rupees drawn on the Habib Bank. At prevailing rates of exchange between sterling and the rupee, 6,000 rupees were the equivalent of about £450.22 The check given to Sharif was signed by Latif, but the payee’s name was left in blank. Sharif took the check to another Pakistani in Manchester, Azad, the defendant, a travel agent who lived in England and arranged passages for Pakistanis. The name of Azad’s brother, who was living in Pakistan, was inserted in the check as payee, and Azad sent the check to him for collection. In return for the check, Azad gave Sharif a sterling check for £300, signed by Azad in favor of Sharif, and drawn on a Manchester bank. This check was postdated because Azad wanted to make sure that his brother succeeded in collecting the rupees from the Habib Bank. The Pakistani authorities became suspicious about the rupee check and did not allow payment to be made freely to Azad’s brother. The Habib Bank placed the rupees in a blocked account on which the brother could not draw without the permission of the authorities. The reaction of Azad to this development was to stop payment of the sterling check. Sharif sued for the amount of the check, and the Manchester County Court entered judgment for him. The Fund Agreement was not referred to in those proceedings, but was relied on for the first time in support of the defendant’s argument on appeal that the transaction on which the suit was based was illegal.

The three members of the Court of Appeal (Lord Denning, Master of the Rolls, and Lords Justices Diplock and Russell) were unanimous in distinguishing two transactions, the first between Sharif and Latif, and the second between Sharif and Azad. The court held that the first of these would have been unenforceable as a result of the United Kingdom’s Bretton Woods legislation which gave the force of law to Article VIII, Section 2(b), in the United Kingdom.23 The court also held, however, that the second transaction was not illegal or unenforceable and that the plaintiff succeeded in his claim based on it. The court dealt with the following topics:

(1) On the fundamental issue of the effect of Article VIII, Section 2(b), on English private international law, the most elaborate statement was made by Lord Justice Diplock.

Latif in drawing the rupee cheque as consideration for his receipt from the plaintiff of £300 in England was in my view acting in contravention of section 5(1)(f); and any payment of the cheque by him, unless authorised by the State Bank, would have been in contravention of section 5(1)(e).24 On the other hand, it is to be observed that the section applies only to acts done by persons who are in or resident in Pakistan.

The drawing of the rupee cheque by Latif was an act done in England. The payment of the rupee cheque when it took place would be an act done in Pakistan. Sovereignty being territorial, the English courts do not in general recognise the right of a foreign state to legislate as to the legality or legal effect of acts done in England unless some United Kingdom statute so provides. But where the law of the foreign state purports to affect contractual rights between parties, the English court may give effect to it, even in respect of an act done in England, if the proper law of the contract is that of the foreign state. Even where the proper law of the contract itself is not that of the foreign state, the English court may also give effect to the law of the foreign state so far as it relates to acts required to be done in the foreign state in performance of the contract. Both these general rules of English conflict of laws are subject to the qualification that the English courts will not enforce legislation of a foreign state which is penal or fiscal, and nice questions may arise as to the scope of this qualification.

But they do not arise in the present case, for where the foreign law which is relied upon as affecting the contractual rights of parties is the exchange control regulations of a state which is a party to the Bretton Woods Agreements, the matter is not regulated by the general rules of English conflict of laws but by an English statute, the Bretton Woods Agreements Act, 1945, and an English statutory order made under that statute, the Bretton Woods Agreements Order, 1946, the relevant provision of which is to be found in Part I, art. 8 s. 2(b), of the Schedule to the Order and reads as follows:

“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 that Agreement shall be unenforceable in the territories of any member.”

The effect of this is that an “exchange contract,” whatever may be its proper law and wherever acts may be required to be done in performance of the “exchange contract,” is unenforceable by an English court if it is contrary to the exchange control regulations of the foreign state.25

The opinion of Lord Denning on this part of the case was briefer:

Let me say at once that England and Pakistan are both members of the International Monetary Fund and, as such, each country will respect the currency regulations of the other. This derives from the Bretton Woods Agreement which has been incorporated into our law by the Bretton Woods Agreements Act, 1945, and the Bretton Woods Agreements Order in Council [S.R. & O. 1946 No. 36] made under the Act.26

No mention was made in any of the opinions of the interpretation under Article XVIII of Article VIII, Section 2(b), adopted by the Fund on June 10, 1949.27 One of the main purposes of that interpretation was to clarify the relation of Article VIII, Section 2(6), to private international law. Presumably, the reason for the absence of any reference to the interpretation is the question that this would raise of the effect of Article XVIII interpretations under English law.28 There was no need for the court to face this question in circumstances in which there was no conflict between its views and the interpretation.

(2) The court held that the effect of the Bretton Woods legislation was to declare the contracts covered by Article VIII, Section 2(b), “unenforceable,” and it refused to treat this expression as equivalent to “illegal.” In the words of Lord Justice Diplock: “It is to be noted that such contract is not made ‘illegal’ in English law, merely unenforceable.”29

(3) The court did not permit itself to be deflected by verbal pedantries from arriving at a sensible economic interpretation of “exchange contracts.” According to Lord Justice Diplock:

The expression “exchange contract” is nowhere defined in the Act or the Order or even in the Bretton Woods Agreement itself. I think that it should be liberally construed having regard to the objects of the Bretton Woods Agreement to protect the currencies of the states who are parties thereto; and I should be prepared to hold that the following were “exchange contracts,” viz. (1) the agreement between the plaintiff and Latif whereby the plaintiff agreed to pay Latif £300 for the rupee cheque; (2) the agreement between the defendant and the plaintiff whereby the defendant agreed to issue to the plaintiff his cheque for £300 in exchange for the rupee cheque drawn by Latif; and (3) the contracts between Latif and the successive holders of the rupee cheque created by the rupee cheque itself, at any rate in so far as they were not in or resident in Pakistan.

But not all these “exchange contracts” were contrary to the provisions of the Foreign Exchange Regulations Act, 1947, of Pakistan.30

According to Lord Denning:

The words “exchange contracts” are not defined, but I think that they mean any contracts which in any way affect the country’s exchange resources. The contracts with which we are concerned here are all clearly exchange contracts. They affect the exchange resources of Pakistan and England. If they offend against the currency regulations of Pakistan or England, they are unenforceable. It is not suggested now that they offend against the currency regulations of England; but it is said that these contracts offend against the currency regulations of Pakistan and are therefore unenforceable.31

There is an interesting feature of this last passage which should not be overlooked. In referring to the unenforceability of exchange contracts that offend against the currency regulations of the United Kingdom, Lord Denning suggests that Article VIII, Section 2(b), applies to the exchange control regulations of the forum. The provision should be understood, however, to deal only with the recognition of the exchange control regulations of other members of the Fund and not of the member in which the forum is established. For that court, Article VIII, Section 2(b), does not override the will of its own legislator. For example, it should not be held as a result of that provision that the court has the task of determining whether the exchange control regulations promulgated by its authorities are maintained or imposed consistently with the Fund Agreement. Yet it would be required to do this if it were held that domestic exchange control regulations were embraced by Article VIII, Section 2(b). Furthermore, those regulations might impose some sanction other than unenforceability, and it should not be open to the court to substitute unenforceability on the thesis that Article VIII, Section 2(b), applied.32

Even if a forum should hold that it would not apply the regulations of the lex fori that were maintained or imposed inconsistently with the Articles because this was thought to be the result of the way in which the Articles had been given the force of law or because of some other principle of domestic law, the refusal to apply the regulations would follow from the principle of domestic law and not from Article VIII, Section 2(b). That provision requires each member to collaborate with all other members, but to conclude that it applies to domestic regulations as well would mean that the drafters had held the strange idea that each member could collaborate with itself.

