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Value maintenance in the Young Loan Arbitration: History and analysis*

Published online by Cambridge University Press:  07 July 2009

Hugo J. Hahn
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Extract

The origin of the litigation dealt with in this article, traceable to the lack of capacity to pay of German Governments after World War I and World War II, goes back to the period between these two conflicts. The German defeat in 1918 entailed economic consequences giving rise, inter alia, to the controversy adjudicated by the award of 16 May 1980. The Treaty of Versailles required the vanquished empire to assume entire responsibility by means of reparations payments for the losses and damage suffered by the victorious Allied Powers. At the outset, these liabilities were unlimited in amount. In 1921 their sum total was fixed by the London Payments Schedule at 132 milliards of gold marks (132,000 million), without any regard being paid to the problems involved in the raising and transfer of the funds. The combined impact of these measures and crippling post-war domestic inflation soon resulted in huge arrears, suggesting the impossibility of carrying out the agreement, and the conclusion that reparations could not be collected unless the German economy had sufficient strength to cope with that task.

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Articles
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Netherlands Yearbook of International Law , Volume 14 , December 1983 , pp. 3 - 39
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Copyright © T.M.C. Asser Press 1983

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References

1. Reichsgesetzblatt 1919, p. 687 et seq.Google Scholar, Arts. 231–233 (hereinafter referred to as RGB1.)

2. Dec. – Statement of Facts A.I., p. 7; Schedule of Payments … under Articles 231, 232 and 233 of the Treaty of Versailles, dated London, 5 May 1921, Martens NRG, 3ème Sér. 13 (1925) p. 669 et seq.

3. Final Protocol, Agreement on the “Experts Plan”, 41 LNTS (1925) p. 429 et seq.Google Scholar, No. 1024; RGBI. 1924 II p. 389 et seq.

4. 104 LNTS (1930) p. 243 et seq., No. 2394; RGBI. 1930 II p. 45 et seq.; comment by Heymann, , “Der Young-Plan” p. 14 et seq. (1929).Google Scholar

5. Dec, loc. cit. (n. 2. supra) p. 8, with further references.

6. ibid., and RGBI. 1930 II p. 288 et seq. (texts relating to the BIS); instruments relating to “German Government International 5½ % Loan”, 10 June 1930, at 104 LNTS (1931) p. 237 et seq., No. 2618; text of General Bond for that loan at p. 247 et seq.

7. On nominalism generally, see Mann, F.A., The Legal Aspect of Money, 4th ed. (1982) p. 266 et seq.Google Scholar; Nussbaum, , Money in the Law – National and International, 2nd. ed. (1950) pp. 172–80Google Scholar; Braun, , Monetärrechtliche Probleme vertraglicher Geldwertsicherung im grenzüberschreitenden Wirtschaftsverkehr (Dissertation Würzburg 1979), p. 258 et seq.Google Scholar, each with further references.

8. General Bond, Art. 6 (a); 112 LNTS (1930) pp. 247, 252.

9. While reparations payments already came to a halt in 1931 pursuant to the Hoover Moratorium as a result of the world economic crisis; comment by Irmler, , “Bankenkrise und Vollbeschäftigungspolitik,” in Währung und Wirtschaft in Deutschland 1876–1975 (Deutsche Bundesbank 1976) p. 283 et seq.Google Scholar

10. In spite of the trustee's protest, as evidenced by relevant passages in the annual reports of the BIS.

11. As reported by the US Foreign Bondholders Protective Council in 1936; cf., Dec, loc.cit. (n. 2, supra) p. 9.

12. Ibid.

13. Bundesgesetzblatt (hereinafter referred to as BGB1.) 1953 II 331 et seq. Parties: Source (UNTS)

14. Joint Resolution of the US Congress barring gold clauses approved on 5 June 1933, in the meantime repealed by an Act of 28 October 1977; in the Federal Republic of Germany, a comparable provision is Section 3 of the 1948 Currency Law, enacted by the Occupation Authorities of France, Great Britain and the United States, but now to a large extent restricted by judicial practice; cf., Mann loc. cit. (n. 7) p. 170 et seq.

15. Annex I A 2 (e), second sub-paragraph, of the LDA, BGB1. 1953 II p. 369 et seq.

16. Final Clause, LDA.

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18. Diss., para. 40, final sentence.

19. The five applications against the Federal Republic of Germany were filed on 27 and 28 May 1971; cf., para. 11 of the Applicants' Common Memorial (March, 1973).

20. The abstention of some creditor states, in particular The Netherlands and Sweden, in whose respective currencies a tranche of the Young Loan had been denominated, from the case, invites reflection as to whether the Applicants' procedural initiative carried conviction with all the governments concerned.

