PERMANENT COURT OF INTERNATIONAL JUSTICE.

[Translation.] July 12th,
File E.c. XVI
SIXTEENTH (EXTRAORDINARY) SESSION. Docket XVI. 3

Before:

MM. ANZILOTTI, President,
HUBER, Vice-President,
LODER, |
DE BUSTAMANTE,
ALTAMIRA,

ODA,
PEssôa,
HUGHES,

MM. BEICHMANN
? Depuiy-Tudges,
NEGULESCO, epuly- Judges

M. FROMAGEOT, Judge ad hoc.

Judges,

JUDGMENT No. 15.

CASE CONCERNING THE PAYMENT IN GOLD
OF BRAZILIAN FEDERAL LOANS CONTRACTED IN FRANCE,

The Government of the French Republic, represented by
Professor Basdevant, Assistant Legal Adviser to the Ministry
for Foreign Affairs,

VEYSUS

The Government of the Republic of the United States of
Brazil, represented by Professor Eduardo Espinola.

THE CourT,
composed as above,

having heard the observations and conclusions of the
Parties,

delivers the following judgment:
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 94

The Governments of the French Republic and of the Repub-
lic 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.

The letter of the French Minister reached the Registry on
April 27th and that of the Brazilian Minister on April 3oth,
1928 ; as, however, Article II of the Special Agreement pro-
vides 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.

According to the terms of the Special Agreement, the Court
is asked to give judgment on the following question :

“With regdrd to the Brazilian Federal Government’s
5 % loan of 1909 (Port of Pernambuco), 4 % loan of 1010,
and 4 % loan of 1011, 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 ?”

Conforming to the proposals jointly made by the Parties in
Article III of the Special Agreement, in accordance with
JUDGMENT No. I5.—-CASE OF BRAZILIAN LOANS . 95

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 Ist, 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 Ist, 1928 ;
by the Brazilian Government, October 31st, 1928.

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 accord-
ance with Article III, last paragraph, of the Special Agree-
ment, the case thus became ready for hearing as from
December ist, 1928. |

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 M® Albert Montel, Counsel before the
Court of Appeal of Paris, on behalf of the French Government.

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 docu-
ments a list of which is given in the annex to this judgment}.

Under Article III of the Special Agreement, the Parties
were to formulate their submissions in their respective Cases,

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 % xorr, that the
payment of coupons which have matured and are not
barred by prescription at this date and coupons which

1 See p. 154.
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 96

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 subse-
quently 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.”

The Counter-Case of the Brazilian Government contains the
following final paragraph which should be reproduced :

ce

... 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, pay-
ment 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 1s compulsory legal tender,”

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.

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 % 1011 loan.... that payment of coupons
which have matured and are not barred by prescription at
this date and coupons which shall mature, as also redemp-
tion 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.

It should also be noted that the French Government’s
Agent concluded his first argument by asking for judgment in
‘ JUDGMENT No. 15.—CASE OF BRAZILIAN LOANS 97

accordance with the submissions as formulated in his Case.

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.

According to the documents and information laid before
the Court by the Parties, the origin of the controversy sub-
mitted to the Court is as follows:

I.—By a decree dated June 8th, 1903, the Government of
the Republic of the United States of Brazil established a
“special régime for the carrying out of works for the improve-
ment of ports”. This régime -was subsequently modified
by a presidential decree dated February r4th, x907, to the
effect that “the works were to be carried out under govern-
ment’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 r4th, 1907,
as also with the requisite credit operations’’.

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‘
JUDGMENT No. 15.—CASE OF BRAZILIAN LOANS 98

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.

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, 1900, between
the Federal Government of the United States of Brazil and
the Goyaz Railway Company, according to which the Govern-
ment 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 author-
ized to do so by the Government,: the Company might
“sell the whole or a part of the bonds corresponding to the
railways....’’. |

In virtue of the foregoing arrangements, the Goyaz Railway
Company, on February roth, 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
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 99

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.

The prospectus, which is dated March 2nd, 1910, states that
subscription would take place at Paris and provincial French.
exchanges on March 17th, 1910.

The bonds were actually signed in 1 London on March 5th,
1910, by the duly authorized representative of the Brazilian
Government ; they will be analysed hereinafter.

