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[p93] The Court,
composed as above,
having heard the observations and conclusions of the Parties,
delivers the following judgment: [p94]
[1] The Governments of the French Republic and of the Republic of the United
States of Brazil have submitted to the Permanent Court of International
Justice by means of a Special Agreement concluded at Rio de Janeiro, on
August 27th, 1927, between the aforesaid Governments, duly ratified by both
Parties on February 23rd, 1928, and filed with the Registry of the Court in
accordance with Article 40 of the Statute and Article 35 of the Rules of
Court, by letters dated respectively April 26th and 27th, 1928, signed by
the French and Brazilian Ministers at The Hague, the dispute which has
arisen between the Brazilian Federal Government and the French holders of
various Brazilian Federal loans with regard to the question whether the
service of these loans should be effected on the basis of the gold franc or
of the paper franc.
[2] The letter of the French Minister reached the Registry on April 27th and
that of the Brazilian Minister on April 30th, 1928; as, however, Article II
of the Special Agreement provides that, as soon as that instrument has come
into effect, the question defined in Article I thereof shall be referred to
the Court by notice of the Special Agreement addressed to the Registry by
either Party, the Court was duly made cognizant of the case on April 27th,
1928.
[3] According to the terms of the Special Agreement, the Court is asked to
give judgment on the following question:
“With regard to the Brazilian Federal Government's 5% loan of 1909 (Port of
Pernambuco), 4% loan of 1910, and 4 % loan of 1911, is payment of coupons
which have matured and are not barred by prescription at this date, and
coupons which shall mature, as also repayment of bonds drawn for redemption
but not actually paid which are not barred by prescription on the date of
the Court's decision, or of bonds subsequently to be redeemed, to be
effected by delivery to the French holders, in respect of each franc, of the
value corresponding, in the currency of the place of payment at the rate of
exchange on the day, to one-twentieth of a gold piece weighing 6.45161
grammes of 900/1000 fineness, or is such payment or repayment to be effected
as hitherto in paper francs, that is to say, in the French currency which is
compulsory legal tender?”
[4] Conforming to the proposals jointly made by the Parties in Article III
of the Special Agreement, in accordance with [p95] Article 32 of the Rules
of Court, the President, having regard to that article, as also to Article
48 of the Statute and Article 33 of the Rules, made an Order of May 1st,
1928, fixing as follows the times for the written procedure:
For the presentation of Cases, setting out their submissions:
by the French Government, June 30th, 1928;
by the Brazilian Government, July 31st, 1928.
For the presentation of Counter-Cases:
by the French Government, October 1st, 1928;
by the Brazilian Government, October 31st, 1928.
[5] The Cases and Counter-Cases were duly filed with the Registry by the
dates fixed and were communicated to those concerned as provided in Article
43 of the Statute; in accordance with Article III, last paragraph, of the
Special Agreement, the case thus became ready for hearing as from December
1st, 1928.
[6] In the course of public sittings held on May 25th, 27th, 28th and 29th,
1929, the Court has heard the oral pleadings, reply and rejoinder, presented
by M. de Pimentel Brandao, Principal Adviser to the Brazilian Agent on
behalf of the Government of the United States of Brazil, and by the Agent
above mentioned and Me Albert Montel, Counsel before the Court of Appeal of
Paris, on behalf of the French Government.
[7] In support of their respective statements, the Parties have submitted to
the Court, either as annexes to the documents of the written proceedings, or
during the hearing, the documents a list of which is given in the annex to
this judgment [FN1].
---------------------------------------------------------------------------------------------------------------------
[FN1] See p.154
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[8] Under Article III of the Special Agreement, the Parties were to
formulate their submissions in their respective Cases.
[9] The Case of the Brazilian Government, however, contains no submissions.
On the other hand, the Case of the French Government formulates the
following submissions:
“It is submitted as regards the following loans of the Brazilian Federal
Government: the 5% 1909 (Port of Pernambuco), the 4% 1910 and the 4% 1911,
that the payment of coupons which have matured and are not barred by
prescription at this date and coupons which [p96] shall mature, as also
redemption of bonds drawn but not actually redeemed which are not barred by
prescription on the date of the Court's decision, or of bonds subsequently
to be drawn, must be effected by payment to the French holders, in respect
of each franc, of the value corresponding, in the currency at the place of
payment, at the rate of exchange of the day, to one-twentieth of a gold
piece weighing 6.45161 grammes, 900/1000 fine."
[10] The Counter-Case of the Brazilian Government contains the following
final paragraph which should be reproduced:
" .... the Brazilian Government .... is confident that the Court will be
pleased to give judgment to the effect that as regards the Brazilian
Government's 5% 1909 loan (Port of Pernambuco), 4% 1910 loan and 4% 1911
loan, payment of coupons which have matured and are not barred by
prescription at this date and coupons which shall mature, as also redemption
of bonds drawn but not actually redeemed which are not barred by
prescription on the date of the Court's decision, or of bonds subsequently
to be drawn, is to be effected by payment to the French holders, as
hitherto, in paper francs, that is to say in the French currency which is
compulsory legal tender."
[11] The French Government, for its part, in its Counter-Case repeats
textually the submissions formulated in its Case, but precedes them by an
enumeration of the grounds on which it is based, thus summarizing the French
contention in regard to the various points which are at issue.
[12] Finally, it should be noted that the representative of the Brazilian
Government before the Court concluded his first argument by declaring that
his Government maintained "with regard to the 5 % 1909 (Port of Pernambuco)
loan, the 4 % 1910 loan and the 4 % 1911 loan ....that payment of coupons
which have matured and are not barred by prescription at this date and
coupons which shall mature, as also redemption of bonds drawn but not
actually redeemed which are not barred by prescription at the date of the
Court's decision, or of bonds subsequently to be drawn, should be effected,
as hitherto, in paper francs". And in his oral reply he made a summary of
the contentions of the Brazilian Government.
[13] It should also be noted that the French Government's Agent concluded
his first argument by asking for judgment in [p97] accordance with the
submissions as formulated in his Case.
[14] Finally, the Special Agreement stipulates in Article VII that "in so
far as concerns any matter not provided for" by the Special Agreement, "the
provisions of the Statute of the Permanent Court of International Justice
shall be applied".
THE FACTS.
I.
[15] According to the documents and information laid before the Court by the
Parties, the origin of the controversy submitted to the Court is as follows:
[16] I.—By a decree dated June 8th, 1903, the Government of the Republic of
the United States of Brazil established a "special regime for the carrying
out of works for the improvement of ports". This regime was subsequently
modified by a presidential decree dated February 14th, 1907, to the effect
that "the works were to be carried out under government's control and by
contract", the Government being empowered "for the expenditure necessary in
connection with the carrying out of the improvements in the ports and on the
navigable rivers", "to undertake the requisite operations for obtaining
credit" and "to issue gold or paper bonds". Further, the law of December
31st, 1907, determining the general expenditure of the Republic for the
financial year 1908, authorized the President of the Republic, amongst other
things, "to proceed with the improvement works in the ports .... in
accordance with the decree .... of February 14th, 1907, as also with the
requisite credit operations".
[17] In virtue of this authority, the President appears to have called for
tenders for the carrying out of the improvement works at the port of Recife
(Pernambuco) and, by a decree of July 2nd, 1908, he approved the conditions
of a contract to be concluded between the Government and the contractors
whose tenders had been selected. The contract was actually concluded on
August 4th, 1908; according to its provisions' [p98] the works contracted
for were to be paid for in bonds to bearer of the Brazilian Public Debt
issued to a maximum nominal value "equivalent to 84,528,300 francs". The
issue by the Minister of Finance of a first section of a nominal value of
40,000,000 francs was authorized by a presidential decree of December 3rd,
1908. The prospectus of this section, dated December 30th, 1908, states that
"the loan constitutes a direct debt of the Government of the United States
of Brazil"; it indicates that subscriptions would take place on January
30th, 1909, at Paris and provincial French exchanges. The bonds were
actually signed on July 24th, 1909, by the delegate of the Brazilian
Treasury in London; they will be analysed hereinafter.
[18] II.—Under a Brazilian decree of March 27th, 1907, the Goyaz Railway
obtained a concession for the construction of certain railway lines. Another
decree of September 30th, 1909, revised the plan of these lines as well as
the other clauses of the concession contract. Under this latter decree, a
new contract was concluded, on October 25th, 1909, between the Federal
Government of the United States of Brazil and the Goyaz Railway Company,
according to which the Government was to pay the Company "in bonds bearing
interest at 4% per annum .... the sum which will be determined by the final
plans approved by the Government"; as soon'as authorized to do so by the
Government, the Company might "sell the whole or a part of the bonds
corresponding to the railways....".
[19] In virtue of the foregoing arrangements, the Goyaz Railway Company, on
February 10th, 1910, concluded at Paris with a French bank a contract for
the sale, by the bank, of 100,000,000 francs worth of Brazilian funds,
represented by 200,000 bonds, which were to be made over to the bank by the
Company; "for this purpose the same conditions as those governing the
Federal loan of the Port of Pernambuco of 1909" were "to be applied". And,
on February 28th, 1910, a presidential decree authorized the Minister of
Finance "to issue bonds to an amount of 100 millions of francs .... in
payment for the works which formed the subject of a contract [p99] with the
Goyaz Railway Company". Another decree of the same date provides that the
payments referred to by the decree of September 30th, 1909, were to be
effected by means of bonds the issue of which was also authorized.
[20] The prospectus, which is dated March 2nd, 1910, states that
subscription would take place at Paris and provincial French exchanges on
March 17th, 1910.
[21] The bonds were actually signed in London on March 5th, 1910, by the
duly authorized representative of the Brazilian Government; they will be
analysed hereinafter.
[22] III.—By a contract duly approved by a Brazilian presidential decree
dated March 31st, 1911, the Viacao Geral da Bahia Company obtained a
concession for the construction of a system of railways in the State of
Bahia; the works were to be paid for in "4 % bonds of the Federal Debt",
which the Company was to sell for its own account "immediately after the
conclusion of the negotiations". Another decree dated June 21st, 1911,
authorized the Minister of Finance to issue bonds for 60,000,000 francs, "in
payment for the works provided for in the contract concluded with the Viacao
Geral da Bahia Company"; the bonds were to be "of the nominal value of 500
francs".
[23] The prospectus is dated May 12th, 1911; according to its terms,
subscription was to take place on July 12th, 1911. The place of issue is not
indicated, but it is said that "allotment will take place on Tuesday, July
25th, 1911: at Paris .... in the provinces .... and in Brazil" (Rio de
Janeiro). The bonds were signed in London on September 21st, 1911, by the
duly authorized representative of the Federal Government of the United
States of Brazil; they will be analysed hereinafter.
2.
[24] It appears from the terms of Article I of the Special Agreement that
the Parties agree on the fact that "hitherto" the payment of matured coupons
and the redemption of drawn bonds of the three loans at issue have been
effected "in paper francs, that is to say, in the French currency which is
compulsory tender". And the documents and. information [p100] laid before
the Court confirm that this has indeed been the case, except for the period
from August 1st, 1914, to July 31st, 1917, inclusive, during which the
interest on the loans was in effect paid by means of "funding bonds" (bons
de consolidation) issued, with the authorization of the Brazilian
Government, by a banking house of London; these funding bonds were bearer
bonds redeemable in ten years, the interest on which was payable in pounds
sterling at London and certain continental exchanges at the exchange rate of
the day on London. This incident does not seem however to have any bearing
on the present case.
[25] It is also common ground that the yield of the loans has always been
credited to the borrower, or to the companies to which it had ceded its
right, in French francs at their current value.
[26] Finally, it is admitted by both sides that the fact that after the
increasing depreciation of the French franc, the service of the loan was
effected in that currency on the basis of its current value, ultimately led
to protests and the taking of steps by the bondholders with a view to
inducing the French Government to intervene; according to the Brazilian
Government, however, this attitude on the part of the bondholders dates only
from 1924 and is explained by speculative aims, while, according to the
French Government, the discontent of the bondholders and its earliest
manifestations date from an earlier period.
[27] However that may be, on September 1st, 1924, the French Ambassador at
Rio de Janeiro intervened, in the name of his Government, with the Federal
Government "on behalf of the bondholders of the three Brazilian loans at
issue, who claimed that payment of the interest upon and the redemption of
the capital of these loans should be effected on a gold basis"; the French
Government seems thus to have identified itself with this claim, with which
the Government of the United States of Brazil did not however feel called
upon to comply. Diplomatic conversations seem to have then taken place,
which, however, did not succeed in disposing of the controversy.
[28] In these conditions, the Special Agreement of August 27th, 1927, was
concluded, which, after stating in its preamble "that [p101] a dispute has
arisen between the Brazilian Federal Government and French holders of
various Brazilian federal loans concerning the question whether the service
of these loans should be on a gold or paper franc basis"—a statement to
which the Court will revert hereinafter—requests the Court to give judgment
on the question formulated in the first article, which has been quoted
above, of this instrument. .
The Court's Jurisdiction.
[29] The terms in which the Franco-Brazilian Special Agreement formulates
the question submitted to the Court, call for observations similar to those
made under the heading "The jurisdiction of the Court" in Judgment No. 14
relating to the case concerning certain Serbian loans and given this day:
the Court therefore refers to those observations.
THE LAW.
[30] The bonds.—The terms of the bonds of the various issues are as follows
:
Loan of 1909.
Government of the United States of Brazil.
5% Loan, 1909; authorized amount 40,000,000 francs.