21. Bathurst, , “Creditor Protection in a Changing World – The Young Loan Arbitration,” 15 Texas International Law Journal (1980) pp. 519–64Google Scholar; Gianviti, , “Garantie de Change et Réévaluation Monétaire: L'Affaire de l'Emprunt Young,” 26 AFDI (1980) pp. 250–73CrossRefGoogle Scholar; Gold, , “The Fund Agreement in the Courts” 28 IMF Staff Papers (1981) pp. 411–36CrossRefGoogle Scholar; Hablitzel, , “Die Young-Anleihe von 1930 und die Entscheidung des Internationalen Schiedsgerichtshofes von 1980,” 36 Juristenzeitung (1981) pp. 49–53Google Scholar; Hahn, , “Abschluss des Young-Anleihe-Schieds-gerichtsverfahrens?,” 33 Zeitschrift für das gesamte Kreditwesen (1980) pp. 670–6Google Scholar; Kewenig, , “Young Plan Loans Arbitration,” II Encyclopedia of Public International Law (1981) pp. 296–8Google Scholar; Seidl-Hohenveldern, , “Zum Urteil des Schiedsgerichtshofes für das Abkommen über deutsche Auslandsschulden zur Young-Anleihe,” 23 GYIL (1980) pp. 411–13Google Scholar; in addition to extracts in 19 ILM (1980) pp. 1357–1408, 59 ILR (1980) pp. 494–590, and 27 Rivista di diritto internzionale privato e processuale (1981) pp. 204–28Google Scholar, with introductory note by Tullio Treves, the Decision's French text is carried in its entirety at 84 RGDIP pp. 1157–1247.

22. By Professor Dr. F.A. Mann; Dec, paras. 1–14, pp. 23–8, and Individual Opinion of Professor Dr. Karl Arndt, ibid., pp. 48–9.

23. Dec, paras. 2–13, pp. 24–7.

24. 112 LNTS (1931) p. 253, No. 2618.

25. Dec, para. 14, pp. 27–8.

26. Loc. cit. (note ** supra) pp. 1–47; Diss., ibid. pp. 50–84.

27. Annex XI to LDA, Art. 6, loc. cit. (n. 13 supra): “The Tribunal shall, in the interpretation of the Agreement and the Annexes thereto, apply the generally accepted rules of international law.”

28. For a selection, see Sur, L'Interprétation en Droit International Public (1974) p. 255 et seq.Google Scholar; Rosenne, , The Law of Treaties (1970) pp. 220–4Google Scholar, reports on the effect of that evolution on the Vienna Convention's legislative history.

29. Sinclair, The Vienna Convention on the Law of Treaties, (1973) pp. 1–26Google Scholar, passim, with further references.

30. English and French texts: 29 ZaöRV (1969) pp. 711–60.

31. Verdross, , Die Quellen des universellen Völkerrechts (1973) pp. 68, 93Google Scholar; Elias, , The Modern Law of Treaties (1974) p. 4.Google Scholar

32. Under its Art. 84, to come into force the Vienna Convention requires the deposit of 35 instruments of ratification or accession. The requirement having been complied with by the deposit of the Austrian instrument of ratification on 30 April 1979, so that” …das Übereinkommen…gemäss seinem Art. 84 Abs. 1 am 27. Jänner 1980 für Osterreich…” and 34' “…weitere Staaten in Kraft… trat;” declaration by Austrian Federal Chancellor, DrKreisky, Bruno, Bundesgesetzblatt für die Republik Osterreich, 1980, p. 775 et seq., p. 824.Google Scholar

33. Briggs, , 68 AJIL (1974) p. 51 et seq.CrossRefGoogle Scholar, with references.

34. Cf., 32 supra.

35. Decision in The Kingdom of Greece v. The Federal Republic of Germany, Arbitral Tribunal and Mixed Commission for the Agreement on German External Debts, Decisions and Opinions 1970/72, p. 42; comment by Hahn, , “Das pactum de negotiando als völkerrechtliche Entscheidungsnorm,” 18 Recht der Internationalen Wirtschaft/Aussenwirtschaftsdienst des Betriebsberaters (1972) pp. 11–14.Google Scholar

36. Diss., paras. 37–41, pp. 73–9.

37. Surveys by Germer, , “Interpretation of Plurinlingual Treaties,” 11 Harvard International Law Journal (1970) p. 400 et seqGoogle Scholar. Hilf, , Die Auslegung mehrsprachiger Verträge (1973) p. 54 et seq.Google Scholar

38. Cf., n. 37 and Hardy, , “The Interpretation of Plurilingual Treaties by International Courts and Tribunals,” 37 BYIL (1961) p. 72 et seq.Google Scholar; Mössner, , “Die Auslegung mehrprachiger Verträge,” 15 Archiv des Völkerrechts (1972) p. 273 et seq.Google Scholar; Rousseau, , Droit Public International I (1970), p. 290.Google Scholar

39. I.e., both French and German versions, as conference papers and drafts were almost exclusively in English.

40. Dec, para. 17, p. 29 final sentence; Seidl-Hohenveldern continues to see merit in the former practice, loc. cit., (n. 21) p. 411.