III.—By a contract duly approved by a Brazilian presi-
dential decree dated March 31st, 1917, 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, 191I1, 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 Viaçao Geral da Bahia Company’’; the bonds were to be
“of the nominal value of 500 francs”.

The prospectus is dated May 12th, 19171; 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, 1orz: at Paris .... in
the provinces .... and in Brazil’ (Rio de Janeiro). The bonds
were signed in London on September 21st, 1011, by the duly
authorized representative of the Federal Government of the
United States of Brazil; they will be analysed hereinafter.

2.

It appears from the terms of Article I of the Special. Agree-
ment 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
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 100

laid before the Court confirm that this has indeed been the case,
except for the period from August Ist, 1914, to July 31st,
1917, inclusive, during which the interest on the loans was
in effect paid by means of ‘‘funding bonds” (bons de consoli-
dation) issued, with the authorization ofthe Brazilian Govern-
ment, 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 cer-
tain 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.

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.

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 indu-
cing 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 manifesta-
tions date from an earlier period.

However that may be, on September Ist, 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.

In these conditions, the Special Agreement of August 27th,
1927, was concluded, which, after stating in its preamble “that

13
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS ror

a dispute has arisen between the Brazilian Federal Govern-
ment 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 Courts jurisdiction.

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.
The bonds.—The terms of the bonds of the various issues are
as follows:
Loan of 1900.
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 dis-
positions de l’article 22, n° XIT, 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 États-Unis du Brésil est au-
torisé à émettre des obligations
pour un montant nominal maxi-
mum de 84.528.300 francs, dont le
produit est destiné au paiement des
travaux du port de Recife, je sous-
signé, José Antonio de Azevedo
Castro, délégué du Trésor du Bré-
sil à Londres, dûment autorisé, dé-

Frs. 500.—
Bond.

WHEREAS by virtue of the provi-
sions of Article 22, No. XII, of the
law No. 1847 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 and July
1908, the Government of the
United States of Brazil is auth-
orized to issue bonds to a maxi-
mum nominal amount of irs.
84.528.300, the proceeds whereof
are intended for the payment of
the works of the port of Recife,
I the undersigned, José Antonio
de Azevedo Castro, delegate of
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS

clare par les présentes au nom et
pour le compte dudit Gouverne-
ment que le porteur de cette obli-
gation a droit 4 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 Etats-Unis du Brésil 1909 —
Port de Pernambuco — Intérêt
annuel 5% », et jouit, tant à l’é-
gard du paiement des intérêts que
de l’amortissement, de la garantie
générale du Gouvernement et no-
tamment de celle du produit de
Vimpôt de 2% or, sur la valeur
officielle des importations étran-
gères 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% lan à partir du 1er février
1909 à l'échéance des rer février
et rer août de chaque année, le
premier paiement de 12 fr. 50
devant avoir lieu le rer août 1900.
Les intérêts sont représentés par
des coupons attachés aux titres et
sont payables à Paris en or à la
Banque française pour le Com-
merce et l'Industrie et au Crédit
mobilier français et sur les pla-
ces de Rio-de-Janeiro, Londres,
Bruxelles, Amsterdam et Ham-
bourg au cours du change à vue
sur Paris. -

4. Le remboursement des obli-
gations s'effectuera au moyen d’un

102

the Brazilian Treasury in London,
duly authorized, do declare by
these presents in the name and
for account of the said Govern-
ment that the bearer of this bond
is entitled to the sum of frs. 500

| forming part of the said loan sub-

ject to the provisions hereinafter
following : |

1. The Government issues im-
mediately 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 gen-
eral 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 Pernam-
buco 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 rst Feb-
ruary 1909, payable on the Ist
February and rst August in each
year, the first payment of frs.
12.50 to take place on the rst
August 1900. The interest is repre-
sented by coupons attached to the
bonds and is payable in Paris in

gold by the Banque francaise pour

le Commerce et Industrie and the
Crédit mobilier francais, and on the
markets of Rio de Janeiro, London,
Brussels, Amsterdam and Ham-
burg at the sight exchange of
the day on Paris.