(4) This brings the discussion to the crucial issue in the case, the severability of the transactions between Sharif and Latif, on the one hand, and between Sharif and Azad, on the other. The main line of reasoning by which the court permitted Sharif to recover follows. The exchange control regulations of Pakistan purported to apply to a contract only if one of the parties was in or resident in Pakistan. The check issued by Azad to Sharif was a sterling check issued in England by one resident of that country to another. It was not contrary to the exchange control regulations of Pakistan and therefore was not unenforceable under the United Kingdom’s Bretton Woods legislation. Azad had argued that the sterling check was “affected with illegality” within the meaning of section 30 of the English Bills of Exchange Act, 1882. The conclusion of Lord Justice Diplock on this argument was that:

Even assuming that the defendant’s cheque was issued pursuant to a tripartite contract to which Latif was a party as well as the plaintiff and the defendant themselves—a matter which it was for the defendant to prove but which was never investigated at the trial—such tripartite contract would not have been “illegal” in English law, although it would have been unenforceable under the Bretton Woods Agreements Act, 1945, and the Bretton Woods Agreements Order, 1946, notwithstanding that the proper law of the contract was English law.

But the plaintiff is not suing on this contract, whether it was bipartite or tripartite. He is suing on the cheque which was issued by the defendant in performance of this contract. A cheque issued in performance of an agreement which is merely unenforceable is not “affected by illegality"…,33

Lord Justice Diplock also pointed out that another defense open to the drawer of a check in an action by an immediate party to it is that the latter did not give value for it. Azad did not plead this defense; therefore, the subsequent history of the rupee check delivered by Sharif to Azad in consideration for the sterling check was not investigated in detail at the trial. Under the Pakistani law, the legal effect of the payment of the rupees into the blocked account was therefore unclear, but in any event it was not relevant because the defense of an absence of consideration had not been pleaded.

Even though the interpretation of various features of Article VIII, Section 2(b), gives powerful support to the realistic application of that provision, there is room for some disquiet when considering the actual result in this case. It is true, as Lord Denning pointed out, that Azad would be damnified:

I see no reason why the plaintiff should not enforce the sterling cheques for £300 against Abdulla Azad. This enforcement will teach Azad a sharp lesson not to engage in transactions of this kind. He will have to pay £300 to Sharif and may get nothing back: for I do not suppose the authorities in Pakistan will allow the brother to use the 6,000 rupees. At all events, the matter is in their control. It is for them to say whether they will permit those rupees to be used by the brother in Pakistan or not.34

There is cold comfort in this because Sharif would not be taught any lesson. He had been a party to all of the arrangements that were designed to circumvent the exchange control regulations of Pakistan, and the court was enabling him to be made whole.

The decision that there were two distinct transactions and that the second of them was a wholly domestic English transaction is based on somewhat ambivalent reasoning. Sometimes, the result appears to follow from the interpretation of Pakistan’s exchange control regulations, but sometimes it appears to be drawn from the English Bills of Exchange Act. If the issue was really the interpretation of the regulations—and it is submitted that this was the correct issue—perhaps the court might have held that Sharif’s action on the check was an action to enforce a contract that offended the regulations. It was obvious to Sharif and Latif, if only because the name of the payee was left blank in the rupee check, that Sharif might sell that check to another for sterling. The absence of the name of the payee meant that Latif was giving Sharif implied authority to fill in the name of the payee in any way that Sharif thought fit. It might have been possible, therefore, to hold that, for the purposes of the regulations, Latifs transfer of the rupees was not complete until the name of Azad’s brother was inserted as payee, and that Azad gave the sterling check to Sharif in return for Latif’s transfer of the rupees to Azad’s brother.

Alternatively, it might have been possible to hold that Latif made two transfers of the rupee balance, one to Sharif and another to Azad’s brother. If either of these analyses had been accepted, it might have been concluded that the sterling check was given in return for an action by Latif, a resident of Pakistan, and that the transaction viewed in this way was caught by the exchange control regulations of Pakistan. In support of either of these suggested approaches, it might be argued that one purpose of the regulations was to avoid the transfer of the rupees without the accrual of the sterling counterpart to the exchange control authorities. The authorities had been deprived of sterling paid on two occasions as counterpart for the transfer, first by Sharif and then by Azad. They were as interested in the latter payment as in the former, for which the blocking when Azad’s brother sought to draw was evidence.

The provisions of Pakistan’s Foreign Exchange Regulation Act, 1947, which were considered relevant read as follows:

Save as may be provided in and in accordance with any general or special exemption from the provisions of this sub-section which may be granted conditionally or unconditionally by the State Bank, no person in or resident in the provinces and the capital of the Federation shall—(e) make any payment to or for the credit of any person as consideration for or in association with (i) the receipt by any person of a payment … outside Pakistan; (ii) the creation or transfer in favour of any person of a right whether actual or contingent to receive a payment … outside Pakistan; (f) draw, issue or negotiate any bill of exchange … or acknowledge any debt, so that a right (whether actual or contingent) to receive a payment is created or transferred in favour of any person as consideration for or in association with any matter referred to in cl.(e).

This is broad language, and the words “in association with” are particularly interesting. In addition, Section 21(1) of the Act, which was not mentioned, provides that:

No person shall enter into any contract or agreement which would directly or indirectly evade or avoid in any way the operation of any provision of this Act or any rule, direction or order made thereunder.

Could it have been held that all the steps in the arrangements were indirect evasions of the prohibited transfer of rupees from Latif to Azad’s brother and contrary to the exchange control regulations under this provision also?

In the final analysis, of course, there would be no alternative to the decision adopted by the Court of Appeal if the exchange control regulations of Pakistan did not apply to the sterling check given by Azad to Sharif. This was the view taken by the court, although it was the court’s own construction of the regulations. This construction was not based on any statement by the exchange control authorities of Pakistan and was in opposition to such expert evidence as had been adduced.

It will be apparent that one of the most difficult issues raised by the case is the extent to which courts should be willing to dissect contractual arrangements put together with the design of evading exchange control regulations if the result of this dissection is to require the courts to carry out the design in some important respect. It has been noted that this was the result in Sharif v. Azad. It was also the result of the majority decision of the New York Court of Appeals in Southwestern Shipping Corporation v. National City Bank of New York.35 The same tendency toward dissection is apparent in the decision of the Superior Court of Pennsylvania in Varas v. Crown Life Insurance Company,36 although before this stage of the litigation had been reached, Article VIII, Section 2(b), had ceased to be applicable because Cuban exchange control regulations were involved and Cuba had withdrawn from the Fund. In cases of the kind referred to here, the result may be affected by judicial motivations that are given greater weight than the consideration that the evader is being helped to succeed in his scheme of evasion. For example, in the Southwestern case the court may have wanted to hold the bank accountable as “repository” notwithstanding the machinations of the evaders. In Sharif v. Azad the court may have been concerned with the impact of Article VIII, Section 2(b), on negotiable instruments. These are obviously not improper motivations in view of the necessities of commercial and financial life, but the question to be faced is whether they should be given precedence over the public policy of Article VIII, Section 2(b).

