The Fund Agreement in the Courts, Vol. II

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The court noted that the French franc was recognized as a currency of payment for international obligations. The court, in discussing the term referring to U. Nor did the court regard the inconvertibility of the French franc into gold as an impediment to its decision.

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The court may have been influenced by the economic inadequacy of the limits in the convention as a result of inflation. It will be recalled, however, that the Supreme Court of the Netherlands refused to assume that the legislature intended the abrogation of the par value of the guilder to bring about an increase of percent in the limits under the Brussels Convention when translated into guilders. Since the end of June , the monetary authorities of France have valued their gold at the end of each semester according to the average over the preceding three months of the daily U.

Chapter 2 - The Establishment and Constitution of the Court

S, dollar rate in Paris during the same period. The Court of Appeal refused to follow this technique, but in rejecting it the court gave as its reason the official inconvertibility of the French franc.

The Fund Agreement in the Courts, Vol. II

In Linee Aeree Italiane v. Varig S. Chamie did not make the point that the practices of monetary authorities in valuing their gold holdings are so diverse 24 that to follow the method of valuation of the domestic monetary authorities would defeat the objective of a universal and uniform standard of value that inspires the drafters of conventions. The objection could be met if all contracting parties were willing to make the same assumption, but there is no evidence of this willingness. They had not wished to link the unit of account to an actual currency, because a link of that character would have made the unit of account subject to the devaluations and revaluations of the currency.

Riccioli , 25 however, the court declared that the drafters of the Warsaw Convention had chosen a currency as the unit of account, even though the currency was fictitious, in preference to an amount of gold as such. The court drew the conclusion that the drafters had intended a unit of account that was to be applied through the exchange system and not through the gold market.

The court could have gone on to recall that the Fund has not regarded the price of gold in any currency as an exchange rate for that currency, and therefore it has not been able, even if it had wished, to approve a market price for gold as a multiple currency practice under Article VIII, Section 3.

The Fund defines an exchange rate as the rate at which one currency is exchanged for another currency. Chamie were the subject of proceedings in the later case of Pakistan International Airlines v. Compagnie Air Inter S. One issue was how 13, Warsaw units were to be translated into current French francs.


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The insurance company subrogated to the rights of the consignee argued that it was entitled to 13, current French francs. The court referred to an implicit reference by the insurance company to the Jamaica Accord. One of the principles was that the official price of gold should be abolished.

The Court of Appeal decided, correctly, that the Second Amendment was the only legal instrument of the Fund that had to be considered. The fallacy in this deduction is that it conflicts with the intent of the contracting parties to conventions of the kind in issue to establish a common standard of valuation because such a standard would achieve an equivalence among currencies based on their external value.

Unless the chosen value is based on the external value of the currency and is related to some standard that can ensure an equivalence of external value among currencies, the universality and uniformity that are objectives of the conventions will not be achieved. There was no inconsistency because the solution did not have the effect of maintaining the external value of the French franc in terms of gold. The second point made by the Court of Appeal was that the Second Amendment could have no effect on a contract of carriage entered into in April Chamie also, the contract preceded the Second Amendment, but in that case the court did not dwell on dates.

On the view taken by the court in the later case, it is difficult to understand why the court complicated its consideration of the case by dealing at all with the Second Amendment. Finally, the court was not embarrassed in arriving at its decision by any statute that established a par value for the French franc. France is a country in which the Executive is empowered to determine the external value of the currency.

State of the Netherlands The Blue Hawk , 33 on May 1, , is likely to become a leading case in the Netherlands 34 and to be cited in litigation in the courts of other countries as well. The relevant legal provisions were the same as in The Hornland and The Breda. The proceedings arose out of a collision on December 29, in which the Blue Hawk collided with some installations owned by the State.

The issue was whether the market price of gold or the SDR solution should be adopted. As in The Breda , the State of the Netherlands, the aggrieved party, based its claim on the market price, arguing that no other method of calculation was possible under Netherlands law.

The State contended that as a consequence of the statute by which the Netherlands had approved the Second Amendment, application of the last par value of the guilder was prohibited. Similarly, the last central rate could not be applied, because it too was defined, although indirectly, in terms of gold. The Court of Appeal reversed the ruling to the extent that it referred to the market price, but the court refrained from deciding what was the correct method of calculation.

The determination in favor of the market price, therefore, was premature.

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The Court of Appeal probably took into account the possibility that by the time the shipowner complied new legal provisions might be in effect and that they might be retroactive. The Supreme Court held that the decision on the method of valuation could not be deferred, and it decided in favor of the SDR solution. The court noted that since the date of the decision in The Hornland the Second Amendment and the statute abrogating the par value of the guilder had become effective.

For the Netherlands, gold had lost all monetary significance, and therefore gold as a unit of account no longer served the objectives of the Brussels Convention. In these circumstances, a gap existed in the relevant provisions. National or international steps would have to be taken to fill the gap. Agreement on a Protocol to the Brussels Convention had been reached on December 21, as an international measure, but it was not yet in operation. The gap remained, but the courts were not entitled to refrain from deciding the problem of the method of valuation.