4. The redemption of the bonds
shall take place by means of an
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS

fonds cumulatif de 4% sur lemon-
tant de la valeur des titres, et
commencera en IOI5.

5. Leremboursement 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 rer février
ou le rer août qui suivra immé-
diatement la date du tirage. Les

titres remboursés seront immé-
diatement annulés.
6. Le Gouvernement pourra,

dans le but de rembourser les ti-
tres en circulation, augmenter à
toute époque le fonds d’amortisse-
ment, 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 bré-
siliens présents et futurs. Elles
porteront la signature du délégué
du Trésor à Londres.

Daté le 24 juillet 1900.
(Signé) JOSÉ ANTONIO DE AZEVEDO
CASTRO.

Nous déclarons que la signature
ci-dessus est celle du représentant
du Gouvernement des États-Unis
du Brésil.

103

Accumulative Fund of 4 per cent,
upon the amount of the nominal
value of the bonds, and shall com-
mence in I9I5.

5. The redemption shall be ef-
fected; when the bonds are at par
or above par, by drawings by lot,
which shall take place in the pre-
sence 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 in-
terest on the rst February or Ist
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 lat-
ter case giving six months’ pre-
vious notice thereof.

7. The bonds are as regards
principal and interest free from
any Brazilian taxes present or
future. They shall bear the sign-
ature of the delegate of the Trea-
sury in London.

Dated this 24th day of July 1909
(Signed) JOSÉ ANTONIO
DE AZEVEDO CASTRO.
We declare that the above sign-
ature is that of the representative

of the Government of the United
States of Brazil.

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.—”
JUDGMENT No. 15.—CASE OF BRAZILIAN LOANS

104

Loan of I910.

Francs
500.— N° ....

Francs
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 Répu-
blique des Etats-Unis du Brésil
ayant, en vertudel’autorisation qui
lui a été accordée par la loi n° 2221
du 30 décembre rgog, ainsi que
par les décrets présidentiels nos
7877 et 7878 du 28 février 1910, les
pouvoirs nécessaires pour contrac-
ter un emprunt qui sera appelé
« Emprunt du Gouvernement des
Etats-Unis du Brésil 4% » pour la
construction de chemins de fer
fédéraux, pour un capital nominal
de 100.000.000 de francs, le sous-
signé 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, sou-
mis aux stipulations ci-dessous,
savoir :

Premièrement. — L’emprunt sera
représenté par des obligations
payables au porteur, portant inté-
rêts 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 cou-
pons y attachés, seront payés par
semestre aux porteurs de ces obli-
gations le rer mars et le rer sep-

Bond.

The Government of the Repub-
lic of the United States of Brazil,
having by virtue of the authority
given by Law No. 2227 of the 30th
of December 1909, and by the Presi-
dential 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’ rail-
ways for the nominal capital of frs.
100.000.000, the undersigned José
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 repre-
sented 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 rst day
of March and the 1st day of Sep-
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS

tembre de chaque année jusqu'au
complet remboursement de la tota-
lité des obligations par le Gouver-
nement. Le paiement des intéréts
aura lieu à Rio-de-Janeiro ; à Paris
dans les bureaux de la Société
générale pour favoriser le déve-
loppement du commerce et de l’in-
dustrie 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 géné-
rale, au change du jour sur Paris.
Le premier paiement de ro francs
aura lieu le ret septembre roro.

Troisièmement. — Le rembour-
sement des obligations se fera au
moyen d’un fonds d’amortisse-
ment cumulatif de 4% par an;
le premier remboursement aura
lieu le rer septembre 1912; il
s’effectuera par voié d’achat sur
le marché quand les obligations
seront au-déssous 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 pré-
sence d’un notaire public, et les
résultats seront immédiatement
publiés par voie d'annonce. Toutes
les obligations sorties seront rem-
boursées à 500 francs-or avec les
intérêts dus le rer mars ou le
rer septembre qui suivra le tirage.