Federal republic of germany

In Loeffler-Behrens v. Beermann, the parties, both German nationals, met in Brazil, and the plaintiff agreed to lend the defendant a sum of money for business purposes. The amount handed over by the plantiff to the defendant in April 1959 was in dispute, but according to the plaintiff it was US$5,500. On April 14, 1959 the defendant gave the plaintiff a written promise, which read as follows:

I confirm and declare that I undertake to deliver to [the plaintiff], residing here, the value of Cr$ 777,000, covered by a promissory note of the same value and with a due date of May 15, 1959, equivalent to exactly US$5,550. Sao Paulo, April 14, 1959.

On May 15, 1959 the defendant gave the plaintiff the promissory note that was mentioned, but the plaintiff failed to get payment of the debt or interest beyond US$66. On October 1, 1959, he obtained a new written promise to pay from the defendant, but this promise also was dishonored. The acknowledgment read as follows:

  • I [the defendant] undertake to fulfill the following:
    • 1. To do all I can to remit within the next two weeks US$ 100-200 towards repayment of the principal debt.
    • 2. In any case, to pay the amount of US$5,550 by October 15, 1959.
    • 3. The interest of 3 per cent monthly on US$5,550 for the period from May 15-October 15, 1959, that is to say, US$832.50 less the amount entered under (1) and the sum of US$66 that was paid to [the plaintiff] on August 13, 1959, will be paid by me by November 15, 1959.”

The defendant returned to Europe and lived in Germany after 1961. The plaintiff remained resident in Brazil.

The plaintiff sued in the Mannheim Regional Court (Landgericht) on the basis of the documents of April 14 and October 1, 1959. The plaintiff argued that the defendant had received U.S. dollars and must repay dollars and that, in a loan between Germans, Brazilian exchange legislation was irrelevant. The defendant relied on a number of arguments, among them the argument that the acknowledgment of October 1, 1959 was void because it was in breach of Brazilian law to contract an obligation in foreign currency. The Regional Court gave judgment for the plaintiff, in substance, for the deutsche mark equivalent of US$5,500 (presumably an erroneous reference to $5,550) plus interest, minus US$66 to be offset against interest, at the rate of exchange prevalent at the place and time of payment. Both parties appealed from the judgment of that court to the Karlsruhe Regional Court of Appeals (Oberlandesgericht).

On appeal, the defendant requested that the judgment of the lower court be rescinded or, alternatively, that if judgment was given for the plaintiff, it should not exceed the deutsche mark equivalent of 777,000 cruzeiros at the commercial bank free market rate less the equivalent of US$66 at the same rate. The defendant’s main argument rested on the nullity of the two acknowledgments of debt under Brazilian law.

In its judgment of December 15, 1965 the Court of Appeals concurred in the finding of the lower court that the contract was governed by Brazilian law. At the time of the contract, both parties were domiciled and had their business interests in South America. The loan was to finance business to be carried on in Brazil, and repayment was to be made there. The reference to cruzeiros in the document of April 14, 1959 and the use of Portuguese in both documents confirmed that neither party contemplated the application of German law because he was a German national.

Brazilian law included Decree No. 23,501 of November 27, 1933, in which Article 2 provided that it was “prohibited on pain of nullity, in contracts to be fulfilled in Brazil, to stipulate payment in a currency that is not the national currency according to its legal value.” Expert opinion on Brazilian law advised that where there was the stipulation of payment in a foreign currency, Brazilian currency was payable.

The Court of Appeals held that it did not follow that this rule of Brazilian law had to be applied. Public law regulations, which included foreign exchange regulations, were not effective beyond the legislator’s borders. Decree No. 23,501 was obviously adopted for purposes of monetary and economic policy because of the instability of the cruzeiro, and according to prevailing opinion it would have to be regarded as territorial only.

The Court of Appeals continued:

To be sure, recognition of foreign monetary intervention beyond the sphere of power of the foreign country is possible on the basis of treaties under international law. In regard to international foreign exchange regulations, the necessity to recognize Brazilian foreign exchange regulations could arise from the International Monetary Fund Agreement, to which the Federal Republic acceded under the Law of July 28, 1952 … as did Brazil, according to information provided by the Deutsche Bundesbank on August 12, 1965. However, the Brazilian foreign exchange regulations relevant to the case before the court are not opposed to a judgment ordering the defendant to pay U.S. dollars or deutsche mark, because they are not “exchange control regulations” within the meaning of Article VIII(2)(b) of the Articles of Agreement of the International Monetary Fund. This is to be inferred from the information provided by the Deutsche Bundesbank and by the Legal Department of the International Monetary Fund. Therefore, the Court has to proceed on the assumption that the importation of foreign exchange into Brazil is not subject to control, in any case is not prohibited. Thus the matter rests with the above arguments that the Brazilian foreign exchange regulations are not applicable.

The Court of Appeals concluded that although Brazilian law governed the contractual liability, German law would have to be applied as the law governing the monetary liability. Accordingly, the defendant owed the plaintiff US$5,550 plus interest, minus US$66 to be deducted from interest, and therefore, under German law, judgment had to be given for the deutsche mark equivalent.

This is an important case for a number of reasons. To begin with, it is the first case in which a court in a member country has approached the Fund with a formal request for a finding on whether certain exchange control regulations of another member were “exchange control regulations … maintained or imposed consistently with this Agreement” for the purposes of Article VIII, Section 2(b). In its interpretation of that provision, the Fund has said that it

will be pleased to lend its assistance in connection with any problem which may arise in relation to the foregoing interpretation or any other aspect of Article VIII, Section 2(b). In addition, the Fund is prepared to advise whether particular exchange control regulations are maintained or imposed consistently with the Fund Agreement.37

In practice, the Fund has not gone beyond assistance under the second of these sentences, and on all other occasions on which it has given advice on the consistency of exchange control regulations it has done so at the request of a litigant. In the Karlsruhe case, the request was made by the court itself in a letter which was transmitted to the Fund by the Executive Director appointed by the Federal Republic of Germany. The court’s letter was addressed to the Managing Director of the Fund, and the Executive Directors authorized the General Counsel of the Fund to reply in accordance with a draft which was laid before them.

A second interesting feature of the case is that in order to reply to the question whether Brazilian Decree No. 23,501 was an exchange control regulation that was maintained or imposed consistently with the Articles, the reply had necessarily to express a view on the meaning of this concept in relation to cours force legislation. Article 1 of the Brazilian decree declared that any agreement was void if it called for payment in gold or foreign currency or aimed at nonrecognition of the enforced rate of exchange for the Brazilian paper currency. Article 2 has already been noted.

The General Counsel’s reply stated that the Fund Agreement contains no definition of “exchange control regulations” and that the Fund has not interpreted these words. In the opinion of the General Counsel, however, they did not include laws that had been designed to ensure the acceptance of paper currency as legal tender in the country of issue. The decree applied even between residents and even though no payment in foreign exchange or gold was stipulated, which suggested that it had not been adopted for the purpose of husbanding Brazil’s foreign exchange resources. The court’s attention was drawn to de Sayve v. de la Valdene38 in which a New York court noted, without any expression of dissent, that it had been conceded that the category of foreign exchange control laws did not include French legislation prohibiting clauses in French domestic contracts calling for payment in gold or foreign currency. In view of these considerations, it was suggested that the question of the consistency of the decree with the Articles did not arise.