41. Dec, para. 32, pp. 40–1.

42. McNair, , The Law of Treaties (1961) p. 432.Google Scholar

43. Cf. nn. 37 and 38 supra.

44. See section 2.3 infra.

45. Dec, para. 34, p. 42, invoking Hyde, , International Law II (1947) pp. 1497–8 as authority.Google Scholar

46. Bcrnhardt, , Die Auslegung völkerrechtlicher Verträge (1963) p. 120Google Scholar; McNair, op. cit., (n. 42 supra) p. 420 et seq.

47. Dec, para. 34, p. 42.

48. 14 November 1959; Arbitral Commission on Property, Rights and Interests in Germany, Decisions III p. 253 et seq., p. 275 et seq.

49. Hilf, loc. cit. (n. 37 supra) p. 101.

50. Dec, paras. 38–40, pp. 45–6.

51. For further references, cf., nn. 21 and 37 supra.

52. “L'expression litigieuse doit être interprétée et appliquée dans un sens commun à toutes les Puissances signataires, “p. 394” …la recherche de l'intention des parties (et non d'une seule partie) reste le but principal de l'interprétation,” p. 397, Décision No. 136 (25 June 1952), Commission de Conciliation Franco-Italienne, U.N. Reports of International Arbitral Awards XIII pp. 389, 394, 397.

53. The coming into force was imminent as explained in n. 32 supra.

54. Diss., paras. 37–41, pp. 73–9.

54a. P.C.I.J., 12 July 1929, Brazilian Loans Case, Series A Nos. 20/21, No. 15, p. 114, remains so far the locus classicus of recourse to the “contra proferentem” rule.

55. Dec, para. 40 final sentence, p. 46.

56. de Visscher, Charles, Problèmes d'Interprétation Judicaire en Droit International Public (1963) p. 112Google Scholar.

57. Further references, Braun, op. cit. (n. 7), p. 344.

58. Armstrong Cork Company Case, Decision No. 18 (22 October 1953), Italian-U.S. Conciliation Commission, U.N. Reports of International Arbitral Awards XIV pp. 159, 167, with further references.

59. Lauterpracht, , “Treaty Interpretation and the Principle of Effectiveness in the Interpretation of Treaties,” 26 BYIL (1949) pp. 48 et seq., 72 et seq.Google Scholar; Schreuer, , “Interpretation of Treaties by Domestic Courts,” 45 BYIL (1971) pp. 256 et seq.Google Scholar, vol. 299. (1971) pp. 256 et seq., vol. 299.

60. Schermers, , International Institutional Law, vol. II, (1972) p. 557 et seqGoogle Scholar, Schwarzenberger, , International Law, vol. III, (1976) pp. 24–9.Google Scholar

61. Müller, , Der Vertrauensschutz im Völkerrecht (1972) p. 150Google Scholar; with reference to the Young Loan Arbitration, Seidl-Hohenveldern, loc. cit. (n. 21 supra) p. 411.

62. Mann, loc. cit. (n. 7 supra) p. 266 et seq.; Nussbaum, loc. cit. (ibid.) pp. 172–80.

63. Braun, op. cit. (n. 7 supra) pp. 1–21; Zehetner, , Geldwertklauseln im grenzüberschreitenden Wirtschaftsverkehr (1976) P. 11 et seq.Google Scholar; Hahn, , “Geldwertsicherung im Recht der Internationalen “Wirtschaft,” Festschrift für J. Bärmann (1975) p. 395 et seq.Google Scholar, id., “Value Clauses and International Monetary Law,” 22 GYIL (1979) p. 53 et seq.Google Scholar

64. Art. IV Sec. 2 of the revised IMF Articles of Agreement leaves the choice of the exchange arrangement to the discretion of each Member State; comment by Mann, op. cit. (n. 7 supra) pp. 59 et seq., 138 et seq., 515 et seq., with further references.