Quatrièmement. — La somme
principale représentée par les obli-
gations 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

105

tember 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 Société géné-
vale pour favoriser le développement
du commerce et de l’industrie en
France, at the Banque de Paris et
des Pays-Bas, and at the Crédit
mobilier français, at the rate of 10
frs. gold each coupon ; in London
at the Agency of the said Société
générale and at the exchange of the
day on Paris, the first payment
of 10 francs to take place on the
ist day of September, 1910.
Third.—The redemption of bonds
shall be nade by means of an Accu-
mulative Redemption Fund of 4 per
cent per annum, the first redemp-
tion to take place on the 1st day of
September, 1972 ; it shall be effect-
ed 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 ad-
vertisement. All bonds drawn shall
be paid at 500 francs gold, with
the interest due on the 1st day of

‘March or the rst 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.

Fifih—The bonds shall cease
to bear interest from the date on
JUDGMENT No. 15.—-CASE OF BRAZILIAN LOANS

courir 4 partir dela date fixée pour
leur remboursement, et les obliga-
tions remboursées seront immédia-
tement 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’amor-
tissement 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 extra-
ordinaires. ‘

Huitiémement. — Le Gouverne-
ment pourra, dans le but de rem-
bourser 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 don-
nant un préavis de six mois.

Londres, le 5 mars Igro.

(Signé) Jost ANTONIO DE AZEVEDO
CASTRO.

Nous déclarons que la signature
apposée ci-dessus est celle du repré-
sentant du Gouvernement des
Etats-Unis du Brésil.

| decrees above mentioned

106

which they are redeemable, and
the bonds redeemed shall be imme-
diately cancelled.

Sixth—The bonds issued in
conformity with the laws and
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 necgssary 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, rgro.

(Signed) José ANTONIO
DE AZEVEDO CASTRO.

We declare the above to be the
signature of the representative
of the Government of the United
States of Brazil.

The following is the form of the coupon:

“Government of the United States of Brazil.
4 % Loan for construction of federal railways.

No. ....
For frs.
being six months’ interest on frs. 500.—

Due on …
10.00,

LE
JUDGMENT No. I5.--CASE OF BRAZILIAN LOANS

107

Loan of I911.

Federal Government of the United States of Brazil.
4% Gold Loan tort.
Authorized amount frs. 60,000,000.

Obligation de 500 francs.

Le Gouvernement fédéral de la
République des Etats-Unis du Bré-
sil ayant, en vertu de l’autorisa-
tion qui lui a été accordée par la
loi n° 2221 du 30 décembre 1900,
ainsi que par les décrets présiden-
tiels n° 8648 du 31 mars I9gII
{autorisant la revision du contrat
du 31 octobre 1910 passé avec la
Compagnie Viaçao Geral da Bahia
aux termes du décret n° 8321 du
23 octobre 1910) et n° 8794 du
21 juin 1911, les pouvoirs néces-
saires pour contracter un emprunt
qui sera appelé « Emprunt du Gou-
vernement fédéral du Brésil 4%
or IQII », pour la construction de
chemins de fer fédéraux (dans
l’État de Bahia) pour un capital
nominal de soixante millions de
francs (frs. 60.000.000), le soussigné
J. Ignacio Tosta, en qualité de
représentant dudit Gouvernement
fédéral et dûment autorisé, déclare
solennellement par ces présentes,
au nom et pour le compte de son
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 :

1°
par des obligations payables au
porteur, portant intérêts au taux
de4% Van, émises pour un mon-
tant de 60.000.000 de francs de
capital nominal.

L’emprunt est représenté |

Bond of 500 francs.

The United States of Brazil
Federal Government, having by
virtue of the authority given by
Law No. 2221 of the 3oth of
December 1909, and by the Presi-
dential Decrees No. 8648 of the
31st March 1911 (authorizing the
revision of the contract of 31st
October 1910 last with the Com-
pany Viaçao Geral da Bahia
according to the Decree No. 8321
of 23rd October 1910) and No.
8794 of the 21st of June ror, the
necessary powers to effect a loan
to be called “United. States of
Brazil Federal Government 4%
Gold Loan 19gxr” for the construc-
tion of federal railways (in the
State of Bahia) for the nominal
capital of frs. 60.000.000, the
undersigned J. Ignacio Tosta as
representative of the Federal
Government and duly authorized,
solemnly declares by these pre-
sents, in the name and on behalf
of the said Government, that the
bearer of the present bond has the
right to the sum of frs. 500, gold,
part of the said loan, subject to
the following clauses, namely :