Port of Pernambuco.
Frs. 500.—
Obligation.
Attendu qu'en vertu des
dispositions de l'article 22, n° XII, de la loi n° 1841 du 31
décembre 1907, et en exécution des clauses 55 et 59 du contrat du 4
août 1908, faisant suite au décret n° 7003 du 2 juillet 1908, le
Gouvernement des Etats-Unis
du Brésil est autorisé à émettre des obligations pour un montant
nominal maximum de 84.528.300 francs, dont le produit est destiné au
paiement des travaux du port de Recife, je soussigné, José Antonio
de Azevedo Castro, délégué du Trésor du Brésil à Londres, dûment
autorisé, declare [p102]
par les présentes au nom et pour le compte dudit Gouvernement que le
porteur de cette obligation a droit à la somme de 500 francs faisant
partie dudit emprunt soumis aux stipulations ci-dessous:
1. Le Gouvernement émet,
dès à présent, des obligations pour une valeur nominale de
40.000.000 de francs.
2. L'emprunt est
désigné sous le nom «Emprunt du Gouvernement des États-Unis
du Brésil 1909 — Port de Pernambuco — Intérêt annuel 5%», et jouit,
tant à l'égard du paiement des intérêts que de l'amortissement, de
la garantie générale du Gouvernement et notamment de celle du
produit de l'impôt de 2% or, sur la valeur officielle des
importations étrangères dans l'État de Pernambuco et de tous les
revenus nets du port et des docks après leur construction.
3. Les titres sont
payables au porteur et sont de la valeur de 500 francs chacun
portant intérêt à 5 % l'an à partir du 1er février 1909 à l'échéance
des 1er février et Ier août de chaque année, le premier paiement de
12 fr. 50 devant avoir lieu le 1er août 1909. Les intérêts sont
représentés par des coupons attachés aux titres et sont payables à
Paris en or à la Banque française pour le Commerce et l'Industrie et
au Crédit mobilier français et sur les places de Rio-de-Janeiro,
Londres, Bruxelles, Amsterdam et Hambourg au cours du change à vue
sur Paris.
4. Le remboursement des
obligations s'effectuera au moyen d'un
[p103] fonds cumulatif de ½
% sur le montant de la valeur des titres, et commencera en 1915.
5. Le remboursement
s'effectuera quand les titres seront au pair ou au-dessus
du pair, par tirages au sort qui auront lieu en présence d'un
notaire public pendant les mois de janvier et juillet de chaque
année, et dans le cas contraire par rachats en bourse. Tout titre
sorti au remboursement sera remboursé avec les intérêts échus le 1er
février ou le 1er août qui suivra immédiatement la date du tirage.
Les titres remboursés seront immédiatement annulés.
6. Le Gouvernement
pourra, dans le but de rembourser les titres en circulation,
augmenter à toute époque le fonds d'amortissement, ou rembourser des
titres par d'autres moyens, mais, dans ce dernier cas, en donnant un
préavis de six mois.
7. Les obligations, en
ce qui concerne le capital et les intérêts, sont exemptes de tous
impôts brésiliens présents et futurs. Elles porteront la signature
du délégué du Trésor à Londres.
Daté le 24 juillet
1909.
(Signé) José Antonio de
Azevedo Castro.
Nous déclarons que la
signature ci-dessus est
celle du représentant du Gouvernement des Etats-Unis
du Brésil.
|
Frs. 500.—
Bond.
Whereas by virtue of
the provisions of Article 22, No. XII, of the law No. 1841 of the
31st December 1907, and in execution of Clauses 55 and 59
of the contract of the 4th August 1908, following on Decree No. 7003
of the 2nd July 1908, the Government of the United States of Brazil
is authorized to issue bonds to a maximum nominal amount of frs.
84.528.300, the proceeds whereof are intended for the payment of the
works of the port of Recife, I the undersigned, Jose Antonio de
Azevedo Castro, delegate of [p102]
the Brazilian Treasury in London, duly authorized, do declare by
these presents in the name and for account of the said Government
that the bearer of this bond is entitled to the sum of frs. 500
forming part of the said loan subject to the provisions hereinafter
following:
1. The Government
issues immediately bonds to the nominal value of frs. 40.000.000.
2. The loan is
described under the name of "Government of the United States of
Brazil Loan 1909 — Port of Pernambuco—Annual Interest 5 per cent",
and enjoys both as regards the payment of interest and redemption
the general guarantee of the Government, and particular that of the
proceeds of the 2 per cent Gold Tax upon the official value of the
foreign imports into the State of Pernambuco and of all the net
revenue from the port and the docks after the construction thereof.
3. The bonds are
payable to bearer and of the value of frs. 500, each bearing
interest at 5 per cent per annum as from the 1st February 1909,
payable on the 1st February and 1st August in each year, the first
payment of frs. 12.50 to take place on the 1st August 1909. The
interest is represented by coupons attached to the bonds and is
payable in Paris in gold by the Banque francaise pour le Commerce et
l'lndustrie and the Credit mobilier francais, and on the markets of
Rio de Janeiro, London, Brussels, Amsterdam and Hamburg at the sight
exchange of the day on Paris.
4. The redemption of
the bonds shall take place by means of an
[p103] Accumulative Fund of
½ percent, upon the amount of the nominal value of the bonds, and
shall commence in 1915.
5.The redemption shall
be effected, when the bonds are at par or above par, by drawings by
lot, which shall take place in the presence of a notary public
during the months of January and July in each year, and in the
contrary event by purchases in the Market. Any bond drawn for
payment shall be paid off with the accrued interest on the 1st
February or 1st August immediately following the date of the
drawing. Bonds paid off shall be immediately cancelled.
6. The Government may
for the purpose of paying off bonds in circulation increase the
Sinking Fund at any time or pay off bonds by other means, but in
such latter case giving six months' previous notice thereof.
7. The bonds are as
regards principal and interest free from any Brazilian taxes present
or future. They shall bear the signature of the delegate of the
Treasury in London.
Dated this 24th day of
July 1909
(Signed) Jose Antonio
de Azevedo Castro.
We declare that the
above signature is that of the representative of the Government of
the United States of Brazil.
|
[31] The coupons of this issue are in the following form:
"Government of the United States of Brazil
5% Loan 1909 Due on....
Port of Pernambuco
No. ….
For frs. 12.50 six months' interest
on frs. 500.—" [p104]
Loan of 1910.
Francs |
Francs |
500.— |
N° .... |
N° .... |
500.— |
Government of the United States of Brazil.
4% Loan 1910 for an authorized amount of frs. 100,000,000.
Obligation.
Le Gouvernement de la
République des États-Unis du
Brésil ayant, en vertudel'autorisation qui lui a été accordée par la
loi n° 2221 du 30 décembre 1909, ainsi que par les décrets
présidentiels n°s 7877 et 7878 du 28 février 1910, les pouvoirs
nécessaires pour contracter un emprunt qui sera appelé «Emprunt du
Gouvernement des États-Unis
du Brésil 4 %» pour la construction de chemins de fer fédéraux, pour
un capital nominal de 100.000.000 de francs, le soussigné José
Antonio de Azevedo Castro, en qualité de représentant dudit
Gouvernement et dûment autorisé, déclare solennellement par ces
présentes, au nom et pour le compte dudit Gouvernement, que le
porteur de la présente obligation a droit à la somme de 500 francs-or
faisant partie dudit emprunt, soumis aux stipulations ci-dessous,
savoir:
Premièrement. —
L'emprunt sera représenté par des obligations payables au porteur,
portant intérêts au taux de 4% l'an, émises pour un montant de
100.000.000 de francs de capital nominal.
Deuxièmement. — Les
intérêts sur les obligations de la présente émission, représentés
par des coupons y attachés, seront payés par semestre aux porteurs
de ces obligations le 1er mars et le 1er septembre
[p105] de chaque année
jusqu'au complet remboursement de la totalité des obligations par le
Gouvernement. Le paiement des intérêts aura lieu à Rio-de-Janeiro;
à Paris dans les bureaux de la Société générale pour favoriser le
développement du commerce et de l'industrie en France, de la Banque
de Paris et des Pays-Bas, et
au Crédit mobilier français, à raison de 10 francs-or
par coupon; à Londres, à l'agence de ladite Société générale, au
change du jour sur Paris. Le premier paiement de 10 francs aura lieu
le Ier septembre 1910.
Troisièmement. — Le
remboursement des obligations se fera au moyen d'un fonds
d'amortissement cumulatif de ½ % par an; le premier remboursement
aura lieu le ier septembre 1912; il s'effectuera par voie d'achat
sur le marché quand les obligations seront au-dessous
du pair, et, quand elles seront au pair ou au-dessus
du pair, au moyen de tirages au sort qui auront lieu pendant les
mois de janvier et de juin de chaque année. Le tirage au sort des
obligations aura lieu en présence d'un notaire public, et les
résultats seront immédiatement publiés par voie d'annonce. Toutes
les obligations sorties seront remboursées à 500 francs-or
avec les intérêts dus le Ier mars ou le 1er septembre qui suivra le
tirage.
Quatrièmement. — La
somme principale représentée par les obligations sorties sera payée
contre présentation de ces obligations munies de tous les coupons
non échus à Rio-de-Janeiro,
à Paris et à Londres.
Cinquièmement. — Les
intérêts sur les obligations cesseront de
[p106] courir à partir de la
date fixée pour leur remboursement, et les obligations remboursées
seront immédiatement annulées.
Sixièmement. — Les
obligations émises conformément aux lois et décrets susmentionnés
auront la garantie absolue du Gouvernement à l'égard du
remboursement du capital et au paiement des intérêts respectifs et à
l'égard du service des fonds nécessaires pour l'amortissement de
l'emprunt.
Septièmement. — Les
obligations, tant en ce qui concerne le capital que les intérêts,
seront affranchies de tous impôts brésiliens présents ou futurs,
soit ordinaires ou extraordinaires.
Huitièmement. — Le
Gouvernement pourra, dans le but de rembourser les titres en
circulation, augmenter à toute époque le fonds d'amortissement, ou
rembourser des titres par d'autres moyens, mais, dans ce dernier cas,
en donnant un préavis de six mois.
Londres, le 5 mars
1910.
(Signe) José Antonio de
Azevedo Castro.
Nous déclarons que la
signature apposée ci-dessus
est celle du représentant du Gouvernement des États-Unis
du Brésil. |
Bond.
The Government of the
Republic of the United States of Brazil, having by virtue of the
authority given by Law No. 2221 of the 30th of December 1909, and by
the Presidential Decrees Nos. 7877 and 7878 of the 28th of February
1910, the necessary powers to effect a loan to be called "United
States of Brazil Government 4 per cent Loan" for the construction of
federal railways for the nominal capital of frs. 100.000.000, the
undersigned Jose Antonio de Azevedo Castro, as representative of the
Government and duly authorized, solemnly declares by these presents,
in the name and on behalf of the said Government, that the bearer of
the present has the right to the sum of frs. 500 gold, part of the
said loan, subject to the following clauses, namely:
First.—The loan shall
be represented by bonds payable to bearer bearing interest at 4 per
cent per annum issued for the sum of frs. 100.000.000 nominal
capital.
Second.—The interest on
the bonds of this issue, represented by coupons attached to the
same, shall be paid half-yearly
to the bearers of the same on the 1st day of March and the 1st day
of September [p105] in every
year, until the whole of the bonds shall have been paid off by the
Government. The payment of interest shall take place in Rio de
Janeiro, in Paris at the offices of the Societe generale pour
favoriser le developpement du commerce et de I'indusirie en France,
at the Banque de Paris et des Pays-Bas,
and at the Credit mobilier francais, at the rate of 10 frs. gold
each coupon; in London at the Agency of the said Societe generale
and at the exchange of the day on Paris, the first payment of 10
francs to take place on the 1st day of September, 1910.
Third.—The redemption
of bonds shall be made by means of an Accumulative Redemption Fund
of ½ per cent per annum, the first redemption to take place on the
1st day of September, 1912; it shall be effected by purchases on the
market when the bonds are below par, and when at or above par by
means of drawings which take shall place in the months of January
and June in every year. The bonds shall be drawn in the presence of
a notary public, and the result shall be immediately published by
advertisement. All bonds drawn shall be paid at 500 francs gold,
with the interest due on the 1st day of March or the 1st day of
September following the drawing.
Fourth.—The capital of
the bonds drawn shall be paid in exchange for the bonds with all
coupons not due in Rio de Janeiro, in Paris and in London.
Fifth.—The bonds shall
cease to bear interest from the date on
[p106] which they are
redeemable, and the bonds redeemed shall be immediately cancelled.
Sixth.—The bonds issued
in conformity with the laws and decrees above mentioned shall have
the absolute guarantee of the Government as regards the payment of
the capital and of the respective interest and as regards the
service of the necessary funds for the redemption of the loan.
Seventh.—The bonds, as
regards the capital and interest, shall be exempt from all present
or future Brazilian taxes, whether ordinary or extraordinary.
Eighth.—The Government
may for the purpose of paying off bonds in circulation increase the
Sinking Fund at any time or pay off bonds by other means, but in
such latter case giving six months' previous notice thereof.
London, the 5th of
March, 1910.
(Signed) Jose Antonio
de Azevedo Castro.
We declare the above to
be the signature of the representative of the Government of the
United States of Brazil.
|
[32] The following is the form of the coupon :
"Government of the United States of Brazil.
4% Loan for construction of federal railways.