The Karlsruhe Court of Appeals accepted the view expressed in the Fund’s reply. But it is not clear why, although the letter to the Fund set forth only Article 1 of the Brazilian decree, the court referred solely to Article 2 in its opinion. It must be said, however, that the language of these Articles in the Portuguese original and in German or English translation is not clear. Article 1 seems, on the whole, to constitute the prohibition of gold and foreign currency clauses, and Article 2 to prohibit payment at some rate of exchange for Brazilian currency other than the official rate. If this is the correct reading of them, Article 1 would have greater relevance to the case than Article 2.

In purporting to accept the view expressed in the Fund’s letter, the court distinguished between “foreign exchange regulations” and “foreign exchange control regulations,” a distinction which could produce confusion. The concept in Article VIII, Section 2(b), is “exchange control regulations.” In addition, the court concluded that because exchange control regulations were not involved, there was no bar to a judgment ordering the defendant to pay U.S. dollars or deutsche mark, and no control or prohibition of the importation of foreign exchange into Brazil. Whether or not the court was justified in assuming that exchange control regulations would not prevent payments in foreign exchange by nonresidents to residents, it seems clear enough that the Brazilian decree, as cours force legislation, was drafted in terms that applied even between a resident and a nonresident.

Finally, the case sharply illustrates the change that Article VIII, Section 2(b), has brought about in connection with the recognition of the exchange control regulations of other countries. Had the Brazilian decree fallen within the scope of Article VIII, Section 2(b), the Karlsruhe Court of Appeals would have been willing to recognize it. But the decree did not, and therefore the court felt free to ignore it even though it was part of the law that governed the contractual obligation. The court held that the decree was part of Brazilian public law and therefore not entitled to recognition.

Exchange Control and Nationalization

Indonesian Corporation P.T. Escomptobank v. N.V. Assurantie Maatschappij de Nederlanden van 184539 poses questions of the relationship of Article VIII, Section 2(b), to nationalization. A Netherlands insurance company (the N. Corporation) owned all the shares in five Indonesian insurance companies. One of these companies (the M. Company) had a number of accounts, in which the other subsidiaries also had rights, in U.S. dollars, sterling, Hong Kong dollars, Malayan dollars, and Netherlands guilders with an Indonesian bank (Escompto-bank). On November 26, 1959 the M. Company, acting on behalf of itself and the other subsidiaries, assigned its claims against Escompto-bank to the N. Corporation. The assignment was executed in the Netherlands by the Managing Director of the M. Company. The N. Corporation attached the assets of Escomptobank in the Netherlands and brought an action for payment of the balances and validation of the attachment.

The subsidiaries had been brought under state control by Indonesian decrees of 1957 and 1958 and subsequently nationalized with retroactive effect by a decree of 1960. According to all the courts which heard the case, this nationalization was confined to Netherlands-owned enterprises, was without compensation, and was intended to exercise pressure on the Netherlands in connection with the dispute over the western part of New Guinea. Escomptobank argued that these decrees deprived the Managing Director of the M. Company of any power to make the assignment to the N. Corporation; that the assignment was in violation of Indonesian exchange control law because a license had not been granted by the Indonesian authorities; and that the balances could not be collected without a license. The Foreign Exchange Control Ordinance of 1940 adopted by the Netherlands East Indies prohibited residents of what was later Indonesia from disposing of foreign currency and foreign claims to nonresidents, but the M. Company had received a general license to dispose of the foreign currencies in question. This license was canceled under measures adopted by Indonesia in 1958 in connection with the imposition of state control.

The District Court of The Hague gave judgment for the N. Corporation. It dismissed Escomptobank’s argument that a Netherlands court could not review the legality of Indonesia’s acts of state on the ground that this doctrine did not apply to violations of international law, and the nationalization was a violation because it was without compensation, discriminatory, and political in motivation. The termination of the general license and the control of the balances were also affected by this violation of international law. The court continued:

Apart for this, legislation of a public law character such as laws dealing with foreign exchange control, has, as a matter of principle, only territorial effect. Since the assignment was contracted in the Netherlands and concerned claims which, for Indonesia, were foreign claims, i.e., balances in foreign currencies to be collected abroad, there is no reason at all to consider them as being governed by Indonesian foreign exchange control law.

Escomptobank further invoked the Agreement concluded at Bretton Woods in July 1944 relative to the International Monetary Fund to which both the Netherlands and Indonesia were parties. This Agreement establishes an obligation on the part of the contracting States to recognise each other’s foreign exchange control legislation. This provision was superseded by the Financial and Economic Agreement entered into by the Netherlands and Indonesia at the Round Table Conference. This Agreement regulated foreign exchange control matters, but it has been unilaterally broken by Indonesia. Consequently, a Netherlands court has no obligation to take into account agreements previously made with Indonesia concerning foreign exchange control.40

Whatever may be the validity of the principle in the first paragraph of this quotation as a principle of private international law, it cannot operate against Article VIII, Section 2(b), and under that provision the law governing an assignment is not relevant. As for the argument that the claims were “foreign claims” from Indonesia’s standpoint, this does not mean that they are beyond the scope of Indonesian exchange control for the purpose of that provision. The court disposed of the argument that Article VIII, Section 2(b), now required recognition of Indonesian exchange control legislation with the reply that the provision had been superseded by the Financial and Economic Agreement. This cannot be taken literally. It is impossible to see on what basis the bilateral treaty between the Netherlands and Indonesia could affect the obligation of Article VIII, Section 2(b), which binds all members under the multilateral Fund Agreement.

Perhaps what the court meant was that Indonesia had undertaken under the bilateral agreement not to impose exchange control of the kind that it imposed in 1958, and therefore that under this agreement Indonesia had committed itself to the Netherlands not to exercise the power to impose exchange controls that it had under the Articles of the Fund. This version of the court’s opinion would not mean that Article VIII, Section 2(b), as such had been superseded, but that the provision did not require the recognition of exchange control legislation that had been imposed in violation of some other international agreement under which a country undertook not to have such legislation. This argument could not be considered seriously if the other agreement were deemed to be inconsistent with the provisions of the Articles. But even if there were no such inconsistency, there would still be a problem because Article VIII, Section 2(b), speaks of exchange control regulations that are maintained or imposed “consistently with this Agreement” and not consistently with other agreements.41

Escomptobank appealed to the Court of Appeal of The Hague, which upheld the decision of the lower court. Escomptobank had argued that the act of state doctrine did not depend on any demonstration that the act for which recognition was demanded was in accordance with international law. The Court of Appeal refused to accept this argument as valid and held that it would disregard acts of state that were inconsistent with international law when the contest was between private parties. The Court of Appeal also refused to upset the decision on the basis of Indonesian exchange control. It gave a number of reasons for this conclusion but did not refer to the Fund’s Articles.