1. The loan shall be represent-
ed by bonds payable to bearer,
bearing interest at 4% per annum,
issued for the sum of frs. 60.000.000
nominal capital.
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS

2° Les intérêts sur les obliga-
tions de la présente émission,
représentés par des coupons y
attachés, seront payés par semes-
tre aux porteurs de ces obligations
le rer janvier et le-re* juillet de
chaque année jusqu'au complet
remboursement de la totalité des
obligations par le Gouvernement.
Le paiement aura lieu à Rio-de-
Janeiro ; à Paris, dans les bureaux
de la Caisse commerciale et indus-
trielle de Paris, à raison de dix
francs (frs. 10) or par coupon ; à
Londres, au change du jour sur
Paris.

Le premier coupon sera payable
le rer janvier 1972.

3° Le remboursement des obli-
gations se fera au moyen d’un
fonds d'amortissement cumulatif
de4% par an pour être terminé en
1972 ; le premier remboursement
devra être fait le rer juillet 1916 ; il
s'effectuera par voie d'achats sur
le marché quand les obligations
seront au-dessous du pair, et au
moyen de tirages au sort qui au-
ront lieu aux mois de décembre et
juin de chaque année, quand elles
seront au pair ou au-dessus du
pair.

Le tirage au sort des obligations
aura lieu en présence d’un notaire
public, et les résultats immédiate-
ment publiés par voie d’annonce.

Toutes les obligations sorties
au tirage seront remboursées a
500 francs-or avec les intéréts dus
le rer janvier ou le rer juillet qui
suivra le tirage.

4° La somme principale repré-
sentée 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.

108

2. The interest on the bonds
of this issue, represented by cou-
pons attached to the same, shall
be paid half-yearly to the bearers
of the same on the first day of
January and the first day of July
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 Caisse commerciale et indus-
tyielle de Paris’ at the rate of
10 francs gold each coupon; in
London at the exchange of the day
on Paris.

The first payment of 10 francs
to take place on the first day of
January 1072. :

3. The redemption of the bonds
shall be made by means of an
Accumulative Redemption Fund
of + % per annum, the first re-
demption to take place on the first
day of July 1916 and to term-
inate in 1972. It shall be effected
by purchases on the market when
the bonds are below par, and when
at or above par by means of draw-
ings which shall take place in the
months of December 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 inter-
est due on the first day of January
or the first day of July following
the drawing.

4. 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.

14
JUDGMENT No. 15.—CASE OF BRAZILIAN LOANS

5° Les intéréts sur les obliga-
tions cesseront de courir à partir
de la date fixée pour leur rembour-
sement, et les obligations rembour-
sées seront immédiatement annu-
lées.

6° Les obligations
conformément aux lois et décrets
susmentionnés auront la garantie
absolue du Gouvernement à l'égard
du remboursement du capital et
au paiement des intérêts respec-
tifs, et à l'égard du service des
fonds nécessaires pour l’amortis-
sement de l'emprunt.

7° Les obligations, tant en ce
qui concerne le capital que les inté-
rêts, seront affranchies de tous
impôts brésiliens présents ou
futurs, soit ordinaires ou extraor-
dinaires.

8° Le Gouvernement pourra,
dans le but de rembourser les
titres en circulation, augmenter
à toute époque les fonds d’amor-
tissement, ou rembourser des titres
par d’autres moyens, mais, dans ce
dernier cas, en donnant un préavis
de six mois.

Londres, le 21 septembre 19rr.

(Signé) J. Icnacio Tosra.

émises

109

5. The drawn bonds shall cease
to bear interest from the date on
which they are redeemable, and
the bonds redeemed shall be im-
mediately cancelled.

6. The bonds issued in conform-
ity with the laws and decrees
above mentioned shall have the
absolute guarantee of the Govern-
ment as regards the payment of
the capital and of the respective
interest, and as regards the ser-
vice of the necessary funds for the
redemption of the loan.

7. The bonds, as regards the
capital and interest, shall be
exempt from all present or future
Brazilian taxes, whether ordinary
or extraordinary.