No. .... Due on …
For frs. 10.00,
being six months' interest on frs. 500.—" [p107]
Loan of 1911.
Federal Government of the United States of Brazil.
4% Gold Loan 1911.
Authorized amount frs. 60,000,000.
No. ....
Obligation.
Le Gouvernement de la
République des États-Unis du
Brésil ayant, en vertudel'autorisation qui lui a été accordée par la
loi n° 2221 du 30 décembre 1909, ainsi que par les décrets
présidentiels n°s 7877 et 7878 du 28 février 1910, les pouvoirs
nécessaires pour contracter un emprunt qui sera appelé «Emprunt du
Gouvernement des États-Unis
du Brésil 4 %» pour la construction de chemins de fer fédéraux, pour
un capital nominal de 100.000.000 de francs, le soussigné José
Antonio de Azevedo Castro, en qualité de représentant dudit
Gouvernement et dûment autorisé, déclare solennellement par ces
présentes, au nom et pour le compte dudit Gouvernement, que le
porteur de la présente obligation a droit à la somme de 500 francs-or
faisant partie dudit emprunt, soumis aux stipulations ci-dessous,
savoir:
Premièrement. —
L'emprunt sera représenté par des obligations payables au porteur,
portant intérêts au taux de 4% l'an, émises pour un montant de
100.000.000 de francs de capital nominal.
Deuxièmement. — Les
intérêts sur les obligations de la présente émission, représentés
par des coupons y attachés, seront payés par semestre aux porteurs
de ces obligations le 1er mars et le 1er septembre
[p105] de chaque année
jusqu'au complet remboursement de la totalité des obligations par le
Gouvernement. Le paiement des intérêts aura lieu à Rio-de-Janeiro;
à Paris dans les bureaux de la Société générale pour favoriser le
développement du commerce et de l'industrie en France, de la Banque
de Paris et des Pays-Bas, et
au Crédit mobilier français, à raison de 10 francs-or
par coupon; à Londres, à l'agence de ladite Société générale, au
change du jour sur Paris. Le premier paiement de 10 francs aura lieu
le Ier septembre 1910.
Troisièmement. — Le
remboursement des obligations se fera au moyen d'un fonds
d'amortissement cumulatif de ½ % par an; le premier remboursement
aura lieu le ier septembre 1912; il s'effectuera par voie d'achat
sur le marché quand les obligations seront au-dessous
du pair, et, quand elles seront au pair ou au-dessus
du pair, au moyen de tirages au sort qui auront lieu pendant les
mois de janvier et de juin de chaque année. Le tirage au sort des
obligations aura lieu en présence d'un notaire public, et les
résultats seront immédiatement publiés par voie d'annonce. Toutes
les obligations sorties seront remboursées à 500 francs-or
avec les intérêts dus le Ier mars ou le 1er septembre qui suivra le
tirage.
Quatrièmement. — La
somme principale représentée par les obligations sorties sera payée
contre présentation de ces obligations munies de tous les coupons
non échus à Rio-de-Janeiro,
à Paris et à Londres.
Cinquièmement. — Les
intérêts sur les obligations cesseront de
[p106] courir à partir de la
date fixée pour leur remboursement, et les obligations remboursées
seront immédiatement annulées.
Sixièmement. — Les
obligations émises conformément aux lois et décrets susmentionnés
auront la garantie absolue du Gouvernement à l'égard du
remboursement du capital et au paiement des intérêts respectifs et à
l'égard du service des fonds nécessaires pour l'amortissement de
l'emprunt.
Septièmement. — Les
obligations, tant en ce qui concerne le capital que les intérêts,
seront affranchies de tous impôts brésiliens présents ou futurs,
soit ordinaires ou extraordinaires.
Huitièmement. — Le
Gouvernement pourra, dans le but de rembourser les titres en
circulation, augmenter à toute époque le fonds d'amortissement, ou
rembourser des titres par d'autres moyens, mais, dans ce dernier cas,
en donnant un préavis de six mois.
Londres, le 5 mars
1910.
(Signe) José Antonio de
Azevedo Castro.
Nous déclarons que la
signature apposée ci-dessus
est celle du représentant du Gouvernement des États-Unis
du Brésil. |
Bond.
The Government of the
Republic of the United States of Brazil, having by virtue of the
authority given by Law No. 2221 of the 30th of December 1909, and by
the Presidential Decrees Nos. 7877 and 7878 of the 28th of February
1910, the necessary powers to effect a loan to be called "United
States of Brazil Government 4 per cent Loan" for the construction of
federal railways for the nominal capital of frs. 100.000.000, the
undersigned Jose Antonio de Azevedo Castro, as representative of the
Government and duly authorized, solemnly declares by these presents,
in the name and on behalf of the said Government, that the bearer of
the present has the right to the sum of frs. 500 gold, part of the
said loan, subject to the following clauses, namely:
First.—The loan shall
be represented by bonds payable to bearer bearing interest at 4 per
cent per annum issued for the sum of frs. 100.000.000 nominal
capital.
Second.—The interest on
the bonds of this issue, represented by coupons attached to the
same, shall be paid half-yearly
to the bearers of the same on the 1st day of March and the 1st day
of September [p105] in every
year, until the whole of the bonds shall have been paid off by the
Government. The payment of interest shall take place in Rio de
Janeiro, in Paris at the offices of the Societe generale pour
favoriser le developpement du commerce et de I'indusirie en France,
at the Banque de Paris et des Pays-Bas,
and at the Credit mobilier francais, at the rate of 10 frs. gold
each coupon; in London at the Agency of the said Societe generale
and at the exchange of the day on Paris, the first payment of 10
francs to take place on the 1st day of September, 1910.
Third.—The redemption
of bonds shall be made by means of an Accumulative Redemption Fund
of ½ per cent per annum, the first redemption to take place on the
1st day of September, 1912; it shall be effected by purchases on the
market when the bonds are below par, and when at or above par by
means of drawings which take shall place in the months of January
and June in every year. The bonds shall be drawn in the presence of
a notary public, and the result shall be immediately published by
advertisement. All bonds drawn shall be paid at 500 francs gold,
with the interest due on the 1st day of March or the 1st day of
September following the drawing.
Fourth.—The capital of
the bonds drawn shall be paid in exchange for the bonds with all
coupons not due in Rio de Janeiro, in Paris and in London.
Fifth.—The bonds shall
cease to bear interest from the date on
[p106] which they are
redeemable, and the bonds redeemed shall be immediately cancelled.
Sixth.—The bonds issued
in conformity with the laws and decrees above mentioned shall have
the absolute guarantee of the Government as regards the payment of
the capital and of the respective interest and as regards the
service of the necessary funds for the redemption of the loan.
Seventh.—The bonds, as
regards the capital and interest, shall be exempt from all present
or future Brazilian taxes, whether ordinary or extraordinary.
Eighth.—The Government
may for the purpose of paying off bonds in circulation increase the
Sinking Fund at any time or pay off bonds by other means, but in
such latter case giving six months' previous notice thereof.
London, the 5th of
March, 1910.
(Signed) Jose Antonio
de Azevedo Castro.
We declare the above to
be the signature of the representative of the Government of the
United States of Brazil.
|
[33] The following is the form of the coupon :
"Federal Government
of the United States of Brazil.
4 % Gold Loan 1911.
Bond No. ….
Coupon for 10 francs payable ….
Interpretation of the provisions relating to payment. — The bonds of the
issue of 1909 contain an explicit promise for the payment of interest in
gold. They provide: "The interest: is represented by coupons attached to the
bonds and [p110] is payable in Paris in gold by the Banque francaise pour le
Commerce et l’Industrie and the Credit mobilier francais, and on the markets
of Rio de Janeiro, London, Brussels, Amsterdam and Hamburg at the sight
exchange of the day on Paris."
[34] The coupons do not set forth this provision for payment in gold, but
this silence of the coupon cannot be deemed to detract from the express
promise of the bond. As regards bearer bonds, sometimes the coupons contain
all that is necessary to make a complete engagement of independent
negotiability; sometimes they are mere tokens which do not purport to set
forth the entire obligation for the payment of interest. Thus, in the
present instance nothing is said in the coupons as to the place of payment,
which is an integral part of the promise as contained in the bond.
[35] The provision for payment of interest in gold cannot be construed as
relating solely to a method of payment (modalite de paiement), that is, as
calling simply for a payment in gold specie of the number of francs promised
rather than for a payment in gold value. In the loan of 1909, the interest
on each bond semi-annually is frs. 12.50, and the right attached to each
bond separately. But it was physically impossible to pay frs. 12.50 in gold
specie, as there were no gold coins of that denomination. The reference to
payment of interest in gold must be taken to be a reference to gold value
and not to a payment in gold coin.
[36] The provision for the payment of interest "on the markets of Rio de
Janeiro, London, Brussels, Amsterdam and Hamburg at the sight exchange of
the day on Paris", does not affect the question, as this merely calls for
the payment, at the sight exchange of the day, of the equivalent of the
amount payable in gold value according to the terms of the bonds.
[37] The bonds of 1909, however, contain no express provision for the
payment of principal in gold. They provide "that the bearer of this bond is
entitled to the sum of 500 francs forming part of the said loan", and the
loan is described as one for "quarante millions de francs capital nominal".
The recitals of the bonds refer to "Article 22, No. XII, of the [p111] law
No. 1841 of the 31st December, 1907". This article authorizes the President
of the Republic to make the appropriate financial arrangements for the
necessary works for the improvement of ports in conformity with the decree
No. 6368 of February 14th, 1907. The latter decree authorizes the Government
to issue "des titres or ou papier", that is to say, bonds payable in gold or
paper. The recitals of the bonds also refer to the "execution of clauses 55
and 59 of the contract of the 4th August, 1908, following on decree No. 7003
of the 2nd July, 1908". This contract was between the Brazilian Government
and certain persons for the construction of works, for the payment of which
the bond issue was to provide, and the decree that is mentioned approved the
contract. But neither of the articles of the contract which the bonds recite
(Nos. 55 and 59) make any mention of gold in describing the bonds to be
issued.
[38] On the other hand, Article 56 of the contract which is also approved by
the decree No. 7003 of July 2nd, 1908, to which the bonds refer, is as
follows:
"Article 56.—The bonds referred to in the preceding article are payable to
bearer and may be worded in French or English; they shall contain the
following declaration:
Loan of the Government of the United States of Brazil 1908.
Port of Pernambuco, interest 5% per annum.
They shall have as guarantee for payment in gold both of the principal, as
regards the additional sum necessary for redemption, and of the interest,
besides the general guarantee, a special guarantee out of the proceeds of
the 2% gold tax upon the official value of the foreign imports into the
State of Pernambuco and of all the net revenue from the port and the docks
after the construction thereof. These bonds shall, as regards principal and
interest, be exempt from all Brazilian taxes present or future."
[39] The bonds themselves contain a reference to the gold tax thus
described. It is evident that the proceeds of this tax were represented as a
guarantee for the redemption of the "bonds, that is, for the payment of the
principal, as well as for the payment of interest, but the security for
payment could not be regarded as determining the amount agreed to be [p112]
paid. The provision of Article 56 of the contract, however, refers to the
gold tax as one "for payment in gold, both of the principal, as regards the
additional sum necessary for redemption, and of the interest". While the
bonds refer to the decree approving the contract containing this provision,
they do not, as has been shown, refer to this provision itself, and it may
be said that the contract for the building of the works is not a part of the
contract between the Brazilian Government and the bondholders, and that only
those parts of the contract specifically mentioned in the bonds can be taken
into consideration in construing the latter.
[40] In this situation, reference is made to the prospectus inviting
subscriptions for the bonds of the issue of 1909. This prospectus contains
the following:
"Prospectus of the 1909 loan.
Federal Government of the United States of Brazil.
5% gold loan 1908 for the improvement of the Port of Pernambuco.
Issue of 80,000 bonds of 500 gold francs 5%, or 40,000,000 francs, in bonds
to bearer redeemable at par in 50 years, beginning in 1914.
Net annual interest: 25 francs per half year on February 1st and August 1st
of each year.
This loan is a direct debt of the Government of the United States of Brazil.
It is authorized by laws Nos. 1837 and 1841 of December 31st, 1907, and
decrees Nos. 6368 of February 14th, 1907, and 7207 of December 3rd, 1908."
[41] The law No. 1837 of December 31st, 1907, sets forth the amount of the
general receipts of the Brazilian Government in gold and in paper, and
provides for a gold tax of 2%, as above described. In addition to the law
No. 1841 of December 31st, 1907, and the decree No. 6368 of February 14th,
1907, already mentioned, the prospectus refers to the decree No. 7207 of
December 3rd, 1908, which provides as follows:
"The President of the Republic of Brazil, in virtue of the authorization
contained in the law No. 1841 of December 31st, 1907, Article 22, No. XII,
decides to authorize the Minister of Finance to issue 80,000 bonds of [p113]
the Public Debt of a nominal value of 500 francs each, carrying interest at
the rate of 5 % gold per annum, redeemable in 50 years, which bonds shall be
delivered to the contractors for the improvement works on the Port of Recife,
Edmond Bartissol and Demetrio Nunes Ribeiro, in exchange for the deposit
with the delegate of the Treasury in London or with a banking house to be
appointed by the Government at its own free and unfettered choice, of a sum
of francs 38,100,000 destined for the payment of the said works under the
terms of the contract entered into on August 4th last."
