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Avocats, autres représentants, expert(s), secrétaire du tribunal

Judgment

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

versus

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 :

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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.

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.

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?"

Conforming to the proposals jointly made by the Parties in Article III of the Special Agreement, in accordance with

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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.

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.

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 Brandâo, 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.

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 judgment1.

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 % 1911, that the payment of coupons which have matured and are not barred by prescription at this date and coupons which

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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."

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."

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 % 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.

It should also be noted that the French Government’s Agent concluded his first argument by asking for judgment in

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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.

1.

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 :

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 improvement of ports". This régime 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".

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'

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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 Octt>ber 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....".

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

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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 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 presidential decree dated March 31st, 1911, the Viaçao Géral 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 Viaçao Géral da Bahia Company"; the bonds were to be "of the nominal value of 500 francs".

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.

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
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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.

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 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.

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.

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

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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.

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 1909.

[TABLE]

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[TABLE]
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fonds cumulatif de 1/2 % sur le montant de la valeur des titres, et commencera en 1915. Accumulative Fund of 1/2 per cent, upon the amount of the nominal value of the bonds, and shall commence in 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. 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. 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. 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. 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. 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.
Daté le 24 juillet 1909. (Signé) José Antonio de Azevedo Castro. Dated this 24th day of July 1909 (Signed) José Antonio de Azevedo Castro.
Nous déclarons que la signature ci-dessus est celle du représentant du Gouvernement des États-Unis du Brésil. We declare that the above signature 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.—"
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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.Bond.
Le Gouvernement de la République des États-Unis du Brésil ayant, en vertu de l’autorisation qui lui a été accordée par la loi n° 2221 du 30 décembre 1909, ainsi que par les décrets présidentiels nos 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 : 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 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 :
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.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.
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 sep-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 Sep-

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tembre 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 1er septembre 1910. 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 générale 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 1st day of September, 1910.
Troisièmement. — Le remboursement des obligations se fera au moyen d’un fonds d’amortissement cumulatif de 1/2% par an ; le premier remboursement aura lieu le 1er 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 1er mars ou le 1er septembre qui suivra le tirage.Third.— The redemption of bonds shall be nade by means of an Accumulative Redemption Fund of 1/2 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.
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.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.
Cinquièmement. — Les intérêts sur les obligations cesseront deFifth.— The bonds shall cease to bear interest from the date on
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courir à partir de la date fixée pour leur remboursement, et les obligations remboursées seront immédiatement annulées. which they are redeemable, and the bonds redeemed shall be immediately cancelled.
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.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.
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.Seventh. —The bonds, as regards the capital and interest, shall be exempt from all present or future Brazilian taxes, whether ordinary or extraordinary.
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.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.
Londres, le 5 mars 1910. (Signe) José Antonio de Azevedo Castro. London, the 5th of March, 1910. (Signed) José Antonio de Azevedo Castro.
Nous déclarons que la signature apposée ci-dessus est celle du représentant du Gouvernement des États-Unis du Brésil. 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..... Due on...

For frs. 10.00, being six months’ interest on frs. 500.—"

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Loan of 1911.

Federal Government of the United States of Brazil.

4% Gold Loan 1911.

Authorized amount frs. 60,000,000.

Obligation de 500 francs. Bond of 500 francs.
Le Gouvernement fédéral de la République des États-Unis du Brésil ayant, en vertu de l’autorisation qui lui a été accordée par la loi n° 2221 du 30 décembre 1909, ainsi que par les décrets présidentiels n° 8648 du 31 mars 1911 (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 nécessaires pour contracter un emprunt qui sera appelé « Emprunt du Gouvernement fédéral du Brésil 4 % or 1911 », 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 : The United States of Brazil Federal Government, having by virtue of the authority given by Law No. 2221 of the 30th of December 1909, and by the Presidential Decrees No. 8648 of the 31st March 1911 (authorizing the revision of the contract of 31st October 1910 last with the Company Viaçao Geral da Bahia according to the Decree No. 8321 of 23rd October 1910) and No. 8794 of the 21st of June 1911, the necessary powers to effect a loan to be called "United States of Brazil Federal Government 4% Gold Loan 1911" for the construction 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 presents, 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° L’emprunt est représenté par des obligations payables au porteur, portant intérêts au taux de 4 % l’an, émises pour un montant de 60,000,000 de francs de capital nominal. 1. The loan shall be represented by bonds payable to bearer, bearing interest at 4 % per annum, issued for the sum of frs. 60,000,000 nominal capital.

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2° 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 Ier janvier et le Ier 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 industrielle de Paris, à raison de dix francs (frs. 10) or par coupon ; à Londres, au change du jour sur Paris. 2. 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 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 industrielle de Paris at the rate of 10 francs gold each coupon ; in London at the exchange of the day on Paris.
Le premier coupon sera payable le 1er janvier 1912. The first payment of 10 francs to take place on the first day of January 1912.
3° Le remboursement des obligations se fera au moyen d’un fonds d’amortissement cumulatif de 1/2 % par an pour être terminé en 1972 ; le premier remboursement devra être fait le 1er 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 auront lieu aux mois de décembre et juin de chaque année, quand elles seront au pair ou au-dessus du pair. 3. The redemption of the bonds shall be made by means of an Accumulative Redemption Fund of 1/2 % Per annum, the first redemption to take place on the first day of July 1916 and to terminate 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 drawings which shall take place in the months of December and June in every year.
Le tirage au sort des obligations aura lieu en présence d’un notaire public, et les résultats immédiatement publiés par voie d’annonce. Toutes les obligations sorties au tirage seront remboursées à 500 francs-or avec les intérêts dus le 1er janvier ou le 1er juillet qui suivra le tirage. 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 first day of January or the first day of July following the drawing.
4° 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. 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.
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5° Les intérêts sur les obligations cesseront de courir à partir de la date fixée pour leur remboursement, et les obligations remboursées seront immédiatement annulées. 5. The drawn bonds shall cease to bear interest from the date on which they are redeemable, and the bonds redeemed shall be immediately cancelled.
6° 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. 6. 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.
7° 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. 7. The bonds, as regards the capital and interest, shall be exempt from all present or future Brazilian taxes, whether ordinary or extraordinary.
8° Le Gouvernement pourra, dans le but de rembourser les titres en circulation, augmenter à toute époque les fonds d’amortissement, ou rembourser des titres par d’autres moyens, mais, dans ce dernier cas, en donnant un préavis de six mois. 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.
Londres, le 21 septembre 1911. (Signé) J. Ignacio Tosta. London, the 21st September 1911. (Signed) J. Ignacio Tosta.

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.

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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, Amsterdam 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 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.

The provision for payment of interest in gold cannot be construed as relating solely to a method of payment (modalité 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.

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.

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

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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 14 February 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.

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

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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.

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."

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

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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 "emission de 80,000 obligations de 500 francs 5 % or, soit 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 transaction with the bondholders, at least so far as may be necessary to clarify the meaning of the bonds.

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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.

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 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 "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 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.

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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 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."

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 contradicting 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 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.

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.

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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 proïnised 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 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.

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

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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 dévalorisation 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 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.

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

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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 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 77 1/2 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. 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.

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.

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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.

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.

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 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

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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.

"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:

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".... 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."

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.

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 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.

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.

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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.

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.

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

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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 payment 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 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." `

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.

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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.

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,

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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.

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.

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.

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.

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