8. The Government may for
the purpose of paying off bonds in
circulation increase the Sinking
Fund at any time or pay off the
bonds by other means, but in such

-latter case giving six months’

previous notice thereof.

London, the 21st September 1911.

(Signed) J. Icnacio Tosta.

The following is the form of the coupon:

“Federal Government
of the United States of Brazil.

4 % Gold Loan Igir.
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.

is represented by coupons

They provide: ‘‘The interest
attached to the bonds and
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS IIo

is payable in Paris in gold by the Banque française pour. le
Commerce et l'Industrie and the Crédit mobilier français, and
on the markets of Rio de Janeiro, London, Brussels,  Amster-
dam and Hamburg at the sight ‘exchange of the day on
Paris.”

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 neces-
sary to make a complete engagement of independent nego-
tiability ; 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.

The provision for payment of interest in gold cannot be
construed as relating solely to a method of payment (modalité
de patemeni), 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 impos-
sible 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.

The provision for the payment of interest “‘on the markets |

of Rio de Janeiro, London, Brussels, Amsterdam and Ham-
burg 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.

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
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS III

law No. 1841 of the 31st December, 1907”. This article
_authorizes the President of the Republic to make the appro-
priate 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 author-
izes 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.

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.”

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
' JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS II2

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 redemp-
tion, 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 consi-
deration in construing the latter.

In this situation, reference is made to the prospectus invi-
ting 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
POnambuco.

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 ist
and August Ist 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.”

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 Decem-
ber 31st, 1907, and the decree No. 6368 of February x4th,
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
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 113

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.”

Thus we have the prospectus of this loan describing it as
“emprunt 5% or’ and the issue as an ‘‘émission de 80.000
obligations de 500 francs 5% or, soif 40 millions de francs,
en titres au porteur remboursables au pair en cinquante
années à 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 ?

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 trans-
action with the bondholders, at least so far as may be neces-
sary to clarify the meaning of the bonds.
| JUDGMENT No. 15.—CASE OF BRAZILIAN LOANS Il4

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 prospec-
tus 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 them-
selves.

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
. “émission de 80.000 obligations de 300 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 ‘“‘émission de 80.000 obligations de
500 francs’. That is to say, it is the obligations themselves
that are to have gold value.

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. responsi-
bility 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 descrip-
tion. of the loan in the prospectus,’confirms the same view.
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS II5

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.

The bonds of the issue of rg10 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.”

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. .

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 contradict-
ing the bonds. The obligation then in this case, according
to its terms, is for the payment of principal and interest in
gold francs.

The recital of the bonds of the issue of x91r is similar
to that of the bonds of 1010, 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 redemp-
tion, and for the payment of the interest in gold.

In view of these stipulations, it is not necessary to
recapitulate the documents which preceded the issue of
this loan.

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.
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS Ix6

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.

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 r4th, 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 Bra-
zilian 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 appro-
priately 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 pay-
ment of the principal and interest of the later loans.

As of what time is the standard of value to be taken?
Manifestly as of the time of the bond issues. The engage-

15
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS II7

ment 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.

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.

The argument of the Brazilian Government assumes that
the purpose of the gold clauses was to protect against depre-
ciation 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 safe-
guard, 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.

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 191: 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 :
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 118

case to be paid in Rio de Janeiro, in Paris, in London.

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 r7th 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 4o franc
pieces 774 to the kilogramme.”

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. 451071, au titre de goo/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 Ist, IOI4.

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.
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS IIg

It is concluded that the bonds should be construed as pro-
viding for payment in gold francs at the value fixed by the
law of the 17th Germinal; Year Eleven.

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 bank-
notes. 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 con-
tract 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 point-
ed out that, according to the prospectus issued by the Bra-
zilian Government and which is to be read in connection
with the bonds, it appears that the bonds were offered as
gold obligations.

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.

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 signi-
ficance, as during that period, and until rorg—if reference
be made to the gold dollar—there appears to have been only
a slight difference in the value of French currency as
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 120

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 consider-
ing 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 determ-
ine 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 opin-
ion 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..

“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.