[42] Thus we have the prospectus of this loan describing it as "emprunt 5%
or" and the issue as an "emission de 80.000 obligations de 500 francs 5 %
or, soit 40 millions de francs, en titres au porteur remboursables au pair
en cinquante annees a partir de 1914", and referring to the issue as
intended to meet the payment for public works as provided in the contract of
August 4th, 1908. What weight shall be given to this prospectus?
[43] It is to be remembered that, in the case of government loans, the
Government may make a contract with bankers who take the entire issue of
bonds and place them on the market, and that in such a case, the bankers may
issue the prospectus and the Government may not be a Party to it. On the
other hand, the Government may itself issue, or become responsible for, the
prospectus and thus invite subscriptions for the bonds it proposes to issue.
In the latter case, the prospectus may be regarded as a continuing offer, to
the terms of which each bondholder in the future is entitled to refer in
case ambiguity is found in the statements of the bonds. For it is not to be
supposed^ that the original subscribers taking the bonds pursuant to the
invitation of the prospectus are to be in a more favoured position with
respect to their rights under the bonds than those who later obtain the
bonds by transfer. Where the Government itself becomes responsible for the
prospectus and invites subscriptions for the bonds, it is reasonable to
treat the prospectus as a part of the transaction with the bondholders, at
least so far as may be necessary to clarify the meaning of the bonds. [p114]
[44] In this instance, the prospectus purports to speak for the Federal
Brazilian Government. The prospectus is so entitled, but it is not necessary
to rely on inferences, for the prospectus bears the signature of approval of
the delegate of the Brazilian Treasury, who represented the Brazilian
Government in the transaction and in that capacity signed the bonds
themselves.
[45] Obviously, it would be an anomaly to have the interest of bonds payable
in gold while the principal was not so payable, and, if the prospectus is
read in connection with the bonds, it appears that the loan was represented
by the Brazilian Government and subscribed for as a gold loan. If it is said
that the expressions "emprunt 5 % or" and "emission de 80.000 obligations de
500 francs 5 % or" are to be taken as meaning that it is only the five per
cent that is to be gold, the answer is that "or" qualifies not only "5 %"
but "emprunt", and also "emission de 80.000 obligations de 500 francs". That
is to say, it is the obligations themselves that are to have gold value.
[46] Moreover, there is a familiar rule for the construction of instruments
that, where they are found to be ambiguous, they should be taken contra
proferentem. In this case, as the Brazilian Government by its representative
assumed responsibility for the prospectus, which this representative, who
had signed the bonds, had "seen and approved", it would seem to be proper to
construe them in case of doubt contra proferentem and to ascribe to them the
meaning which they would naturally carry to those taking the bonds under the
prospectus. It can hardly be doubted that those taking the bonds on the
faith of the prospectus would understand that they were receiving gold
bonds, which would mean bonds payable in gold value both as to principal and
interest. And while the pledge of the 2 % gold tax would not in itself
determine what was to be paid, the fact that this security was provided not
only for the payment of interest but for the principal of the bonds
redeemed, taken with the description of the loan in the prospectus, confirms
the same view. [p115]
[47] For these reasons, it is concluded that the bonds of the issue of 1909
are to be construed as providing for the payment of principal and interest
in gold.
[48] The bonds of the issue of 1910 recite that "the bearer of the present
obligation has the right to the sum of 500 gold francs, part of the said
loan". There is also an explicit promise for the payment of the principal of
the bonds in gold. In the paragraph relating to their redemption, it is
provided: "All bonds drawn shall be paid at 500 francs gold."
[49] There is an express stipulation in the bonds for the payment of
interest in gold, and while the coupon, as in the case of that of the loan
of 1909, does not mention gold, it also omits the places of payment, and is
not to be taken as a complete, independent obligation. It is simply a token
and cannot be regarded as derogating from the express engagement of the
bond.
[50] In view of the terms of the bonds, it is not deemed to be necessary to
refer to the prospectus, or to the decrees for the issue, but it may be
observed that these documents do not disclose provisions which could be
regarded as contradicting the bonds. The obligation then in this case,
according to its terms, is for the payment of principal and interest in gold
francs.
[51] The recital of the bonds of the issue of 1911 is similar to that of the
bonds of 1910, stating that "the bearer of the present obligation has the
right to the sum of 500 gold francs". There are also explicit provisions in
the bonds for the payment in gold francs of the principal of the bonds drawn
for redemption, and for the payment of the interest in gold.
[52] In view of these stipulations, it is not necessary to recapitulate the
documents which preceded the issue of this loan.
[53] Significance of the gold clauses.—One argument against the efficiacy of
the provision for gold payments is that it is simply a clause of "style", or
a routine form of expression. [p116] This, in substance, would eliminate the
word "gold" from the bonds. The contract of the Parties cannot be treated in
such a manner. When the Brazilian Government promised to pay "gold francs",
the reference to a well-known standard of value cannot be considered as
inserted merely for literary effect, or as a routine expression without
significance. The Court is called upon to construe the promise, not to
ignore it.
[54] On similar grounds, the argument cannot be accepted that "according to
the legislative financial system of Brazil", a reference to obligations for
gold payments simply signifies foreign loans in pounds sterling, French
francs, or American dollars. The Brazilian decree of February 14th, 1907,
had itself made the distinction, not between the Brazilian currency and the
currency of other countries, but between "gold" and "paper" obligations. The
Court has not been referred to any adequate authorities in support of the
argument of the Brazilian Government, but, apart from this, it cannot be
admitted that when a Government places a foreign loan with a promise of
payment having reference to a well-known standard of value, that reference
is to be disregarded. The Government did not issue bonds simply for "French
francs" but for "gold francs", and if the expression "gold francs" did in
fact appropriately denote a standard of value, that standard must be deemed
to be the subject of the reference. Similarly, as the Court is not at
liberty to disregard the promise of "gold", the question whether gold
specie, that is, gold coin, or gold value was intended, must be answered in
the same manner as in the case concerning certain Serbian loans. It has been
noted that in the case of the loan of 1909 the promise was the payment of
frs. 12.50 semi-annually in gold, obviously meaning gold value and not gold
coin as there were no gold coins for that amount. This must also be deemed
to be the significance of the explicit promise of gold francs in the payment
of the principal and interest of the later loans.
[55] As of what time is the standard of value to be taken ? Manifestly as of
the time of the bond issues. The engagement [p117] would be meaningless if
it referred to an unknown standard of a future day. The Parties, if they
referred to a gold standard of value, must be taken to have referred to an
existing standard.
[56] The argument that the depreciation in French francs was unforseeable
and that the sole object was to safeguard against the depreciation of
Brazilian currency, likewise appears to be untenable. In this connection, it
should be observed that in the present case there was no reason for the
borrower not to offer payment in gold; for such payment, while constituting
a security for the lender, involved no risk for the borrower. The
devalorisation of the French franc could not in fact increase the
obligations of the latter: the gold clause merely prevents the borrower from
availing itself of a possibility of discharge of the debt in depreciated
currency.
[57] The argument of the Brazilian Government assumes that the purpose of
the gold clauses was to protect against depreciation of some currency. But,
if this be so, the protection was sought not simply by agreeing for payment
in French francs, but in gold francs. As this standard of value was
stipulated, it should be enforced according to its terms and not be limited
as referring only to a single object not specified. It was depreciation in
value that was the object of the safeguard, not in this or that particular
currency, and it was evidently for this reason that the reference was made
to the well-known stability of gold value.
[58] What was the standard of gold value thus envisaged? The promise was for
payment of francs in gold, or gold francs, and wherever the payment was
actually made, the amount to be paid had to be computed accordingly. In the
bonds of 1909, the interest was payable in Paris, or at the sight exchange
on Paris. No place was fixed for the payment of principal, but assuming that
this was to be paid in gold, the payment was to be of gold francs. The loans
of 1910 and 1911 promised payment of principal and interest in gold francs.
The interest was to be paid in each case at Rio de Janeiro, or in Paris, or
in London, at the exchange of the day on Paris. The bonds drawn for
redemption were in each [p118] case to be paid in Rio de Janeiro, in Paris,
in London.
[59] What then was the "gold franc" as a standard of value at the time of
the bond issues? There was no place of payment, other than Paris, which had
the franc, and the "gold franc" of the bonds must be the gold franc, as its
definition could be ascertained according to French monetary legislation.
This could be, at that time, none other than the standard of gold value
provided for in the law of the 17th Germinal, Year Eleven, as follows:
"Five grammes of silver, nine-tenths fine, shall constitute the monetary
unit which retains the name franc.
Head I.— The minting of money.
…………………………………………………….
Article 6.—Gold pieces of 20 and 40 francs shall be minted.
Article 7.—The standard of these pieces is fixed at nine-tenths fine with
one-tenth of alloy.
Article 8.—The standard weight of the pieces of 20 francs shall be 145 to
the kilogramme and that of the 40 franc pieces 77½ to the kilogramme."
[60] This was a definite standard. Translated into terms of a single gold
franc, it is the twentieth part of a piece of gold weighing "6 gr. 45161, au
titre de 900/1000 d'or fin", the standard specified in the question
submitted by the Special Agreement. It is the same standard of "gold franc"
that is described in Article 262 of the Treaty of Versailles as the gold
franc in weight and fineness as defined by the law existing on January 1st,
1914.
[61] While this was the standard established by the French legislation in
force when the loans were issued, it was a standard which had also been
adopted by other countries and by the Convention of the Latin Union, and
thus was one well adapted for selection by another Government as a standard
of value for its external loans. [p119]
[62] It is concluded that the bonds should be construed as providing for
payment in gold francs at the value fixed by the law of the 17th Germinal,
Year Eleven.
[63] The execution of the contracts. — The argument is stressed, as in the
case concerning certain Serbian loans, that from the manner in which the
contracts were executed, it should be concluded that they provided for
payment in French paper francs. It appears that at all times before the war,
during the war, and after the war, payment was made in the ordinary manner,
that is, in banknotes. It is sought to apply the familiar principle that
where a contract is ambiguous, resort may be had to the manner of
performance in order to ascertain the intention of the Parties. But in this
case, there is no ambiguity, at least in the loan contracts of 1910 and
1911, as these call in clear and precise terms for payment of principal and
interest in gold francs. Nor is there ambiguity in the contract of 1909, so
far as payment of interest is concerned, as the contract expressly provides
that it shall be paid in gold and the amount of semi-annual interest thus to
be paid (frs. 12.50) shows clearly that gold value was intended. As to the
payment of principal, it has been pointed out that, according to the
prospectus issued by the Brazilian Government and which is to be read in
connection with the bonds, it appears that the bonds were offered as gold
obligations.
[64] Moreover, where reference is had to the conduct of the Parties as an
aid to interpretation, it is necessary to consider whether that conduct
itself permits of but one inference.
[65] Before the war, the parity of French currency with gold was maintained
and the manner of payment was in no way inconsistent with the right of the
bondholders to receive payment on the basis of gold francs as a standard of
value. During the war also, the manner of payment had little significance,
as during that period, and until 1919—if reference be made to the gold
dollar—there appears to have been only a slight difference in the value of
French currency as [p120] compared with a gold basis. The significant period
is the later one—that is, between 1919 and 1924, as by the latter date the
French Government had espoused the cause of the French bondholders and made
formal complaint. In considering the conduct of the bondholders in this
period, it is to be remembered that this was a time of great difficulties;
that there were many bondholders; that as individuals they were powerless as
against the Brazilian Government, and it was necessary for them to associate
themselves together and to interest the French Government in their case;
that the French Government had to consider the matter and determine on its
course of action. When all these circumstances are considered, there is no
adequate basis for an inference from the conduct of the bondholders that
they were of opinion that they were not entitled to obtain payment on the
basis of a gold standard. From September 1924, at least, the matter was in
the course of diplomatic negotiations between the two Governments until the
Special Agreement for submission to the Court was signed in 1927. The bonds
are bearer bonds which entitle the bearer to claim, simply because he is a
bearer, all the rights accruing under the bond. The bondholders cannot be
regarded as estopped to seek payment in gold value.
[66] "Force majeure."—The economic dislocation caused by the Great War has
not, in legal principle, released the Brazilian Government from its
obligations. As for gold payments, there is no impossibility because of
inability to obtain gold coins, if the promise be regarded as one for the
payment of gold value. The equivalent in gold value is obtainable.
[67] The law applicable.—Counsel for the Government of the United States of
Brazil has summarized the argument of his Government as follows: [p121]
" .... even were it possible to conclude that the intention of the borrower
and lenders was to set aside the French franc and adopt another franc
representing a fixed and invariable monetary unit, calculated according to
its weight in gold, on that hypothesis also, as the question concerns a loan
governed by Article 1895 of the French Civil Code and seeing that the forced
currency law enacted as a result of circumstances, unforeseen and impossible
to foresee, such a clause could not be effective in so far as concerned any
payment to be made in francs."
[68] Formulated in this way, the argument raises several questions, and in
the first place the question whether it is French law which in this case
governs the contractual obligations as such.
[69] That is a question of private international law which the Court, as it
has explained in its judgment regarding the Serbian loans, must decide by
reference to the actual nature of the obligations in question and to the
circumstances attendant upon their creation, though it may also take into
account the expressed or presumed intention of the Parties.
[70] Having regard to the nature of the bonds and to the circumstances
concerning their issue, there seems to be no doubt that it is Brazilian law
and not French law which must be held to govern the obligations contracted,
at all events as regards the substance of the debt and the validity of the
clause defining it.