Escomptobank appealed to the Supreme Court and advanced a series of grievances, many of which alleged the erroneous application of the Fund Agreement and among which the one relating to exchange control was argued as follows:

The Court of Appeal did not evaluate Escomptobank’s argument that the claims of the subsidiaries, which were transferred to de Nederlanden van 1845 were governed by Indonesian law, the foreign exchange control legislation included, and irrespective of the circumstances under which the assignment took place. That legislation should in each case be respected in so far as it declares contracts entered into under violation of its provisions null and void under civil law. As Escomptobank argues, this is the case here. In pursuance of rules of Netherlands private international law, these provisions preclude de Nederlanden van 1845 from collecting the equivalent in Netherlands currency of balances in foreign currencies due to her subsidiaries. The Financial and Economic Agreement and its annexes as well as the membership of both countries of the International Monetary Fund both create an obligation for the Netherlands and Indonesia to collaborate in the field of foreign exchange control and to recognise reciprocally each other’s law in this matter. This obligation further entails that no contracts shall be recognised [if] entered into under violation of the foreign exchange control legislation of the country the law of which governs the contract. The courts shall not refuse to enforce this legislation on the ground that it would be irreconcilable with principles of public policy [of] the State of the forum. This conclusion is not changed by the fact that the assignment also has certain factors connecting it with the Netherlands legal order.42

The Supreme Court dismissed the appeal. It found that Indonesia had established the control and nationalization without compensation of the five subsidiaries. The court held that the Indonesian measures of nationalization could not be relied on in the Netherlands to challenge the disposition of rights in Indonesia by a company which had its seat in Indonesia but the shares in which were Netherlands owned. It was repugnant to Netherlands public policy that legal effect be given to foreign measures enacted to prejudice Netherlands interests in the manner and for the purpose involved in this case. The Supreme Court held that to reach this result it was not necessary for the Court of Appeal to decide whether the Indonesian measures violated international law.43

On the argument based on exchange control, the Supreme Court was willing to hold that claims arising from the balances and the assignment were governed by Indonesian law. However, even if, in normal circumstances, the assignment and collection required a license under Indonesian exchange control provisions, those provisions could not be invoked in this case. The N. Corporation would not be granted a license, and therefore application of the exchange control provisions would have exactly the same effect as recognizing those measures of nationalization that had been held repugnant to Netherlands public policy.

The court continued as follows:

This conclusion is not changed by the provisions of the Financial and Economic Agreement and its annexes, mentioned in the grievance—in so far as they may still be operative—, since they relate to regular financial intercourse between the Netherlands and Indonesia and cannot be deemed to be applicable to the very exceptional circumstances created by the Indonesian measures against Netherlands interests.

Nor do the articles of the Agreement of Bretton Woods which have been cited, constitute a bar, since they may likewise be held to concern exclusively regular financial intercourse between the States.44

Whatever the merits of the Supreme Court’s judgment, it is doubtful that its gloss on Article VIII, Section 2(b), can be accepted. The court held that the provisions of the Articles that had been cited are confined to “regular financial intercourse” between states.45 It is not clear what this means but presumably exchange control for economic reasons was what the court had in mind. However, the Fund has made it clear that “restrictions on payments and transfers for current international transactions” in Article VIII, Section 2(a), include “all restrictions on current payments and transfers, irrespective of their motivation and the circumstances in which they are imposed.”46 The decision of the Executive Directors from which these words are taken established a special procedure for the approval of one category of these restrictions, those imposed by members solely for the preservation of national or international security. This citation is not meant to suggest that the Indonesian restrictions in the present case were of this character, but the Fund’s decision shows that restrictions that fall within the words of Article VIII, Section 2(a), because of their form are not excluded from the scope of that provision because of the motives with which they are imposed. It should follow that the words “such controls as are necessary to regulate international capital movements” in Article VI, Section 3, are also comprehensive and not limited by motive. With this understanding of restrictions and controls, it becomes impossible to hold that the words “exchange control regulations … maintained or imposed consistently with this Agreement” in Article VIII, Section 2(b), are narrower in scope than the provisions of the Articles authorizing the maintenance or imposition of the controls.

It does not follow from this that the decision of the Supreme Court was wrong and that Article VIII, Section 2(b), did require recognition of the Indonesian measures that were in issue. It would be necessary to take a much closer look at them before any such conclusion could be accepted. For example, were the measures imposed consistently with the Articles? If they were not adopted for balance of payments reasons, then, to the extent that they restricted payments and transfers for current international transactions, they required the approval of the Fund under Article VIII, Section 2(a), even though Indonesia had the benefit of the transitional arrangements of Article XIV, Section 2. To the extent that the measures were capital controls, and therefore in themselves did not require the approval of the Fund, were they consistent with the provisions of the Articles for the purposes of Article VIII, Section 2(b), if they were exercised in “a manner which will restrict payments for current transactions or which will unduly delay transfers of funds in settlement of commitments"? And again, if the measures were confiscatory because they did not provide for compensation, were they “exchange control regulations” within the meaning of Article VIII, Section 2(6)?

One important aspect of the case is that the Supreme Court, unlike the two lower courts, found it unnecessary to deal with the act of state doctrine and its relationship to international law. It decided that it would not recognize the effects of the Indonesian decree on the independent ground of repugnancy to Netherlands public policy. If, however, the case was one that fell within Article VIII, Section 2(b), the court would not have been able to rely on domestic public policy to refuse recognition of Indonesian exchange control regulations. This has been made clear in the Fund’s interpretation of Article VIII, Section 2(b).47

The decision of the Netherlands Supreme Court on public policy made it possible for the court to avoid the issue faced by the U.S. Supreme Court in the famous Sabbatino case.48 In that case, the Supreme Court held that the courts of the United States “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.”49 One author has raised the question whether the Sabbatino decision means that courts in the United States will no longer be concerned with the question whether the exchange control regulations of another member are consistent with provisions of the Articles.50 In other words, will the courts recognize exchange control regulations even though inconsistent with the Articles? However, the Sabbatino case dealt with the taking of property, and it is not at all clear that cases of this kind, or that all cases of this kind, would be considered exchange control regulations. For example, an outright confiscation, i.e., a taking without compensation of any kind, would clearly be beyond the scope of exchange control regulations as these are normally understood. The centralization of foreign exchange, which is a normal feature of exchange control, is not the same as the expropriation of foreign exchange. Moreover, the Sabbatino case itself makes a reservation for a treaty or other unambiguous agreement, and the Fund’s Articles would be within that reservation. Whatever ambiguities may be found in Article VIII, Section 2(b), there is no ambiguity about the principle that the recognition of exchange control regulations under that provision is confined to those that are consistent with the Articles. There seems to be little reason, therefore, to fear that the Sabbatino case will lead to results contrary to Article VIII, Section 2(b), and there is no more reason to expect such results under the Netherlands doctrine of public policy.

Exchange Surrender Requirements

In Bacolod Murcia Milling Co., Inc. v. Central Bank of the Philippines,51 the Supreme Court of the Philippines refused to hold that Circular No. 20, promulgated by the Central Bank on December 9, 1949, was null and void. The circular required recipients of foreign exchange to sell it to an authorized agent of the Central Bank within one business day following receipt. A leading issue in the case was whether the circular was authorized by Section 74 of the charter of the Central Bank (Republic Act No. 265), and various aspects of the Fund’s Articles were relied upon in argument and also in the petition for rehearing.52 That petition was denied,53 partly on the ground that the issue as to the enforcement of Circular No. 20 had become moot because the circular had been replaced by Circular No. 133, promulgated by the Central Bank on January 21, 1962 to implement the later Republic Act No. 2609. After the expiration of that Act, Circular No. 133 was extended by Circular No. 171. The effect of these two circulars has now been considered by the Supreme Court in later litigation.