The law applicable-—Counsel for the Government of the
United States of Brazil has summarized the argument of his
Government as follows:
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 121

ce

…. even Were it possible to conclude that the intention of
thé 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.”

Formulated in this way, the argument raises several ques- :
tions, and in the first place the question whether it is French
daw which in this case governs the contractual obligations
as such.

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.

Having regard to the nature of the bonds and to the cir-
‘cumstances 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.

The loans in question are loans contracted by the Govern-
ment 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 Trea-
Sury 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.
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 122

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 cir-
cumstances which would irrefutably show that such was its
intention. |

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 connec-
tion is that, according to the statement of the Government
of the United States of Brazil, which has not been dis-
puted, 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 consider-
ing 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. More-
over, the: prospectus which has been produced in respect of
the rorr loan states that subscription was to take place not
only at Paris and on French provincial exchanges, but also
in Brazil. os

But though the Court is unable to admit that the inten-
tion 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 prin-
ciple that a State is entitled to regulate its own currency.
The application of the laws of such State involves no diffi-
‘culty so long as it does not affect the substance of the debt
JUDGMENT No. 15.—CASE OF BRAZILIAN LOANS 123.

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. |

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 pay-
ment is to be effected in France.

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 muni-
cipal 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.” °

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.
JUDGMENT No. 15.—CASE OF BRAZILIAN LOANS 124

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.

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.
- 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.

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. .

Of course, the Court will endeavour to make a just appre-
ciation of the jurisprudence of municipal courts. If this is uncer-
tain 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 juris-
prudence 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

16
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 125

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 accord-
ing to which the Court considers that it must construe Art-
icle 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.

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.

Finally, the Court observes that the forced currency régime
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.”

This law replaces for the future the former legislation, so
that the reduction in the metallic value of the franc, as
newly defined, to about one-fifth of its original value will
not affect the ‘‘international payments’? which may previously
have been validly stipulated in gold francs.

FOR THESE REASONS,
The Court,
having heard both Parties,

by nine votes to two,
JUDGMENT No. I5.—CASE OF BRAZILIAN LOANS 126
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 rgro and
4% loan of r9rI, 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 redeem-
ed, must be effected by delivery to the French holders
in respect of each franc, of the value corresponding in thé
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.

This judgment having been drawn up in French in accord-
ance with the terms of Article 39, paragraph 1, second
sentence, of the Statute of the Court, an English translation
is attached thereto.

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 Govern-
ment of the French Republic and the Government of the
Republic of the United States of Brazil respectively.

(Signed) D. ANZILOTTI,
President.

(Signed) À. HAMMARSKJOLD,
Registrar.

MM. de Bustamante and Pessôa, 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.

(Imitialled) D. A.
(Initialled) À. H.


                     417

                                 Declaration of Judge ad hoc Gaja

                        1. When rejecting Costa Rica’s Application for permission to intervene
                     as a non‑party, the majority of the Court considered that the Judgment
                     on the merits would at any event protect the Applicant’s “interest of a
                     legal nature” that might be affected. Protection would be “accorded to
                     any third party, whether intervening or not” (para. 86). While the Court’s
                     intention to do this is clear, one cannot be certain that all the necessary
                     information would be available for effectively protecting a third State’s
                     interest. Thus, a third State may wish to intervene in the proceedings in
                     order to contribute to the determination of the nature and scope of its
                     legal interest at stake.
                        2. The only mechanism offered for that purpose by the Statute and the
                     Rules of Court to the third State is to request permission to intervene
                     under Article 62 of the Statute. In its most recent decision concerning
                     intervention in a case relating to maritime delimitation, the Court had
                     unanimously granted Equatorial Guinea permission to intervene (Land
                     and Maritime Boundary between Cameroon and Nigeria (Cameroon v.
                     Nigeria), Application for Permission to Intervene, Order of 21 Octo‑
                     ber 1999, I.C.J. Reports 1999 (II), pp. 1034‑1035, paras. 13‑16). The par-
                     ties to that case had not objected to the request, but the Court, while
                     noting this fact, did not rely on it as a justification for granting permis-
                     sion.
                        3. I fail to see how one could distinguish Equatorial Guinea’s request
                     in that case from Costa Rica’s Application in the present case. Moreover,
                     I cannot find compelling reasons for the Court to revert to its earlier and
                     more restrictive jurisprudence on the admissibility of intervention in cases
                     of maritime delimitation (Continental Shelf (Libyan Arab Jamahiriya/
                     Malta), Application for Permission to Intervene, Judgment, I.C.J. Reports
                     1984, pp. 18‑27, paras. 28‑43).