[71] The loans in question are loans contracted by the Government of the
United States of Brazil under laws and decrees having the force of law and
laying down the conditions relating to the loans. These decrees are cited in
the bonds, and accordingly the validity of the obligations set out therein
is indisputable in Brazilian law. The bonds are bearer bonds signed by the
delegate of the Brazilian Treasury in London. It follows from the very
nature of bearer bonds that the substance of the debt, which in principle
must be the same in respect of all holders, cannot be dependent on the
identity of the holder or the place where he has acquired his bond. Only the
identity of the borrower is fixed; in this case it is a sovereign State,
which cannot be presumed to have made the substance of its debt and the
validity of the obligations accepted by it in respect thereof, subject to
any law other than its own. [p122]
[72] It cannot be held that the intention of the borrowing State was to
render some law other than its own applicable as regards the substance of
its debt and the validity of the conditions laid down in respect thereof,
unless there were, if not an express provision to this effect, at all events
circumstances which would irrefutably show that such was its intention.
[73] But in the present case there is no express provision. The only
circumstance which has been brought to the knowledge of the Court and which
might possibly be cited in this connection is that, according to the
statement of the Government of the United States of Brazil, which has not
been disputed, the issue of the loans took place in France only. This
circumstance, however, cannot suffice to show that the intention was to make
the obligations entered into as regards the substance of the debt and the
validity of the conditions relating to it, subject to French law, more
especially considering that not only did the bonds of all those loans also
contain an English text but also that the interest was made payable, in the
case of the 1910 and 1911 loans, at Rio de Janeiro and London as well as
Paris, and in the case of the 1909 loan, besides Paris, also at Brussels,
Amsterdam and Hamburg. As concerns the 1910 and 1911 loans also, the bonds
drawn for redemption are payable at Paris, London and Rio de Janeiro. These
provisions show that it was not the intention to place the bonds exclusively
in France. Moreover, the prospectus which has been produced in respect of
the 1911 loan states that subscription was to take place not only at Paris
and on French provincial exchanges, but also in Brazil.
[74] But though the Court is unable to admit that the intention was to make
the substance of the debt and the validity of the provisions relating to it
subject to French law, this does not prevent the currency in which payment
must or may be made in France from being governed by French law. For, as the
Court has explained in its judgment in the case of the Serbian loans, it is
a generally accepted principle that a State is entitled to regulate its own
currency. The application of the laws of such State involves no difficulty
so long as it does not affect the substance of the debt [p123] to be paid
and does not conflict with the law governing such debt. And in the present
case, this situation need only be-envisaged if, as contended by the
Government of the United States of Brazil, French law rendered it impossible
to claim payment otherwise than in bank-notes which are compulsory tender,
and for the same amount of francs as are specified in the contract.
[75] The Court is of opinion that this contention is not made-out. In its
judgment in the case of the Serbian loans, the Court considered that it
might confine itself to observing that, according to the information
furnished by the Parties, the doctrine of French courts, after some
oscillation, has now been established in the manner indicated by the French
Government, that is to say that, whilst a gold clause in respect of a
domestic transaction is null and void, this is not the case as regards
international contracts, even when payment is to be effected in France.
[76] Does this observation also cover the present case? The Special
Agreement under which this case has been submitted to the Court contains the
following in Article VI:
"In estimating the weight to be attached to any municipal law of either
country which may be applicable to the dispute, the Permanent Court of
International Justice shall not be bound by the decisions of the
respective-courts."
[77] There are two possible interpretations. According to one —keeping more
strictly to the literal meaning of the words—the Court is not to regard
itself as legally bound to follow the doctrine of the courts of the country
the law of which it is applying; it remains however free to do so if it
considers that its task should be limited to applying the municipal law in
accordance with the construction placed thereon by the national courts.
According to another interpretation— which might find support more
particularly in the fact that questions similar to that submitted to the
Court had already formed the subject of decision in French courts — the
Court's duty would be to disregard the doctrine of the municipal courts and
itself to determine that interpretation of the relevant legislation which
seems, in its opinion, to be the most reasonable in the present case. [p124]
[78] The Court, in choosing between these two interpretations, must adopt
that one which is in principle compatible with a proper appreciation of its
nature and functions.
[79] Though bound to apply municipal law when circumstances so require, the
Court, which is a tribunal of international law, and which, in this
capacity, is deemed itself to know what this law is, is not obliged also to
know the municipal law of the various countries. All that can be said in
this respect is that the Court may possibly be obliged to obtain knowledge
regarding the municipal law which has to be applied. And this it must do,
either by means of evidence furnished it by the Parties or by means of any
researches which the Court may think fit to undertake or to cause to be
undertaken.
[80] Once the Court has arrived at the conclusion that it is necessary to
apply the municipal law of a particular country, there seems no doubt that
it must seek to apply it as it would be applied in that country. It would
not be applying the municipal law of a country if it were to apply it in a
manner different from that in which that law would be applied in the country
in which it is in force.
[81] It follows that the Court must pay the utmost regard to the decisions
of the municipal courts of a country, for it is with the aid of their
jurisprudence that it will be enabled to decide what are the rules which, in
actual fact, are applied in the country the law of which is recognized as
applicable in a given case. If the Court were obliged to disregard the
decisions of municipal courts, the result would be that it might in certain
circumstances apply rules other than those actually applied; this would seem
to be contrary to the whole theory on which the application of municipal law
is based.
[82] Of course, the Court will endeavour to make a just appreciation of the
jurisprudence of municipal courts. If this is uncertain or divided, it will
rest with the Court to select the interpretation which it considers most in
conformity with the law. But to compel the Court to disregard that
jurisprudence would not be in conformity with its function when applying
municipal law. As the Court has already observed in the judgment in the case
of the Serbian [p125] loans, it would be a most delicate matter to do so, in
a case concerning public policy—a conception the definition of which in any
particular country is largely dependent on the opinion prevailing at any
given time in such country itself—and in a case where no relevant provisions
directly relate to the question at issue. Such are the reasons according to
which the Court considers that it must construe Article VI of the Special
Agreement to mean that, while the Court is authorized to depart from the
jurisprudence of the municipal courts, it remains entirely free to decide
that there is no ground for attributing to the municipal law a meaning other
than that attributed to it by that jurisprudence.
[83] Such being the sense in which the Court understands the task entrusted
to it in the present case, the Court holds that the position as regards the
jurisprudence of the French courts, as stated in the judgment in the case of
the Serbian loans, holds equally good as regards the present case, in the
course of which nothing has been adduced to weaken it.
[84] Finally, the Court observes that the forced currency regime has been
terminated in France by the law of June 25th, 1928, which abrogates the
provision relating thereto in the law of August 5th, 1914. The second
article of the law of 1928 contains the following:
"The French monetary unit, the franc, is constituted by 65.5 milligrams of
gold, nine hundred thousandths fine.
This definition shall not apply to international payments which, prior to
the promulgation of the present law, may have been validly stipulated in
gold francs."
[85] This law replaces for the future the former legislation, so that the
reduction in the metallic value of the franc, as newly denned, to about
one-fifth of its original value will not affect the "international payments"
which may previously have been validly stipulated in gold francs.
[86] FOR THESE REASONS,
The Court,
having heard both Parties,
by nine votes to two, [p126]
gives judgment to the following effect:
That with regard to the Brazilian Federal Government's 5% loan of 1909 (Port
of Pernambuco), 4% loan of 1910 and 4% loan of 1911, payment of coupons
which have matured and are not barred by prescription at the date of the
Special Agreement and of coupons subsequently maturing, as also repayment of
bonds drawn for redemption but not actually repaid which are not barred by
prescription on the date of the present judgment, or of bonds subsequently
to be redeemed, must be effected by delivery to the French holders in
respect of each franc, of the value corresponding in the currency of the
place of payment at the rate of exchange of the day, to one-twentieth part
of a gold piece weighing 6.45161 grammes, 900/1000 fine.
[87] This judgment having been drawn up in French in accordance with the
terms of Article 39, paragraph 1, second sentence, of the Statute of the
Court, an English translation is attached thereto.
[88] Done at the Peace Palace, The Hague, this twelfth day of July, nineteen
hundred and twenty-nine, in three copies, one of which is to be placed in
the archives of the Court and the others to be forwarded to the Agents of
the Government of the French Republic and the Government of the Republic of
the United States of Brazil respectively.
(Signed) D. Anzilotti,
President.
(Signed) A. Hammarskjold,
Registrar.
[89] MM. de Bustamante and Pessoa, Judges, declaring that they are unable to
concur in the judgment given by the Court and availing themselves of the
right conferred on them by Article 57 of the Statute, have delivered the
separate opinions which follow hereafter.
(Initialled) D. A.
(Initialled) A. H.
[p127] Dissenting Opinion by M. De Bustamante.
[Translation.]
I.
[90] According to the Special Agreement signed at Rio de Janeiro on August
27th, 1927, the Court is called upon to give judgment on the following
question:
"With regard to the Brazilian Federal Government's 5 % loan of 1909 (Port of
Pernambuco), 4% loan of 1910, and 4 % loan of 1911, is payment of coupons
which have matured and are not barred by prescription at this date, and
coupons which shall mature, as also repayment of bonds drawn for redemption
but not actually paid which are not barred by prescription on the date of
the Court's decision, or of bonds subsequently to be redeemed, to be
effected by delivery to the French holders, in respect of each franc, of the
value corresponding, in the currency of the place of payment at the rate of
exchange of the day, to one-twentieth of a gold piece weighing 6.45161
grammes of 900/1000 fineness, or in such payment or repayment to be effected
as hitherto in paper francs, that is to say, in the French currency which is
compulsory legal tender?"
II.
[91] We must begin by noting certain facts, which have an undeniable
influence upon the questions to be considered, and their solution:
(a) The prospectus of the 5 % 1909 loan, under the heading "Payment of
coupons", expressly states that the coupons are payable at Paris, in gold,
at the rate of frs. 12.50, [p128] half-yearly, on February 1st and August
1st of each year, and at places abroad which are to be subsequently named,
at the sight rate of exchange on Paris.
(b) No. 3 of the bonds of this loan states, in its turn, that interest is
payable at Paris in gold and at Rio de Janeiro, London, Brussels, Amsterdam
and Hamburg at the sight rate of exchange on Paris.
(c) The prospectus of the 4 % 1910 loan speaks of the payment of coupons at
Paris in gold, at the rate of 10 francs half-yearly, and in London and at
Rio de Janeiro at the sight rate of exchange on Paris.
(d) The same meaning has also been attributed to paragraphs 2 and 4 of the
bonds of this loan.
(e) The same applies in the case of the 4 % 1911 loan.
III.
[92] There is therefore only one place where payments are to be made in the
local currency, and that is Paris. It seems useless to discuss whether the
theoretical or international gold franc, or the French gold franc, is meant.
There are no payments in gold currency at Brussels or Geneva, but only at
Paris, and when other places are mentioned, payment is to be based on the
sight rate of exchange on Paris.
IV.
[93] Now, leaving aside the question of gold value, let us simply observe
the fact that at the time when the Brazilian loans were issued, there was no
legal difficulty in speaking of the gold franc or in deciding that payments
should be made in gold francs. There was no binding rule of French law or of
Brazilian law to prevent it.
[94] But while, on the one hand, gold francs might simply be spoken of for
the purpose of payment, it would, on the other hand, be possible to take
steps and make provision for fixing the meaning and scope of these words and
to decide: the course to be adopted, if the gold franc vanished from
monetary circulation.
[95] It was possible, for instance, to stipulate, and this is frequently
done, that the payments must be effected in gold francs of the same weight
and standard as that of the franc in circulation at the time in France or to
take other pre-cautions widely known in the business world and very often
adopted where the intention of the Parties is to avoid indirectly the
consequences of certain rules established by legal enactments of a local
character. [p129]
V.
[96] Let us now ask ourselves what is the law that governs the contractual
stipulations we have just considered.
[97] The contracts entered into between the Brazilian Government and the
persons entrusted with the carrying-out of public works in Brazil (the
contracts annexed to the written proceedings) are based on the assumption
that the bonds of the loan will be received in payment by those persons for
the work in question; but that only serves to emphasize once again that in
the case we are now considering we are concerned with private contracts
coming under rules of municipal law. Our task consequently consists of
endeavouring in the first place to establish in agreement with the rules of
private international law, what this municipal law is, and after that to
apply to each hypothesis the rule of municipal law by which it is governed.
[98] There is nothing in this task, which does not come within the
jurisdiction of the Court. In the case of some problems indubitably coming
within the sphere of public international law, it often happens that no
universal treaty or customary rule has been accepted or followed, and it
becomes necessary to choose an international rule that has been followed and
enforced by a single State as one of the principles of its municipal law. In
other words, and in agreement with the generally accepted practice of Great
Britain and the U.S.A., international law frequently forms a part of
municipal law. We have observed these differences between the municipal laws
of different countries last year in a case submitted to the Court and
relating to a collision between a French ship and a Turkish ship.
[99] When we have to endeavour to ascertain and apply a rule of private
international law to a question arising between two States that have
submitted the dispute to our decision, it may happen that with regard to the
point at issue, the Parties have either accepted the same rule of private
international law or, on the contrary, divergent rules. If the former is the
case, the task of the Court is still more easy and simple. [p130]
[100] Let us now see what is the problem before us in order then to find the
rule that applies.
VI.
[101] It is a question of a contract the existence or validity of which has
not been disputed. In the first place, the meaning of some of its clauses
and the effect of the terms employed were argued. Later, the meaning having
been differently interpreted by each of the Parties, the discussion turned
on the execution of the contract and particularly on the currency in which
the payment had to be made.