The later case is Chamber of Agriculture and Natural Resources of the Philippines, et al. v. Central Bank of the Philippines, in which the validity was contested of circulars requiring exporters to surrender 20 per cent of their receipts to the Central Bank at the par value of 2 pesos per U.S. dollar and authorizing the sale of the rest in the free market. The petitioners, seven exporters, insisted that the continuation of the surrender requirement was illegal, relying, inter alia, on the decision in the Bacolod Murcia case and on the fact that the four-year period prescribed for decontrol by the later statute had expired four years after April 25, 1960. The circular establishing the 20 per cent surrender requirement had been passed in accordance with the provisions of that Act, but the circular had been extended by a circular taking effect on April 25, 1964, under Section 74 of the Central Bank’s charter. Therefore, the issue was raised again whether Section 74 empowered the Central Bank to impose exchange surrender requirements at the rate fixed by the Central Bank in authorizing it to subject foreign exchange transactions to suspension, restriction, and licensing. The opinion in the Bacolod Murcia case had concluded that Section 74 could not be given this meaning but found for the Central Bank on other grounds. However, it was not clear in the earlier case whether this interpretation was held only by the judge who wrote the opinion or whether it was shared by other judges. In the later case, this ambiguity has been resolved. Mr. Justice Reyes, with whom eight of the other nine judges concurred, held that the interpretation must be taken to have been that of the author of the opinion only and not of the majority of the court. The court then held by the same majority of nine to one that Section 74 did give the Central Bank authority to compel the surrender of exchange at the legal parity and that the circular was a valid exercise of this power.

There is no need to go into the complexities discussed in the judicial opinions because, in contrast to the Bacolod Murcia case, few of them concerned the Fund. An interesting aspect of the Articles, however, was involved in the court’s treatment of petitioners’ argument that the surrender of 20 per cent of export receipts was confiscatory. The court found this an “exaggeration” in view of the payment for it at the legal parity. The court conceded that the surrendered exchange was resold by the Central Bank at a higher rate in terms of pesos for dollars, so that the Bank realized a profit. The court pointed out, however, that this profit was credited to a “Revaluation of International Reserve” account, under Section 44 of the Bank’s charter, and it could not be included in the Bank’s computation of its annual profit or loss. Under Section 44, any profit on a revaluation must be offset against any amounts payable to the Fund or the International Bank for Reconstruction and Development as a consequence of the revaluation, and any balance carried to a special segregated account. In the case of the Fund, the reference is to Article IV, Section 8, under which a member is required to maintain the gold value of the Fund’s holdings of the member’s currency, and under which a member must pay further currency to the Fund on a devaluation or depreciation of the member’s currency.54

In connection with the objection that the surrender requirement was an invalid exercise of police power, the court quoted with approval the following passage in an earlier judgment:

… this Court held that Circular No. 20, which subjects to licensing by the Central Bank all transactions in gold and foreign exchange, was in fact approved by the President of the Philippines. As regards the necessity of approval by the International Monetary Fund, this Court said in People vs. Koh, supra, that “it is not incumbent upon the prosecution to prove that the provisions of Circular No. 20 complied with all pertinent international agreements binding on our Government. The Central Bank and the President certify that it accords therewith, and it is presumed that said officials knew whereof they spoke, and that they performed their duties properly. It is rather for the defense to show conflict, if any, between the Circular and our international commitments.”55

The issue raised in this passage involves that part of Section 74 of the Central Bank’s charter which provides that the measures adopted under it “shall be subject to any executive and international agreements to which the Republic of the Philippines is a party.” The introduction of an exchange surrender requirement is not a restriction on payments and transfers for current international transactions and therefore does not require the approval of the Fund under Article VIII, Section 2(a).56 However, if it involves a new effective rate of exchange, the Fund’s approval would be required under the Fund’s multiple currency jurisdiction.57 If the proportion of export proceeds to be surrendered is varied, with part paid for at the par value and the rest sold in the free market, there is a new effective rate of exchange formed by the combination of the two.

In a concurring opinion, Mr. Justice Bengzon dealt at somewhat greater length with the argument petitioners had based on the following language in Section 1 of Act No. 2609:

In implementing the provisions of this Act, along with other monetary, credit and fiscal measures to stabilize the economy, the monetary authorities shall take steps for the adoption of a four-year program of gradual decontrol.

The court held that this did not necessarily mean complete decontrol by the end of the four years for which the Act ran. The concurring opinion reads:

… Congress must have been aware, as it is presumed to be aware, of the Articles of Agreement of the International Monetary Fund, to which the Philippines is a signatory, providing, in effect, that before exchange restrictions may be withdrawn a stable economic position must first be in existence….

For this proposition, Mr. Justice Bengzon quoted Article XIV, Section 2, of the Articles and gave special emphasis to the last sentence:

In particular, members shall withdraw restrictions maintained or imposed under this Section as soon as they are satisfied that they will be able, in the absence of such restrictions, to settle their balance of payments in a manner which will not unduly encumber their access to the resources of the Fund.58

Les Statuts du Fonds devant les tribunaux—IX


Un tribunal vénézuélien a décidé qu’én rendant un jugement exigeant le règlement en bolivars d’une créance libellée en dollars E.U., il n’ést pas tenu, vu l’éxistence de taux de change multiples légaux, d’appliquer la parité ou le taux de change officiel sur le marché contrôlé. A l’occasion de ce jugement, le présent article étudie, dans la pratique du Fonds, la différence entre les parités et les taux de change, et celle entre ces taux et les facteurs de conversion, ainsi que certaines autres questions juridiques qui sont entrées en jeu. Une de ces questions, celle de l’éffet juridique de la validité des taux multiples d’après les Statuts du Fonds, a été soulevée devant un tribunal des Etats-Unis, à l’occasion de l’imposition de droits compensateurs en vertu du Tariff Act des Etats-Unis; mais le tribunal n’a pas jugé nécessaire de statuer.

La Cour d’appel anglaise, en considérant pour la première fois la section 2 b) de l’article VIII, a fait sienne un certain nombre d’inter-prétations libérates de ces dispositions, mais la décision pose des problèmes difficiles concernant la fragmentation des dispositions conçues dans leur ensemble pour circonvenir les mesures de contrôle des changes, et la compensation du préjudice encouru du fait d’une partie de ces dispositions. Une action intentée en Allemagne, au cours de laquelle la même disposition a été examinée, a marqué la première fois où un tribunal s’ést mis directement en rapport avec le Fonds, en l’occurrence pour lui demander si certaines mesures de contrôle des changes étaient compatibles avec les dispositions des Statuts. Cette instance est également intéressante en ce qu’élle éclaire la différence entre la législation du contrôle des changes et celle du cours forcé.

Un tribunal néerlandais a refusé de reconnaître les règlements indonésiens aux termes de la section 2 b) de l’article VIII, en alléguant que ces dispositions ne s’appliquent qu’aux relations financières normales entre Etats. Le tribunal n’a pas estimé nécessaire de traiter de la doctrine de l’acte d’état et de son rapport avec le droit international, qui a formé le sujet d’une décision dans l’affaire Sabbatino, faisant remarquer que ces règlements ne pourraient en tout état de cause être reconnus, du fait qu’ils sont contraires à l’ordre public néerlandais.

Les tribunaux philippins ont statué sur la validité de certaines exigences de cession de devises prevues par diverses lois, et notamment par la loi relative à la banque centrale des Philippines, mais les Statuts du Fonds ont joué un rôle moins important dans la décision finale que dans les instances antérieures.