65. Fögen, , Geld- und Währungsrecht (1969) p. 44Google Scholar; Hoffmann-Riem, , Rechtsfragen der Währungsparität (1969) p. 7Google Scholar; Hahn, , “Aufwertung und Abwertung im Internationalen Recht,” Berichte der Deutschen Gesellschaft für Völkerrecht (1980) pp. 8–17.Google Scholar

66. Diss., paras. 30–1, pp. 69–70.

67. Por particulars, cf., Hahn, loc. cit. (n. 65 supra) p. 16 et seq., with further references.

68. Annual Report of the IMF Executive Directors 1958/94; 28th Annual Report of the Bank for International Settlements (1958) p. 175; 5oeme Rapport de Gestion, Banque Nationale Suisse (1957) p. 3Google Scholar; Geschäftsbericht der Osterreichischen Nationalbank (1957) p. 8.Google Scholar

69. Carreau, op. cit. (n. 17 supra) p. 251 n. 203.

70. Under Art. IV Sec. 5 (c) (ii) of the original IMF Articles of Agreement a change in par value exceeding 10 % required the Fund's concurrence.

71. IMF Summary Proceedings, Annual Meeting 1957, p. 147 et seq. (Declaration by Mr. Wilfried Baumgartner, French Minister of Finance).

72. Op. cit. (n. 7 supra) p. 172; to the same effect, Carreau, op. cit. (n. 17 supra) p. 208.

73. Hirschberg, , The Impact of Inflation and Devaluation on Private Legal Obligations` (1976) p. 40.Google Scholar

74. Dec, para. 19, pp. 30–1 with further references confirming the view set forth in the text as the determinant element in international judicial and executive practice.

75. For particulars, cf. Hahn, op. cit. (n. 65 supra) p. 37 et seq.

76. Dec, para. 20, p. 31; comment by Mann, op. cit. (n. 7 supra) pp. 60–1.

77. Braun, op. cit. (n. 7 supra) pp. 39 et seq., 217 et seq.

78. Mann, op. cit. (n. 7 supra) p. 199 et seq. and passim.

79. ibid., pp. 111 et seq., 289, 421; to the same effect, Braun (n. 7 supra) pp. 217–23, 233–7.

80. Dec, paras. 21–4, pp. 31–4.

81. Diss., para. 24, pp. 65–6.

82. Dec, para. 21 final sentence, p. 31.

83. Dec, para. 24, p. 32.

84. ibid., at p. 33.

85. Affirmative comment by Seidl-Hohenveldern, op. cit. (n. 21 supra) p. 407.

86. Gold, op. cit. (n. 21 supra) p. 433.

87. For particulars, cf. Mann, op. cit. (n. 7 supra) pp. 144, 188–97, 198, 241, 290, 298.

88. Diss., paras. 14–23, pp. 56–65.

89. Mann, loc. cit., n. 87 supra.

90. At the time of the LDA's signature, this was the US Dollar, apart from the Swiss Franc.

91. Mann, loc. cit. and passim; Braun, op. cit. (n. 7 supra) pp. 56:8; Zehetner, op. cit. (n. 64 supra) p. 31 et seq.

92. Art. 6 (b) General Bond, 112 LNTS (1931) p. 31 et seq.

93. Cf. supra under 2.1.4 and nn. 45–48.

94. Under Annex I A.2(f) to the LDA, “In all respects other than those indicated above, the terms of the original Loan contracts shall be maintained.”

95. For particulars, cf. Horn, . Das Recht der internationalen Anleihen (1972) p. 225 et seq.Google Scholar

96. Dec., para 28, pp. 37–8, with further references.

97. ibid., p. 37.

98. Loc. cit. (n. 92 supra) at p. 251.

99. For particulars, cf. Horn, op. cit. (n. 95 supra) p. 305.

100. Dec, para. 28, pp. 37–8.

101. Diss., paras. 3–8, pp. 50–3.

102. To the same effect, Swiss Bundesgericht (25 May 1936), Entscheidungssammlung des Bundesgerichts, vol. 62 II, p. 140 et seq.

103. Dec, para. 30 at p. 38.

104. ibid.

105. For particulars, cf. Stolper, , Häuser, and Borchardt, , Deutsche Wirtschaft seit 1870, (1964) p. 282 et seq.Google Scholar; Art. 1 LDA: “The Parties to the present Agreement regard the provisions thereof and of the Annexes thereto as reasonable in the light of the general situation of the Federal Republic of Germany and as satisfactory and equitable to the interests concerned.”