[102] The rules of private international law that must, on principle, be
looked for are those rules which refer, on the one hand to the law that
applies to contracts, and on the other to methods of payment and to the
currency employed in making such payment. As regards the former, there is a
universal consensus of opinion as to the will of the Parties being
paramount, but in this case, as in many others, the Parties were silent as
to the law that applied, and it is not even possible to construe their will.
Presumptions must consequently be made use of, and much was said about the
law of the place where the contract was made and about the law of the place
of its execution. In my opinion, since a contract of adhesion is in
question, the law which, generally speaking, should be applied is the law of
the borrower.
[103] But this law is only applicable to such questions relating to the
contract or to its execution as do not come under the local laws on the
grounds of international public policy. If, from this point of view, a
consideration of this case were to result in our accepting any particular
local law, the question of the construction of the contract, as well as of
the meaning and the scope of the terms "gold franc" and "payment in gold",
would be immediately covered by a specific rule of that local law.
[104] There are always matters which are outside the will of the Parties and
which require the application of imperative and territorial legal
provisions. Amongst these matters, according to the almost unanimous opinion
of authors, are classed the form, the currency and the method of payment.
The Code of [p131] Private International Law adopted at the Sixth
Pan-American Conference at Havana and already ratified by the Congress and
Government of Brazil, lays down in Article 166 the following rule :
"Those obligations arising from contracts have force of law as between the
contracting Parties and should be discharged in accordance with the terms
thereof, with the exception of the limitations established by this Code."
[105] Article 169 says :
"The nature and effect of the various classes of obligations, as well as the
extinction thereof, are governed by the law of the obligation in question."
[106] But Article 170 is careful to add :
"Notwithstanding the provisions of the preceding article, the local law
regulates the conditions of payment and the money in which payment shall be
made."
[107] On the other hand, the opinion of French publicists has almost always
been based on the same conceptions, and it would be easy to make for this
purpose a large number of quotations. This seems to us to be unnecessary at
the moment.
[108] In the case before the Court, we must therefore consider French
legislation, France being the only country in which payment had to be made
in gold francs, since in other countries payment had to be made at the sight
rate of exchange on Paris; and any binding rule laid down on this subject at
a time when the contracts of issue began to produce their effects must be
conformed to.
VII.
[109] As regards France, the law in force is quite clear and does not
require interpretation.
[110] Article 1895 of the French Civil Code runs as follows :
"The obligation resulting from a loan in money is always simply for the
amount in figures indicated in the contract, and if there has been an
increase or diminution of specie before the time of payment, the debtor must
return the amount in figures lent, and must return only this amount in the
specie in currency at the time of payment." [p132]
[111] At the time when the Brazilian loans were issued, Article 1895 of the
French Civil Code was in force, as it is at the present time. This article
gave to the borrower the right and imposed on him the duty, as regards
payments to be made in France, of assuming, at the moment of each payment,
the consequences arising from the increase or diminution of the value of the
currency, in the one case to his own advantage, in the other to the
advantage of his creditors.
[112] This situation in law is a vested right for the borrower and for the
holders of bonds and coupons, and cannot be changed by subsequent
legislation, which had no retroactive effect as regards these loans. France
retained the sovereign right of changing the weight and standard of her
currency and of making notes of the Bank of France legal or compulsory
tender, subject, how ever, to the specific proviso of not depriving the
debtors of the benefits arising under Article 1895 of the Civil Code under
the effects and security of which they had contracted.
[113] The law of the holders of the bonds and coupons could not change this
state of affairs by specifying at the moment when the currency was modified
that this change would not be applicable to the borrower, or, as a general
rule, to the cases in which he was concerned.
VIII.
[114] Since a claim by the French Government and the rights of French
holders are concerned, we must note that at the time when the loans were
issued, from 1909 to 1911, the French franc was absolutely stable and its
value in gold could not be questioned. In France there were bank-notes, and
they were legal tender; but as these notes must be repaid at par by the Bank
of France and as up till then no important differences existed between the
gold rate and silver rate, the question of payments in gold or notes that
were legal tender had no practical significance.
[115] During the world war a new French law of August 5th, 1914, had freed
the Bank of France and the Bank of Algeria from the obligation to return
specie for their notes. France certainly had the right, as we have already
demonstrated, to [p133] take such a step, and no one thought of opposing
this change in the legal tender, by which the notes become a forced
currency. But this new monetary situation had to be adopted with all its
consequences, and contracts in force must always be interpreted in
conformity with Article 1895 of the Civil Code, which was in force both then
and now. Article 1895 of the Code was framed precisely for these cases.
Whether that rule be good or bad in doctrine or in theory, it was the law:
Dura lex, sed lex. Since ignorance of the law cannot be pleaded, all the
holders of bonds or coupons of Brazilian loans must be taken as knowing
that, according to the law in France, the obligation resulting from a loan
in money is always simply for the amount in figures indicated in the
contract, and if there has been an increase or diminution of specie before
the time of payment, the debtor must return the amount in figures lent, and
must return only this amount in the specie in currency at the time of
payment.
[116] What I have written here is merely a literal copy of Article 1895 of
the French Civil Code.
IX.
[117] The opinions of the best known authors have long ago recognized that
this rule is one of international public policy. In the first place, a
distinction must be drawn between those who wrote before the: world war and
those who studied the question after 1914. Writers of legal treatises just
as much as anyone else, without wanting to and without knowing it, come
under the irresistible influence of their surroundings, and the requirements
of the national situation are reflected in their thoughts and have a great
influence on their teachings. This fact explains the existence in public and
private inter national law of systems and opinions completely corresponding
to the requirements and interests at a given moment of a State or of a
continent.
[118] In order to avoid this stumbling block, we have quoted pre-war authors
in preference to others. And in order not to unduly increase the number of
quotations, we have chosen two [p134] writers of the highest authority and
belonging to two different States, France and Switzerland, both of which
writers however specifically refer to Article 1895 of the Code Napoléon.
DESPAGNET (Précis de Droit international privé, 5th ed., Paris, 1909, pages
916-917):
[Translation.]
"The payment shall consequently be made in money current at the place where
the debt must be discharged, and at the nominal value of the currency at
that place. If, during the lapse of time between the date of the contract
and the date of payment, the nominal value of the currency has increased or
diminished, the debtor profits or suffers thereby, since he has to supply a
correspondingly greater or lesser number of coins in that currency at their
present nominal value, in order to make up the amount fixed in the contract
(Article 1895 Civil Code). It would moreover be impossible to evade this
consequence in a private contract since the establishment of the nominal
value of currencies is a rule of public policy."
[119] And he adds :
"There is another hypothesis to be foreseen: it may so happen that in the
country where payment has to be effected a more or less depreciated paper
currency which is compulsory tender may have been substituted for the
coinage. The law establishing the forced currency of paper being one of
public policy, the creditors may be compelled to accept this paper money at
its nominal value."
BROCHER (Cours de Droit international privé, Paris, 1882, t. II, p. 242) :
Brocher remarks that this Article 1895 belongs to the category of usual
rigorous legislative measures which, as regards forced currency of money
tokens or of fiduciary securities, can be assimilated thereto.
"Those are measures", he states, "which can only be resorted to by imposing
limitations upon the will of the individual."
[120] It should be added that the exceptions set out by these authors in the
works referred to cannot be applied to the Franco-Brazilian dispute which
has been submitted to the Court for decision. [p135]
X.
[121] In this question between France and Brazil, it is useless to refer to
the practice of the courts in these countries. In fact, all reference to
this source of law and any attempt to allow oneself to be guided thereby
should be avoided. Indeed, in accordance with Article VI of the Special
Agreement:
"In estimating the weight to be attached to any municipal law of either
country which may be applicable to the dispute, the Permanent. Court of
International Justice shall not be bound by the decisions of the respective
courts."
[122] That means that the Court may and must take into account municipal
laws in order to decide the questions submitted to it, but at the same time
it must weigh the meaning and scope of such municipal laws in the light of
its own particular views without allowing itself to be guided or influenced
by the decisions of the national courts of the Parties in this respect.
XI
[123] By the French law of June 25th, 1928, it was decided that the franc,
the French monetary unit, should be constituted by 65.5 milligrams of gold,
900/1000 fine. And the law goes on to say: "This definition shall not apply
to international payments which, prior to the promulgation of the present
law, may have been validly stipulated in gold francs."
[124] Why did the law of June 25th, 1928, make this declaration ?
[125] It cannot be understood without admitting that it is French law, which
must control the method of payment. If we suppose that the will of the
Parties, in speaking simply of gold francs, ensures that payment shall be in
gold of the weight and fineness then in force, whatever be the provisions of
Article 1895 of the French Civil Code, the rule laid down by the law of June
25th, 1928, which I have just quoted, is useless and incomprehensible.
[126] This new law, then, is undoubtedly a very serious argument from the
point of view of the application to these loans of French legislation on
methods of payment. [p136]
[127] It therefore seems evident that the said law had the purpose of
implicitly derogating from Article 1895 of the French Civil Code, to the
prejudice of debtors who entered into contracts when that article was in
force. It must be emphasized that Article 1895 does not prevent a change of
currency. On the contrary, it recognizes this sovereign power of the French
Government and it is precisely because the currency may be changed at any
time that the article in question was considered necessary and inserted in
the Civil Code.
[128] But what cannot be done, to the prejudice of creditors or debtors who
have made contracts for payments in France while Article 1895 was in force,
is to decree that the currency shall be changed but that the change shall
not be enforce able against such creditors or debtors. That is to say, it is
impossible for one Party to a convention to change a rule of law to which
that convention has been subject from the time of its conclusion.
[129] But there is yet another aspect of the problem which is most
important.
[130] The Special Agreement concerning the Brazilian loans was signed at Rio
de Janeiro on August 27th, 1927, and it is inadmissible that one of the
Parties, on June 25th, 1928, almost a year later, should be entitled to
resolve in its own favour by domestic or national legislation the
international question already submitted to the Court, or to invoke this law
which it has enacted after the Special Agreement, as an argument for its own
case. It seems to me clear that the second paragraph of the French currency
law of June 25th, 1928, must be entirely disregarded in this case.
XII.
[131] The question of gold currency and of its mention in the laws,
contracts and bonds referring to these loans loses all its importance once
we adopt the legal position that we have developed. If payment is subject to
the law of the place where it is made, as concerns the currency in which the
debtor must pay, Brazil can only be obliged to deliver gold in the cases
where gold currency is legal tender at the date of each payment, at [p137]
the place where payment is made, that is to say, at Paris so far as this
case is concerned. And Brazil need only repay the amount in figures in the
currency in circulation at the time of payment.
[132] And as Paris is the only place where payment in the national currency
for the amount of the sum due is to be made, it is useless to raise the
question of the French gold franc or theoretical franc. The French franc,
and the French franc only, was meant in the documents. Seeing that at the
date of the loans the gold franc was legal currency in France, there was
nothing to prevent that currency from being expressly mentioned in the
bonds. But, as Article 1895 of the Civil Code was in force, all bondholders
could and ought to know what was the significance of such a provision, which
was necessarily subject, as regards payments to be made in France, to the
terms of that article. The opposite view implies that it is sufficient to
conclude contracts outside France or to make them under the name of a
foreigner to render the "Code Napoléon" inapplicable.
XIII.
[133] On this application of Article 1895 is based the argument concerning
the carrying-out of the terms of the loan contracts by means of payments
made and accepted in the course of a number of years following the
depreciation of French currency. So far as Brazil is concerned, which always
used this currency for her payments, this is proof of the meaning attributed
by her to the gold clause. The same applies as regards the bondholders. They
might from the very first have refused to receive the amount of their bonds
and coupons in that depreciated currency as they did subsequently.
XIV.
[134] Regard must also be had to the fact that the bonds and coupons of
these loans must be paid to bondholders at other •places at the sight rate
of exchange on Paris. Exchange rates exist for practical purposes only, and
when one buys bills of exchange or, cheques on a particular place, one is
paid [p138] in the money in circulation at that place. It is for that, and
that alone, that exchange rates are quoted. This provision affords yet
another argument in favour of the obligatory application of Article 1895 of
the French Civil Code.
XV.
[135] When payments are controlled by such a legislation, it is not enough
to insert the gold clause to ensure protection against changes of the
currency and against the compulsory tender régime. The contracting Parties
have the right, and often make use of it, to stipulate that payment shall be
made in the currency of some particular country of the same weight and
standard as that in circulation at the time of the contract.
[136] They are also entitled to stipulate for indemnities to be paid in the
money, which is legal tender, if there are changes. They may adopt other
precautions to protect themselves from what is known as "agio". If in the
case before us the Parties have done nothing in this respect, it is their
own fault, and they must accept the consequences of their lack of foresight.
XVI.
[137] To sum up, in accordance with what I have said, the question in the
Special Agreement should, in my opinion, be answered as follows :
[138] With regard to the Brazilian Federal Government's 5 % loan of 1909
(Port of Pernambuco), 4 % loan of 1910 and 4 % loan of 1911, the payment of
coupons matured and not barred by prescription on August 27th, 1927, and
coupons which have matured or shall mature after that date, as also
repayment of bonds drawn for redemption but not actually paid which are not
barred by prescription on the date of the Court's decision, or of bonds
subsequently to be redeemed, must be effected at Paris by remittance to the
French bondholders in the French currency which is legal tender, and at the
other places agreed upon, in the local currency at the sight rate of
exchange on Paris on the day of payment.
(Signed) A. S. De Bustamante.