El Convenio del Fondo ante los tribunales—IX


Un tribunal de Venezuela, al resolver que el pago de una obligación expresada en dólares estadounidenses debía efectuarse en moneda venezolana, declaró que no estaba obligado a aplicar la paridad o el tipo oficial de cambio del mercado controlado, debido a existir legalmente tipos de cambio múltiples. En relación con este caso, el artículo que antecede analiza la diferencia entre lo que son las paridades y los tipos de cambio, y entre éstos y los factores de conversión utilizados en la práctica por el Fondo, así como ciertas otras cuestiones jurídicas que estuvieron implicadas. Una cuestión—el efecto jurídico de la validez de los tipos de cambio múltiples según el Convenio del Fondo—habíase suscitado ante un tribunal de Estados Unidos en un caso en que se trataba de la imposición de derechos compensadores a tenor de la Ley de Arancel de Aduanas de dicho país, pero el tribunal no creyó necesario pronunciarse sobre esa cuestión.

La Corte de Apelaciones de Inglaterra, al considerar por primera vez el Artículo VIII, Sección 2(b), se ha sumado a varias de las interpretations liberates dadas a ese precepto; pero el caso plantea cuestiones problemáticas relaciónadas con la fragmentación de pactos concebidos en su totalidad al objeto de evadir disposiciones de control de cambios y con la concesión de remedios en virtud de alguna parte de esos pactos. Un caso surgido en Alemania, en el cual se considera el citado precepto, resulta notable por haber sido el primero en que un tribunal se dirige directamente al Fondo para formularle una consulta acerca de la compatibilidad entre las disposiciones de control de cambios y el Convenio. El caso es también interesante como ejemplo de la diferencia que existe entre la legislación sobre control de cambios y la legislación sobre curso forzoso.

Un tribunal de los Países Bajos rehusó reconocer las disposiciones decretadas por Indonesia al amparo del Artículo VIII, Sección(b), por el fundamento de que ese precepto sólo rige en tratándose de relaciónes financieras entre Estados. El tribunal declaró que no era necesario resolver acerca de la aplicación de la doctrina del acto de estado y su relación con el derecho international, la cual había sido materia del fallo dictado en el caso Sabbatino, en razón de que las antedichas disposiciones no resultarían aplicables de ningún modo por ser contrarias a los principios de orden Público de los países Bajos.

Los tribunales de Filipinas han resuelto la cuestión de la validez de ciertas obligaciones de entregar divisas conforme a la legislación del banco central del país, y de otras disposiciones legates, pero el Convenio del Fondo tuvo menor influencia en la resolución definitiva que en un caso anterior.


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 (see fn. 1) and of various pamphlets and articles.


Earlier articles were published in Staff Papers, as follows: I, Vol. I (1950-51), pp. 315-33; II, Vol. II (1951-52), pp. 482-98; III, Vol. Ill (1953-54), pp. 290-312; IV, Vol. V (1956-57), pp. 284-301; V, Vol. VI (1957-58), pp. 461-75; VI, Vol. VIII (1960-61), pp. 287-312; VII, Vol. IX (1962), pp. 264-95; VIII, Vol. XI (1964), pp. 457-89. The first seven and another article were issued by the International Monetary Fund, in book form, with combined tables of contents and cases, as The Fund Agreement in the Courts (Washington, 1962), hereinafter cited as Gold (1962), op. cit.


Revista de la Facultad de Derecho (Caracas), Vol. 21 (1961), pp. 287-337, hereinafter cited as Revista.


Arthur Nussbaum, Money in the Law, National and International (Brooklyn, 1950); Derecho monetario nacional e inter nacional, translation and notes by Alberto D. Schoo (Buenos Aires, 1954).


On April 18, 1961 the selling rate in this market was approximately Bs 4.81 per U.S. dollar. See International Monetary Fund, Twelfth Annual Report on Exchange Restrictions (Washington, 1961), p. 367; Eleventh Annual Report (1960), pp. 339-42; and Thirteenth Annual Report (1962), pp. 359-62.


Revista, pp. 334-35.


Ibid., pp. 311-12.


The court cited Nussbaum, op, cit., p. 669.


Revista, p. 335.


Article IV, Section 3: “Foreign exchange dealings based on parity.—The maximum and the minimum rates for exchange transactions between the currencies of members taking place within their territories shall not differ from parity

  • (i) in the case of spot exchange transactions, by more than one percent; and
  • (ii) in the case of other exchange transactions, by a margin which exceeds the margin for spot exchange transactions by more than the Fund considers reasonable.”

Article IV, Section 4(b): “Each member undertakes, through appropriate measures consistent with this Agreement, to permit within its territories exchange transactions between its currency and the currencies of other members only within the limits prescribed under Section 3 of this Article. A member whose monetary authorities, for the settlement of international transactions, in fact freely buy and sell gold within the limits prescribed by the Fund under Section 2 of this Article shall be deemed to be fulfilling this undertaking.”


The court was aware of the indirect effect of par values under the Articles on questions of the judicial determination of rates of exchange. For example: “As is well known, the creation of the International Monetary Fund may have influence over these questions when they are of an international nature by virtue of having instituted for the monetary units of member states—among which Venezuela is numbered—’par values’ on a gold base which a member must not alter without the Fund’s consent. Hence the organization has created ‘international gold management standards’” (Revista, p. 307). However, the Fund’s approval may be required of rates of exchange even though they are not related to a par value, and these rates may be multiple rates as they were in the Venezuelan case (see Selected Decisions of the Executive Directors and Selected Documents, 3rd issue (1965), hereinafter cited as Selected Decisions, pp. 84-91), or unitary rates (see, for example, Article XX, Section 4(d) (iii) of the Articles). Hence, the passage in the judgment taken from Nussbaum to the effect that “the regulations … of the Fund have nothing to do with valuation when there are multiple rates for a foreign currency” must not be taken to imply an absence of jurisdiction on the part of the Fund over multiple rates.


See Gold, The International Monetary Fund and Private Business Transactions, International Monetary Fund, Pamphlet Series, No. 3 (Washington, 1965), p. 6.


In theory at least, the Fund’s jurisdiction might become involved. If it is possible to imagine such widespread practices of adopting conversion factors that the value of the currency as approved by the Fund was called into question, the Fund might request the member to take appropriate action pursuant to the member’s undertaking under Article IV, Section 4(a), to collaborate with the Fund to promote exchange stability, maintain orderly exchange arrangements with other members, and avoid competitive exchange alterations. There is a precedent for such action in the Fund’s statement of policy concerning subsidies for gold production. The Fund has stated that even if a subsidy was not in violation of Article IV, Section 2, which deals with the price at which gold may be bought and sold by monetary authorities, the subsidy might be inconsistent with Article IV, Section 4(a), because it cast widespread doubt on the uniformity of the monetary value of gold or contributed to monetary instability (Selected Decisions, p. 15). See also the Fund’s policy statements on external transactions in gold at premium prices (Annual Report 1947, pp. 78-79, and Selected Decisions, pp. 13-14).