A standard accepted in international monetary transactions had to be found for determining international uniform limits of liability in accordance with the objectives of the Brussels Convention. The market price of gold did not meet this test, but the SDR did. The SDR had been adopted by members of the Fund. It had been defined formerly in terms of gold. A link had been created between the SDR and gold, because, when the basket method of valuing the SDR had been introduced, the Fund ensured that the value of the SDR in terms of currencies would be the same immediately before and immediately after the transition to the new method of valuation.

The SDR solution would be compatible with the changes that had been made or were being made in international conventions and national laws, including the draft law that was being proposed in the Netherlands. The State advanced an argument in favor of applying the practice that the Netherlands Bank followed in valuing its gold holdings. The central bank values its gold at 70 percent of the lowest average annual price in the preceding three years. In principle, this method of valuation is applied at the end of every three years. The court held that the inadequacy of limits on liability because of the decline in purchasing power was a problem for the negotiators of conventions and amendments of them and for national legislators, but not for the courts.

International action had been taken already in the form of the proposed Convention on Liability for Maritime Claims that had been adopted in London on November 19, The convention, when effective, would establish much higher limits of liability, expressed in SDRs, for the purposes of the Brussels Convention. This dismissal of the argument based on purchasing power made it unnecessary for the court to point out that there is no systematic connection between the market price of gold and the loss of purchasing power of currencies or the SDR.

Although the Supreme Court held, as it had in The Breda , that there was a gap in the law, the court was not content to find a solution that might have no more than temporary efficacy. The court did not deal with the argument that the market price of gold might defeat one of the objectives of conventions that limit liability.

This objective is to reduce litigation and encourage speedier recoveries by aggrieved parties, while at the same time protecting entrepreneurs against unpredictable and possibly ruinous losses. The fluctuating price of gold might increase the difficulty of making this comparison. The inducement to limit liability might be lessened, and entrepreneurs might prefer to litigate issues of liability and the extent of loss.

The SDR solution also produces fluctuations in the amounts of recoveries, but the fluctuations tend to be more moderate than those resulting from the market price of gold. The courts have adopted a variety of solutions for the problem of translating a gold unit of account into a currency of recovery: the last par value of the currency, the last central rate of the currency, the last par value adapted according to an index, the market price of gold, the present French franc, and the SDR.

All solutions other than the market price specifically reject the market price. The Second Amendment has provided a more obvious legal basis for applying the SDR solution, although that solution could be followed even in a case that has to be decided by reference to the state of affairs after July 1, and before April 1, The justification for this fiction was that the efficacy of the Articles demanded a solution in circumstances in which no currency could be said to have a gold value. The main opponent of the SDR solution, although a weakening one, remains the market price solution.

There is no need to rehearse in detail the legal arguments for, and the practical advantages of, the SDR solution. An objection to the market price, however, that does not seem to be sustainable is that the market price could not provide an approach toward the uniformity that is an objective of the conventions in which gold is still the unit of account. An approach to uniformity would be achieved if there were to be agreement among the contracting parties to a convention on the solution of the market price and on the method of selecting and applying a market price.

The unilateral or multilateral actions of countries in favor of the SDR solution show how unlikely it is that general agreement could be reached on a gold unit of account. Uniformity has been one objective in choosing gold as a unit of account; stability has been another.

An argument made in some proceedings in opposition to the SDR is that it fluctuates in value and therefore has no claim to acceptance that is superior to the market price of gold. The fluctuation of the SDR, however, is determined by exchange rates for currencies and in accordance with systematic principles. Moreover, a degree of stability is achieved because the basket method of valuing the SDR mitigates the variability of exchange rates for individual currencies.

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The market price of gold has neither of these characteristics. The case for the SDR differs in at least one respect from the former case for gold as a unit of account. A reason for the choice of gold in the past was that many countries defined the value of their currencies in terms of gold either by usage or under the compulsion of the Articles of Agreement once the Articles had become effective. Countries are free under the Second Amendment to define the value of their currencies in terms of the SDR, and some members do so, but the practice is not widespread.

The case for the SDR as the unit of account does not depend on the argument that gold has lost all monetary significance. Gold has lost much of its former legal status in the international monetary system, but it would go too far to hold that it has no monetary significance whatsoever. Gold continues to be held in the monetary reserves of members. It may be accepted by the Fund from members instead of SDRs or currency in operations or transactions authorized by the Articles, although at a price agreed, on the basis of market prices, for each operation or transaction, 40 and provided that the decision to accept gold is supported by a majority of 85 percent of the total voting power.

A fundamental change has occurred in the circumstances existing at the time of the conclusion of the conventions in which gold is the unit of account. It is not suggested that parties have invoked, or should invoke, the change as a ground for terminating or withdrawing from a convention. These actions could be taken only by contracting parties.

The criteria, according to Article 62 of the Vienna Convention on the Law of Treaties, that would justify action by contracting parties are that the circumstances in which change has occurred were an essential basis of the consent of parties to be bound by the treaty and that the effect of the change is radically to transform the extent of obligations under the treaty. Changes of this character do not authorize courts to hold that treaties are no longer binding, but the changes have influenced courts to find solutions that are not dictated by a defunct monetary system.