[p139] Dissenting Opinion by M. Pessoa.
[Translation.]
I.
The Lack Of Jurisdiction.
[139] 1.—The Court can only have jurisdiction under the terms of Articles 13
and 14 of the Covenant, or under the Statute, which form its constitutional
laws.
[140] According to both of these instruments, for the Court to have
jurisdiction it is not enough that the Parties should be States or Members
of the League of Nations (Articles 34 and 36 of the Statute); it is also
essential that the case, in itself, should be of an "international
character" and should be governed by international law (Articles 13 and 14
of the Covenant and 38 of the Statute). The latter condition has already
been recognized and stated by the Court on more than one occasion: Judgments
No. 2, pp. 12 and 16; No. 13, pp. 27 and 28, etc. In all cases between two
States in which one has taken up the defence of the interests of its
nationals, for instance in the Wimbledon, Mavrommatis, Upper Silesian cases,
etc., the Court, in order to establish its jurisdiction, has always shown
that the subject-matter of the dispute was governed by international law and
that the purpose of the decision was to enforce principles or apply
instruments of international law.
[141] Now, the Court itself admits in the judgment delivered in the
Franco-Serbian dispute (page 18), to which it refers as regards its
jurisdiction in the Franco-Brazilian affair, that this affair exclusively
concerns "relations between the borrowing State and private persons, that is
to say, relations which are, in themselves, within the domain of municipal
law".
[142] It therefore seems to me clear that the Court is not competent to pass
upon this dispute.
[143] Even if an extension of the Court's jurisdiction is desirable, it is
necessary to begin by modifying the texts governing that jurisdiction.
[144] 2.—In order to establish its jurisdiction in this case, the Court
explains (judgment in the Serbian affair, p. 18) that, the [p140] Brazilian
Government having "contended that the service of the loans was being
effected by it in full conformity with the obligations resulting from the
contracts, this view was not shared by the French Government. As from this
point, therefore, there existed between the two Governments a difference of
opinion.... It is this difference of opinion between the two Governments and
not the dispute between the Brazilian Government and the French holders of
the loans which is submitted by the Special Agreement to the Court."
[145] There is however no distinction between this difference of opinion and
"the dispute between the Brazilian Government and the French bondholders".
[146] Brazil hold that the service of the loans should be effected in paper;
the French holders claimed payment in gold.
[147] The French Government decided to take up the case on behalf of the
bondholders.
[148] What is the difference of opinion between the two Governments? The
same, absolutely the same as that existing between Brazil and the
bondholders: the Brazilian Government continues to defend payment in paper
and the French Government, representing the claims of the bondholders,
continues to maintain that payment should be in gold, as the bondholders
contended. There is no difference.
[149] The fact that the two are identical is so evident that the Court is
unable to avoid admitting it (Franco-Serbian judgment, p. 18): ".... in
substance", it says, the difference of opinion between the two Governments
is "identical with the controversy already existing between the debtor
Government and its creditors".
[150] But, if the difference of opinion between the two Governments is
identical with the controversy existing between the debtor Government and
its creditors, a dispute which, according to the judgment, "is exclusively
concerned with relations at municipal law" and consequently is outside the
Court's jurisdiction, it is not easy to see why and how the difference of
opinion between the two Governments can be within that jurisdiction.
[151] 3.—The Court now contends that it is not only questions of
international law which may be submitted to it. And in favour [p141] of this
new doctrine, it cites paragraph 2 of Article 36 of the Statute, according
to which States may recognize as compulsory the Court's jurisdiction in
legal disputes concerning "the existence of any fact which, if established,
would constitute a breach of an international obligation". In support of
this clause the Court observes that Article 13 of the Covenant includes the
disputes above mentioned "among those which are generally suitable for
submission to arbitration or judicial settlement".
[152] In the first place, however, the terms of Article 36, paragraph 2,
only apply in respect of the optional clause regime, a special regime,
differing so widely from the normal regime, that the Statute specifies
separately the cases in which the Court has jurisdiction under the two
regimes (Articles 36 and 38). In the second place, there is in the
Franco-Brazilian case no fact which, if established, would constitute a
breach of an international obligation; there are contracts concluded between
a Government and individuals, contracts which, as is recognized by the Court
itself, are governed by the municipal law of the debtor or of the creditor,
and the breach of which is therefore merely a matter of private law.
[153] 4.—Another consideration. A State may take up a case on behalf of its
nationals. It is by application of this principle that France has assumed
the defence of the interests of the French bondholders before the Court.
[154] But who are in this case the French nationals? Who are the French
bondholders?
[155] No one knows. No one can know. Having regard to the nature of the
bonds, which are freely transferable, the French bondholders at the time of
the Special Agreement may even no longer be the holders of the bonds. And in
that case, how is the intervention of France to be justified? The French
Government itself does not know who the nationals, whose interests it is
defending, are. In the Mavrommatis, Wimbledon and Upper Silesian cases, it
was well-known who the Greek or German nationals concerned were. The
respective proceedings clearly defined them. Here it is not so; here they
are not known and there is no means of knowing them. In this suit, we have a
State taking up a case on behalf of persons unknown, anonymous, and perhaps
already non-existent. [p142]
[156] It is true that Brazil, in spite of this, has accepted the Special
Agreement; but the Court's jurisdiction cannot be based on the wishes or
sufferance of the Parties. The Court either is competent under its Statute
or is not competent. If it is not competent, no agreement between the
Parties can give it powers which its constitutional texts withhold from it.
[157] 5.—For the reasons set out above, in my opinion the Court, instead of
disregarding its own jurisprudence and interfering with questions of private
law at the risk of providing serious disputes in the future, should have
declared that it had no jurisdiction and thus left France and Brazil free to
have recourse to direct agreement or arbitration, which are the only
appropriate methods of settling such disputes.
II.
The Interpretation of the Parties.
[158] 6.—There is no doubt that the gold clause appears sometimes in the
contracts, sometimes in the bonds and sometimes in the prospectuses of the
Brazilian loans. But this circumstance in itself does not decide the
question submitted to the Court.
[159] What must be ascertained is whether this clause really represents the
result of a previous considered and deliberate agreement between the
Parties, and whether it represents an intention and definite undertaking on
the part of Brazil to bear the depreciation of French money. Now, the
contentions made in this connection by the Brazilian Government have given
rise to doubts in my mind which the reasons given in the judgment have not
succeeded in overcoming.
[160] 7.—The depreciation of the franc began in 1915. In 1917, in which
year, according to the judgment, Brazil effectively resumed the payment of
interest on the loans, the pound sterling rose to frs. 27.83 (instead of frs.
25.22) and the dollar to 5.86 (instead of 5.18).
[161] As from 1919, the fall increased in alarming proportions, as is shown
by the following table of averages: [p143]
Years. |
Pound sterling. |
Dollar. |
1919 |
31.844 |
7.307 |
1920 |
52.676 |
14.476 |
1921 |
52.204 |
13.541 |
1922 |
54.633 |
15.013 |
1923 |
75.689 |
16.572 |
1924 |
85.682 |
19.414 |
[162] In 1925 the depreciation increased still further (£1 = 102.237 frs.;
$1 = 21.175 frs.). In 1926, in July, a pound equalled 243 francs! Even in
the second half of that year a reaction set in: the franc was reascending in
value, and since 1927 it represents about one-fifth of its value (£1 =
124.21; 1 dollar = 25.50 frs.).
[163] Now, from 1917 to 1927, or for ten years—twenty completed period of
six months—, the holders of the Brazilian loans, in spite of the enormous
depreciation of the franc and the loss of millions which this depreciation
represented for them, quietly accepted, without protest or representation,
payment of the interest on their bonds in paper francs depreciated to the
extent indicated!
[164] Is it conceivable that they would have acted in this way if they had
been convinced that the contracts guaranteed them payment in gold?
[165] This seems to show that, in the eyes of the creditors themselves, the
gold clause attached to the payment of interest and redemption of the loans
had not the significance now attributed to it.
[166] 8.—For the judgment, the "significant period" as regards the
inactivity of French holders is "between 1919 and 1924", for "until 1919
there appears to have been only a slight difference in the value of French
currency as compared with a gold basis" (page 37).
[167] The "significant period" as regards the inactivity of the French
holders begins not in 1919 but in 1917, for at that date the depreciation of
the franc was already more than 10%, and this, on a total interest of more
than 8,000,000 francs a year, represents a fairly considerable sum. As
regards the end of the period, the Special Agreement, which is dated August
27th, 1927, states that payment in paper took place up to that date ("as
hitherto", says Article I). [p144]
[168] We are therefore justified in placing the period between 1917 and
1927.
[169] But let us leave this point and accept the period fixed by the
judgment, that is to say, from 1919 up to the first six months inclusive of
1924 (diplomatic negotiations having begun on September 1st).
[170] We then find ourselves confronted with the following fact:
[171] The total value of the Brazilian loans is 200 million francs. Their
annual interest equals 8,400,000 francs. These figures, according to the
judgment, represent gold value.
[172] In 1919, the depreciation of the French bank-note was 21%. In
receiving in paper their 8,400,000 francs of interest, the bondholders lost
1,764,000 francs. In 1920, the depreciation was 53 %, and the loss
4,452,000. In 1921, the depreciation was 52 %, and the loss 4,368,000. In
1922, the depreciation was 54 %, and the loss 4,536,000. In 1923, the
depreciation was 67 %, and the loss 5,628,000. Finally, in 1924, the
depreciation was 71 %, and the loss (six months) 2,982,000.
[173] So that from 1919 to 1924 the holders of the Brazilian loans—including
holders who may be described as permanent holders, always the same, such as
bankers, companies, capitalists, possessing, from the date of subscription
thousands of shares—received, instead of 46,200,000 francs, less than half,
i.e. 22,470,000 francs, thus suffering a loss of 23,730,000 francs!
[174] Notwithstanding this colossal loss, they never adressed a protest or
representation either to the Government or to the courts or even to the
papers! What explanation can be given of this fact, save that the intention
of the Parties was not to contract in gold and that the holders were sure
that they had no right to payment in gold?
[175] 9.—It will be said that all the bondholders are not French
bondholders, and that the whole of this enormous loss cannot be laid upon
the latter who are the only ones represented in this case. But the great
majority consists in French bondholders; thus the greater part of the losses
falls to their share and their inaction clearly shows that they also were
certain that the debtor was not obliged to pay in gold. [p145]
[176] The silence of the creditors of other nationalities shows that this
conviction was unanimous.
[177] 10.—The judgment says, to explain the inaction of the creditors, that
"there were many [French] bondholders; that as individuals they were
powerless as against the Brazilian Government, and it was necessary for them
to associate themselves together and to interest the French Government in
their case" (page 32).
[178] But the French bondholders had no need to organize themselves and
concert measures for the defence of their rights. This defence was organized
from the very beginning of the fall of the franc, for the Association
nationale des Porteurs francais de Valeurs mobilieres, which asked the
French Government to intervene in this case, has existed since 1898, and its
object is precisely "the defence of the interests of the French holders of
French and foreign securities issued or negotiated in France", as is
expressly stated by Article I of its statutes. Furthermore, the bonds of the
loans are not only in the hands of individuals who are powerless against
Governments but are chiefly in the hands of Companies, bankers and
capitalists who have lawyers at their disposal and very well know how to
approach the Government and the courts.
[179] 11.—It is also contended that as bonds transferable from hand to hand
are concerned, there is no way of indentifying the holders in order to
compare the individual interpretation of each one of them with the
interpretation which follows from the actual wording of the contracts. The
judgment however itself regards the French bondholders as perfectly
identified, otherwise it would not have recognized the French Government's
capacity to appear before the Court. For the purpose of our argument,
however, this identification is not necessary, since what we contend, and
what the facts show, is that none of the bondholders, whatever their name,
nationality, capacity or profession may be, has ever regarded the contracts
as being gold contracts. The transferability of the bond, instead of
enfeebling, strengthens our argument. It creates a presumption that the
number of holders during the period of five years and a half fixed by the
judgment must have been really very high [p146] and, in spite of this, there
has been no opposition in any country to the payment of the Brazilian loans
in paper.
[180] 12.—It is therefore an indisputable fact that from 1917, the date of
the resumption of the service of the loans, to 1927, the date of the Special
Agreement, or, according to the judgment, from 1919, the date when the
depreciation became more marked, to 1924, the date on which "it would
appear" that the diplomatic negotiations began, Brazil always paid in paper,
and the subscribers and holders, in spite of all mentions of gold, in spite
of laws of authorization, decrees, contracts, bonds, coupons and
prospectuses, always received paper in payment, thus maintaining a loss
which, merely during the period from 1919 to 1924 alone, amounted to
23,730,000 francs out of 46,200,000!
[181] Such is the interpretation placed upon the contracts by the Parties
themselves.
[182] 13.—But other facts, equally important, show that this interpretation
represented the general opinion. The proceedings in the Franco-Serbian case
have indeed enabled it clearly to be seen that not only the bondholders but
also the bankers and, which is more serious, the French Government itself,
did not construe differently the Serbian contracts, which are from this
point of view quite identical with the Brazilian loans.
[183] Thus, whenever Serbia asked for payments in gold on account of her
loans, the banks made her pay an additional sum described as a special
premium.
[184] Thus again, in 1921, Serbia not yet having received a portion (14
million francs) of her 1913 loan, this sum was remitted to her in paper
francs which were already much depreciated (£1 = frs. 52.204; $1 = 13.541).