The discussion is not meant to preclude the possibility that the parties may agree, or be taken to have agreed, that for the purposes of their contract, conversion factors shall be determined by par values or rates of exchange consistent with the Fund’s Articles, and that the forum would apply such clauses where permitted by the lex fori. An example of such a technique although on the intergovernmental level and for purposes of customs valuation and not contract, can be found in Article VII of the General Agreement on Tariffs and Trade, and, in particular, paragraphs 4(a), (b), and (c) of that Article. Note that these provisions use the term “conversion rate of exchange” for what has sometimes been called “conversion factor” in the present article.


Customs Appeal No. 5160 (April 7, 1966).


Section 303, U.S. Tariff Act of 1930: “Whenever any country, dependency, colony, province, or other polítical subdivision of government, person, partnership, association, cartel, or corporation shall pay or bestow, directly or indirectly, any bounty or grant upon the manufacture or production or export of any article or merchandise manufactured or produced in such country, dependency, colony, province, or other political subdivision of government, and such article or merchandise is dutiable under the provisions of this Act, then upon the importation of any such article or merchandise into the United States, whether the same shall be imported directly from the country of production or otherwise, and whether such article or merchandise is imported in the same condition as when exported from the country of production or has been changed in condition by remanufacture or otherwise, there shall be levied and paid, in all such cases, in addition to the duties otherwise imposed by this Act, an additional duty equal to the net amount of such bounty or grant, however the same be paid or bestowed. The Secretary of the Treasury shall from time to time ascertain and determine, or estimate, the net amount of each such bounty or grant, and shall declare the net amount so determined or estimated. The Secretary of the Treasury shall make all regulations he may deem necessary for the identification of such articles and merchandise and for the assessment and collection of such additional duties.”


224 F. Supp. 606 (decided October 21, 1963).


Id. at 614.


Id. at 618. A footnote cites Nussbaum, op. cit., p. 475, for this latter quotation. In the passage quoted, Nussbaum seems to be referring to the recognition of the exchange control law of one country under the private international law of other countries.


Id. at 618.


Other considerations affecting the Fund that are mentioned in the dissenting judgment are that: (i) The Uruguayan devaluations of October 1949 were preceded by widespread multiple currency changes by Argentina which was at that time not a member of the Fund and therefore “was subject to no external surveillance or control in its currency practices as was Uruguay” (id. at 621). See also references to Spain (id. at 625). (ii) “Under the International Monetary Fund operations currency controls, such as those employed in Uruguay, are regarded as being only transitory expediencies’” (id. at 621).

These considerations related to the calculation of a bounty and not to the prior question of principle, i.e., whether in view of the Fund relationship the question of bounty could arise at all.


(1966) 3 W.L.R. 1285; (1966) 3 All E.R. 785.


This is so stated in the opinion of Lord Justice Diplock (id. at 1294), but there were multiple rates of exchange, and it is possible, by using certain rates as the appropriate rates, to show that Latif received more than the sterling equivalent of 6,000 rupees and that Azad’s brother received more than the rupee equivalent of £300. See International Monetary Fund, Fifteenth Annual Report on Exchange Restrictions (Washington, 1964), pp. 368-74.


9 and 10 Geo. 6, c. 19; and S.R. and O. 1946, No. 36.


Of the Foreign Exchange Regulation Act, 1947 of Pakistan, the text of which provision is quoted later.


(1966) 3 W.L.R. 1285, 1292-93.


Id. at 1289.


Selected Decisions, pp. 73-74.


Gold, “The Interpretation by the International Monetary Fund of its Articles of Agreement,” International and Comparative Law Quarterly, Vol. 3 (1954), pp. 271-72. It should not be overlooked that the court showed none of the reluctance expressed by Lord Justice Evershed in Kahler v. Midland Bank, Ltd. (1948) 1 All E.R. 811, 819, when it adopted interpretations on questions on which the Fund had not spoken (see p. 272 of the article cited).


(1966) 3 W.L.R. 1285, 1293.


id. at 1293.


Id. at 1289-90.


Gold (1962), op. tit., p. 66.


(1966) 3 W.L.R. 1285, 1294.


Id. at 1290.


173 N.Y.S.2d 509 (1958); 178 N.Y.S.2d 1019 (1958); 190 N.Y.S.2d 352 (1959); certiorari denied 361 U.S. 895, 80 S. Ct. 198 (i959). Discussed by Gold (1962), op. cit., pp. 97-100, 102-108.


203 A.2d 505; certiorari denied 382 U.S. 827, 86 S. Ct. 62 (1965).


Selected Decisions, p. 74.


124 N.Y.S.2d 143 (1953). Gold (1962), op. cit., p. 74.


Nederlands Tijdschrift voor Internationaal Recht (Netherlands International Law Review), Vol. XIII, No. 1 (1966), pp. 58-70.


Id. at 61.


The implications of Article VIII, Section 6, would have to be considered in connection with this issue: “Consultation between members regarding existing international agreements.—Where under this Agreement a member is authorized in the special or temporary circumstances specified in the Agreement to maintain or establish restrictions on exchange transactions, and there are other engagements between members entered into prior to this Agreement which conflict with the application of such restrictions, the parties to such engagements will consult with one another with a view to making such mutually acceptable adjustments as may be necessary. The provisions of this Article shall be without prejudice to the operation of Article VII, Section 5.”


Supra fn. 39, at 67.


April 17, 1964, N.J. 1965, no. 22, pp. 81-98. On this point, the decision has been followed in Kjellberg Elektroden and Maschinen G.m.b.H. v. N.V. Neder-landse Kjellberg Elektroden Fabrick NEKEF, Nederlands Tijdschrift voor International Recht, Vol. XIII, No. 2 (1966), pp. 203-206.


Supra fn. 39, at 69.


The English interpretation in Netherlands International Law Review of the judgment uses the words “may … be held,” which are ambiguous and may suggest a somewhat tentative view. However, the report in Nederlandse Jurisprudentie (see fn. 43) has been translated as follows: “because these, too, were intended to apply only to regular financial intercourse between states.”


Selected Decisions, pp. 75-76.


Ibid., pp. 73-74.


Banco Nacional de Cuba v. Sabbatino, 376 U.S. 398, 84 S. Ct. 923 (1964).


376 U.S. 398, 428.


Richard R. Paradise, “Cuban Refugee Insureds and the Articles of Agreement of the International Monetary Fund,” University of Florida Law Review, Vol. 18 (1965), pp. 29-77, particularly pp. 66-67, 74-75.


Official Gazette, Republic of the Philippines, Vol. 60, No. 36, September 7, 1964, hereinafter cited as Official Gazette, p. 5533.


Gold, “The Fund Agreement in the Courts—VIII,” Staff Papers, Vol. XI (1964), pp. 477-81.


Official Gazette, p. 5546.


Gold, Maintenance of the Gold Value of the Fund’s Assets, International Monetary Fund, Pamphlet Series, No. 6 (Washington, 1965).


People v. Tan, L.-9275, June 30, 1960.


Gold, The International Monetary Fund and Private Business Transactions, International Monetary Fund, Pamphlet Series, No. 3 (Washington, 1965), p. 8.


Selected Decisions, pp. 84-91. The Central Bank relied on this decision in its brief (pp. 34-55) and argued that the Fund had given its approval (pp. 106-107).


Cf. Selected Decisions, p. 82: “Before members give notice that they are accepting the obligations of Article VIII, Sections 2, 3, and 4, it would be desirable that, as far as possible, they eliminate measures which would require the approval of the Fund, and that they satisfy themselves that they are not likely to need recourse to such measures in the foreseeable future.”

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