                        4. It is true that, when deciding the merits, the Court may take into
                     account (para. 51) the information provided by a party that has unsuc-
                     cessfully sought permission to intervene. However, it seems paradoxical
                     that, in a case of maritime delimitation, the only way for a third State to
                     submit information about its interest of a legal nature which may be
                     affected by a decision of the Court would be to make an application that
                     the Court considers inadmissible. This the more so given the cumbersome
                     procedure provided by Article 84 of the Rules when an objection to an
                     application for permission to intervene is filed.
                        5. If one accepts the approach taken by the majority of the Court in
                     the present Judgment, it would seem that the Court should establish a

                     73

7 CIJ1019.indb 142                                                                                13/06/13 16:02

                     418 	      territorial and maritime dispute (decl. gaja)

                     new procedural mechanism short of intervention that would allow third
                     States to submit information which they consider useful in order to pro-
                     tect their interests of a legal nature.

                                                                   (Signed) Giorgio Gaja.

                     74

7 CIJ1019.indb 144                                                                              13/06/13 16:02


496

DECLARATION OF JUDGE SHI

I am in agreement with the majority of the Court that, in the present
case, no basis of prima facie jurisdiction can be found for the indication
of provisional measures requested by the Applicant.

Nevertheless I am of the opinion that, being confronted with the
urgent situation of a human tragedy involving loss of life and suffering
which arises from the use of force in and against Yugoslavia, the Court
ought to have contributed to the maintenance of international peace and
security in so far as its judicial functions permit.

The Court would have been fully justified in point of law if, immedi-
ately upon receipt of the request by the Applicant for the indication of
provisional measures, and regardless of what might be its conclusion on
prima facie jurisdiction pending the final decision, it had issued a general
statement appealing to the Parties to act in compliance with their obliga-
tions under the Charter of the United Nations and all other rules of inter-
national law relevant to the situation, including international humanitar-
ian law, and at least not to aggravate or extend their dispute. In my view,
nothing in the Statute or the Rules of Court prohibits the Court from so
acting. According to the Charter, the Court is after all the principal judi-
cial organ of the United Nations, with its Statute as an integral part of
the Charter; and by virtue of the purposes and principles of the Charter,
including Chapter VI (Pacific Settlement of Disputes), the Court has been
assigned a role within the general framework of the United Nations for
the maintenance of international peace and security. There is no doubt
that to issue such a general statement of appeal is within the implied
powers of the Court in the exercise of its judicial functions. Now that the
Court has made its final decision on the request by the Applicant, it has
failed to take an opportunity to make its due contribution to the main-
tenance of international peace and security when that is most needed.

Moreover, in his letter addressed to the President and the Members of
the Court, the Agent of Yugoslavia stated:

“Considering the power conferred upon the Court by Article 75,
paragraph }, of the Rules of Court and having in mind the greatest
urgency caused by the circumstances described in the Requests for
provisional measure of protection I kindly ask the Court to decide
on the submitted Requests proprio motu or to fix a date for a hearing
at earliest possible time.”

19
497 LEGALITY OF USE OF FORCE (DECL. SHI)

In the recent LaGrand case, the Court, at the request of the applicant
State and despite the objection of the respondent State, decided to make
use of its above-mentioned power under Article 75, paragraph 1, of the
Rules of Court without hearing the respondent State in either written or
oral form (LaGrand (Germany v. United States of America), Order of
3 March 1999, I C.J. Reports 1999, pp. 13 and 14, paras. 12 and 21). By
contrast, in the present case the Court failed to take any positive action
in response to the similar request made by the Agent of Yugoslavia in a
situation far more urgent even than that in the former case.

It is for these reasons that I felt compelled to vote against the operative
paragraph 39 (1) of the present Order.

(Signed) Sui Jiuyong.

20