[185] And again, when, in consequence of difficulties arising out of the
war, France, in agreement with England, undertook to furnish Serbia with the
funds necessary for the payments due to the holders of these same loans, it
is also in depreciated paper francs that she provided the sums asked for.
[186] 14.—It is said that these facts cannot be used in argument against the
bondholders who were not responsible for them. But they serve to show how
the contracts were [p147] interpreted by all those who took part in carrying
them out. Moreover, with regard to the last fact mentioned (the furnishing
of sums in paper money by the French Government), as the Party appearing
before the Court is not the bondholders but the French Government itself,
the fact can, it seems to me, perfectly well be used against the latter.
[187] 15.—It is moreover easy to understand why the loans have always been
interpreted in this way.
[188] At the date of the contracts, the French bank-note had for a long time
had the same value as gold; its credit was solidly placed on universal
confidence and it offered the most complete guarantees of stability. The
expressions paper franc, French franc or gold franc were used indifferently;
all were francs. Each of these expressions conveyed the same idea, seeing
that the note and gold were exactly equivalent. Whether one paid in metal
currency or in paper currency, it was always payment in gold. No one
imagined that this parity could disappear. The gold clause was thus merely
regarded as a guarantee that the French bondholder would not be exposed to
surprises resulting from the variations of foreign exchange and would be
paid in his national currency, that is to say, francs.
[189] This has been recognized by the judgment of the Tribunal of the Seine
of July 26th, 1926, which, in a case to which the Brazilian Government was a
Party, decided that the gold guarantee, undertaken in that case by Brazil,
was only intended to "give to its own currency a certain stability which it
did not possess at the time of the contract". (Clunet, 1927, P. 95.)
[190] This is admitted by the French Case itself: after recalling that
stipulations regarding payment in gold were, before 1914, frequently
resorted to by States whose national currency was subject to variation and
who were endeavouring to obtain capital from abroad, it makes this
admission: "It was in these conditions that Brazil was led to insert them in
the greater part of its loans."
[191] 16.—It is therefore an indisputable fact that the Parties, for many
years, and in perfect harmony, interpreted and executed the contracts as
paper loans, which they were generally understood to be. Now, when the
contracting Parties execute [p148] the contract in a certain manner, in
part, or for a certain time, the contract must be executed in the future in
the same manner. (Giorgi, Teor. Oblig., Sp. transl. Rev. Leg. Jurispr., Vol.
IV, p. 185.)
[192] It is of small importance that literally the terms of the contracts
are not ambiguous; as we stated at the outset, it is not the literal sense
which is to be considered in order to arrive at a sound judgment, but the
intention of the Parties. The terms of contracts, however clear, are
overcome by the intention underlying them, if the manner in which they have
been executed by the Parties proves that their intention was not precisely
that resulting from the literal meaning of the words. There is a rule of law
common to most legislations and which is contained in Article 1156 of the
French Civil Code, by which, in interpreting contracts, "the common
intention of the Parties must be sought for in preference to abiding by the
literal meaning of the words".
[193] 17.—Let us assume however that the foregoing reasons are not
juridically sound. In that case it must at all events be recognized that
this is a doubtful case, which, moreover, appears from the very fact that it
has been submitted to the Court; but, under such conditions, the principle
of law must be applied to it according to which, "in case of doubt, the
contract is to be interpreted against the person who has stipulated and in
favour of the person who has contracted the obligation" (French Civil Code,
Art. 1162).
III.
The French Civil Code and Other Public Policy Legislation.
[194] 18.—But let us suppose that the gold clause in the Brazilian contracts
really constitutes an undertaking to pay in gold or its equivalent, to
provide against the risks of depreciation in French currency.
[195] In this case, the gold clause would not be valid and the contracts
could not be executed in France.
[196] The law which governs the conditions for and the currency of payments
in contracts such as those which form the subject of the present case,
concluded between a State and private [p149] subscribers or bondholders of
another State, is the territorial law of the country where payment is made.
This principle is found in almost all legal text-books, it is established by
the decisions of French courts, as we shall see later, and is already
included in a Code of International Private Law, adopted by several nations,
the Bustamante Code, of which Article 170 provides that "the local
legislation governs the conditions of payment and the currency in which it
is to be made".
[197] Now Article 1895 of the French Civil Code runs as follows:
"The obligation resulting from a loan in money is always simply for the
amount in figures indicated in the contract, and if there has been an
increase or diminution of specie before the time of payment, the debtor must
return the amount in figures lent, and must return only this amount in the
specie in currency at the time of payment."
[198] Nothing could be clearer: the debtor must return the amount in figures
lent and must return this amount only in the specie in currency at the time
of payment.
[199] "Any stipulation", says Duvergnier, "which would directly or
indirectly result in authorizing the lender to refuse currency at its legal
value must be without effect." (Droit civil, Vol. VI, p. 198.)
[200] And Fiore says: "If, for reasons of public interest, the law provided
that bank-notes should be given and received in payments as ready money at
their nominal value, in spite of any legal provision or any stipulation to
the contrary, the creditor could not refuse them or receive them only as a
lesser value." (Droit international prive, Vol. I, No. 195.)
[201] The French Civil Code, Article 1895, was in force at the time when the
Brazilian loans were contracted, and the subscribers could not be ignorant
of it. They therefore knew that, in paying in bank-notes, which are one of
the currencies which are legal tender (law of August 12th, 1870), a debtor
would discharge his obligation, and a creditor would not be entitled to
refuse the payment: refusal would even constitute an offence which is
expressly provided for under Article 475, § 11, of the Penal Code.
[202] 19.—In contracts, it may be said, it is the will of the Parties that
controls, and the Parties in this case might very [p150] well have intended
to exclude payment in bank-notes and to provide for payment in gold alone.
[203] No, that would not be possible: the laws governing legal tender are
laws appertaining to public policy, since they are directly concerned with
the administration of the country and with its social structure, and
consequently contracts of a private law character have no force as against
such laws. This is the principle embodied in Article 6 of the French Civil
Code [Translation.]: "Contracts of a private law character cannot derogate
from laws concerning public policy."
[204] "The rule", Aubry and Rau state, "that payments of sums of money must
be made according to the nominal value of the currency at the time when
these payments were effected, being a rule founded on interests relating to
public policy, it follows that any contract infringing such rule must be
considered as void." (Cours de Droit civil, 4th ed., Vol. IV, § 318, p.
159.)
[205] "Notes of the Bank of France", Planiol states, "may be used for
payments in place of gold or silver, and that is so whatever be the sum to
be paid. The creditor is not entitled to refuse payment, and ALL CONTRACTS
TO THE CONTRARY ARE VOID, the law making bank-notes legal tender being one
of public policy." (Traite de Droit civil, Vol. II, 6th ed., p. 144, No.
423.)
[206] But there is no need to have recourse to text-books to prove that
Article 1895 of the French Civil Code is a provision of the nature of public
policy. This nature is recognized by the Penal Code, which, by Article 475,
§ 11, as has already been observed, punishes "whosoever refuses coin or
money of the realm not being false or defalsed for their current value".
[207] 20.—Besides the Civil Code, other laws relating to public policy, the
law of legal tender (August 12th, 1870) and that of forced currency (August
5th, 1914) render the gold clause illegal in France. [p151]
IV.
The Jurisdiction of French Courts.
[208] 21.—The judgment in fact agrees with this affirmation as regards
forced currency but draws a distinction according to which "any gold clause
is void when it relates to a domestic transaction, but it is not so in the
case of international contracts even if payment is to be made in France".
[209] And in support of this, the jurisprudence of the French courts is
cited (page 35).
[210] According to the Special Agreement, Article VI, "in estimating the
weight to be attached to any municipal law of either country which may be
applicable to the dispute, the Court .... shall not be bound by the
decisions of the respective courts".
[211] That evidently means that "the Court is bound to set on one side the
decisions of international tribunals and itself to give that interpretation
of the legal provisions which may seem most just in the particular case".
[212] If the Court believed that it had not this right, nor had it the right
to accept as definitive, without any personal examination of the public
policy legislation of which we have spoken, the interpretation resulting
from the jurisprudence of the French courts, which had been expressly
excluded by the common consent of the Parties, and in that case it should
have abstained from deciding the question of the applicability of that
legislation to the payments to be made in France.
[213] It is notwithstanding what the judgement has done, amidst difficulties
arising from the fact that the dispute is to be determined by private law
and therefore does not come within the Court's jurisdiction.
[214] But the jurisprudence of the French courts in this matter has not that
continuous, uniform and fixed character which is required in order to make
it binding. The pleadings before the Court have clearly shown that for the
purpose of estimating the validity or nullity of the gold clause, this
jurisprudence bases itself at times on the nationality of the Parties, at
others on domicile, at others on the locality of payment and at others on
the nature of the contract. [p152]
[215] Judgments exist in support of varying opinions.
[216] Anyhow, M. Georges Hubrecht, in a book published only about five
months ago, in which he considers at length all the phases of the
jurisprudence of the French courts and not merely a few judgments, observes
that after all these modifications this jurisprudence appears to have become
fixed and to have consecrated the following principle: "It is the place of
payment which is the sole determining factor for deciding whether the gold
clause or the foreign currency clause is valid or not on grounds of forced
currency."
[217] It is therefore not sufficient that there shall be an international
agreement in order to render the law on forced currency inapplicable;
account must be taken of the place of payment under the agreement; if it is
in France, the French law on forced currency is applicable.
[218] "In the case of any payments of French francs which are made in
France", M. Savatier states, "the French laws on fiduciary circulation are
obligatorily applicable; paper francs and gold francs as we have defined
them are necessarily considered to be identical.... On the contrary, there
is no authority compelling the application to a foreigner of laws of police
and public safety such as those with which we are concerned.... It is thus
seen how simply and easily the question of the validity of the gold clause
in international relations may be decided; it will be sufficient to look to
the place of payment." (Dalloz, 1926, 2nd Part, p. 107.)
[219] And M. Niboyet, also cited by the Brazilian Memorial, says : "Forced
currency is obligatory in international relations in the same way as in
domestic relations, in all cases when that payment is to be made on French
territory."
[220] 22.—Reference is made to the law of June 25th, 1928, which abolished
the forced currency set up by the law of August 5th, 1914, and, after
defining the franc, the French monetary unit, declares (Art. 2) that: "This
definition shall not apply to international payments which, prior to the
promulgation of the present law, may have been validly stipulated in gold
francs."
[221] But no argument can be drawn from that provision as regards the
Franco-Brazilian affair. The law of June 25th, 1928, is two months later in
date than the Special Agreement, and a [p153] legislative act later in date
than the dispute and emanating exclusively from one of the Parties cannot be
invoked against a right previously acquired by the other Party.
[222] 23.—The considerations set forth in this last chapter serve to show
that, even admitting the obligation to pay in gold as regards the Brazilian
loans, the conclusions of the judgment are too absolute: due account should
have been taken of the restrictions by which French public policy
legislation—the Civil Code, the laws on legal tender and on forced
currency—limits the Court's latitude of choice in the matter.
(Signed) Epitacio Pessoa.
[p154] Annex to Judgment No. 15.
DOCUMENTS SUBMITTED TO THE COURT BY THE PARTIES
IN THE COURSE OF THE PROCEEDINGS.
I.—Documents submitted by the agent to the French government:
A.— Annexes to the Case:
Special Agreement (August 27th, 1927).
Note from the French Embassy to the Brazilian Federal Minister for Foreign
Affairs (September 1st, 1924).
Decree No. 6368 of February 14th, 1907, modifying the special instructions
for carrying out the improvement works on Ports, issued by Decree No. 4859
of June 8th, 1903.
Law No. 1837 ºf December 31st, 1907.
„ ,, 1841 ,, ,, ,, ,,
Decree No. 7003 of July 2nd, 1908.
Extract from contract made on August 4th, 1908, between the Brazilian
Government and MM. Bartissol and Demetrio Nunes Ribeiro for carrying out
works of improvement in the Port of Recife (Pernambuco).
Decree No. 7207 of December 3rd, 1908, authorizing an issue of bonds for the
payment of works of improvement in the port of Recife.
Prospectus of 1909 loan.
Extract from contract made on October 25th, 1909, between the Federal
Government of the United States of Brazil and the Goyaz Railway Company.
Extract from contract entered into by the Credit mobilier francais and the
Goyaz Railway Company, February 10th, 1910.
Decree No. 7877 of February 28th, 1910.
,, ,, 7878 ,, ,, ,, ,,
Prospectus of 1910 loan.
Bond of 1910 loan.
Extract from Decree No. 8648 of March 31st, 1911.
Decree No. 8794 of June 21st, 1911.
Prospectus of 1911 loan.
Bond of 1911 loan.
Extract from law of 17th Germinal Year XI (March 28th, 1803).
Extract from law of August 5th, 1914.
Law of February 12th, 1916.
Extract from a Judgment of the Court of Cassation, May 17th, 1927.
Extract from a Judgment of the Court of Appeal of Paris, April 16th, 1926.
Extract from a Judgment of the Court of Nimes, January 9th, 1928.
Extract from a Judgment of the Court of Cassation, January 23rd, 1924.
B.— Annexes to Counter-Case:
Extract from monetary law of June 25th, 1928.
Judgment of the Court of Appeal of Paris (February 15th, 1924). [p155]
C.—Documents filed during the hearings:
Prospectus of 1909 loan.
II.—Documents submitted by the agents to the Brazilian and French
Governments:
Original certificates of the bonds of the 1909, 1910 and 1911 loans.
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