105a. Cf., e.g., Case Concerning Rights of U.S. Nationals in Morocco, ICJ Reports 1952, 189; McNair, , The Law of Treaties, 2nd ed., (1961), p. 467Google Scholar; Rousseau, , Droit International Public, vol. 1, (1970) p. 281Google Scholar. Müller, Jörg P., Vertrauensschutz im Völkerrecht (1971) pp. 143–53Google Scholar (“Das Vertrauensprinzip bei der Vertragsinterpretation”); Ignaz Seidl-Hohenveldern, Case Note on the Young Loan Arbitration, loc. cit. (n. 21) pp. 405–7.

106. Cf., Wieacker, , Privatrechtsgeschichte der Neuzeit unter besonderer Berücksichtigung der Deutschen Entwicklung 2 nd ed. (1967) pp. 244 et seq.Google Scholar, 517 et seq., 540 et seq.

107. Favre, , “Interprétation objéctiviste des Traités Internationaux,” 17 ASDI (1960) pp. 75 et seq., 82.Google Scholar

108. Dec, para. 30, p. 39, final sentence.

109. Mann, op. cit. (n. 7 supra) passim, in particular pp. 101–7, 275–81; Seidl-Hohenveldern, op. cit. (n. 21 supra) p. 408, disagrees with the view set forth in the text.

110. Cf., Bekanntmachung des Treuhänders für die Konversions- und Fundierungsschuld-verschreibungen der Internationalen Anleihe des Deutschen Reiches von 1930, Bundesanzeiger 31 May 1980, p. 4, for the conclusion of the BIS regarding the bonds' redemption values.Google Scholar

111. To the same effect, Mann, op. cit. (n. 7 supra) pp. 60, 140 n. 13, referring to Dec, para. 24 pp. 34–5.

112. A result of Art. IV of the IMF Articles of Agreement, as revised effective 1 April 1978; yet “…multiplicity and fluidity of rates have become a burdensome fact of commercial life”; Mann, ibid., p. 440.

113. For particulars, cf. Hahn, , “Das Europäische Währungssystem,” 14 Europarecht (1979) p. 137 et seq.Google Scholar

114. Mann, ibid., pp. 159, 504–6, with further references.

115. Hahn, loc. cit. (n. 65 supra) pp. 54–9.

116. Nurkse, , International Currency Experience – Lessons of the Inter-War Period (1944) passim.Google Scholar

117. Comment in 58th Annual Report of the Board of Governors of the Federal Reserve System (1971) pp. 31–42, 52 et seq.; 23rd Annual Report of IMF on Exchange Restrictions (1971) p. 447 et seq.; Geschäftsbericht der Deutschen Bundesbank 1971, p. 40 et seq.Google Scholar, Carreau, , “L'Or”, 99 Clunet (1972) p. 797 et seq.Google Scholar; Zehetner, , Die Suspendierung der Goldkonvertibilität des Dollars (1973) p. 5 et seq.Google Scholar

118. Geschäftsbericht der Deutschen Bundesbank 1973 p. 46 et seq.Google Scholar; Carreau, , Flory, and Juillard, , Droit Economique International 2nd ed., (1980) pp. 157–9Google Scholar; Hahn, , Elemente einer neuen Weltwährungsordnung, Völkerrecht und Internationale wirtschaftliche Zusammenarbeit p. 215 et seq.Google Scholar, each with further references.

119. On the multiple causes of the phenomenon, , Aschinger, , Das neue Währungssystem – von Bretton Woods bis zur Dollar-Krise 1977, (1978) p. 11 et seq.Google Scholar, and Andersen, , Das internationale Währungssystem zwischen nationaler Souveränität und supranationaler Integration (1977) p. 141 et seq.Google Scholar

120. A representative sample is offered in the Swiss National Bank's monthly report for December 1981, at p. 32, showing that the U.S. Dollar had lost more than half its value in relation to the Swiss Franc.

121. In terms of the Deutsche Mark about 20 % since 1972, in terms of the Swiss Franc, at least 50 % and probably more; cf., Bulletin de la Banque Nationale de Belgique, June 1980, p. 56 et seq.

122. Ct, supra n. 109.

123. Hahn, op. cit. (n. 35 supra) p. 489 et seq.; Braun, op. cit. (n. 7 supra) pp. 212–16; Kohn, , Pactum de contrahendo im Völkerrecht (1971) p. 20 et seq.Google Scholar

124. Dec, para. 27, pp. 35–6.

125. Similarly, Queen's Bench Division in Lively Ltd. and Another v. City of Munich (30 June 1976) IWLR 1004 et seq., Socièté Anonyme Sucrière Générale v. Commission of EEC (9 March 1977) ECR 1977 I p. 1445.

126. For particulars, cf. Braun, loc. cit. (n. 7 supra) pp. 71 et seq., 172 et seq., with further references.