REVIEW OF LITERATURE

THE ROLE OF THE IMF IN PEACE AND SECURITY BY JAMES M. BOUGHTON, 37

In this article, the author have just prepared a very quick little talk. The first point he like to
make is that this topic of the IMF and Peace and Security was absolutely central at the time that
the IMF was founded. It was not a peripheral issue at all. The two intellectual founding fathers of
the Fund are shown here in the photograph, sharing a private joke of some kind in the corridors
of the Mount Washington Hotel during the Bretton Woods Conference that established the IMF
and the World Bank in July, 1944. Harry Dexter White, who was the de facto head of the U.S.
delegation. These two men together drafted the charters for the IMF and the World Bank in
1944. They worked together throughout the period of World War II, at least since the United
States joined the war effort at the end of 1941. The management and staff of the IMF participate
regularly in various agency meetings throughout the U.N. system. This role has increased over
time, and it has become even more intense recently owing to the crucial role of the IMF in
helping achieve the Millennium

ROLE OF THE IMF IN THE GLOBAL FINANCIAL CRISIS by Miranda Xafa, 30 Cato
J. 475 (2010).

In this article, the author reviewed the role of the IMF in the global crisis and argue that the Fund
has emerged as a powerful institutional force, providing analysis and recommendations that have
served as the basis of official action on several fronts. By contrast, the Fund was barking up the
wrong tree when it focused its attention on the global imbalances and adopted the Surveillance
Decision in the run-up to the crisis in 2006-07. The Fund helped shape the global policy response
through its policy advice and spot-on analysis of global economic and financial conditions,
contributing to the process of modernizing the global financial architecture. It was also quick to
adapt its own surveillance activities and lending policies in response to the crisis.

EXCHANGE RATE POLICIES: THE ROLE AND INFLUENCE OF THE

In this article, the author discussed about the role and influence of the International Monetary
Fund on exchange rate policies. Most of you know something about the IMF. The IMF and the
World Bank are separate international, intergovernmental organizations that have their origins in
the 1944 Bretton Woods Conference. Henceforth, the common interest of members in exchange
agreements and exchange rate policies was recognized; these were suitable matters for
international scrutiny and cooperation. Regulation of the external value of money was the
linchpin of the new system: international money arrangements were to be based on fixed (but
adjustable) values-that is, par values. Under this system, the basic responsibility for maintenance
of par values would be on the member states. Thus, the Fund is engaged in identifying and
assessing not just exchange rate policies, but members' economic policies in general. And
members accept this as a matter of course. There is no place left for a concept of "domestic
jurisdiction." In commenting on the role and influence of the Fund on exchange rate policies, it
should be recalled that the political will of the Fund's membership is the determinative quality.
 ORIGIN AND ROLE OF IMF

The International Monetary Fund is a cooperative international monetary organization whose

The Articles of Agreement that created the IMF and govern its operations were adopted at the
United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, on July
22, 1944, and entered into force on December 27, 1945.

Article I sets out the mandate of the IMF as follows:

• To promote international monetary cooperation through a permanent institution which provides

• To facilitate the expansion and balanced growth of international trade, and to contribute thereby
to the promotion and maintenance of high levels of employment and real income and to the
development of the productive resources of all members as primary objectives of economic
policy; • To promote exchange stability, to maintain orderly exchange arrangements among
members, and to avoid competitive exchange depreciation;

• To assist in the establishment of a multilateral system of payments in respect of current

This mandate gives the IMF its unique character as an international monetary institution, with
broad oversight responsibilities for the orderly functioning and development of the international
monetary and financial system.

The IMF is best known as a financial institution that provides resources to member countries
experiencing temporary balance of payments problems on the condition that the borrower
undertake economic adjustment policies to address these difficulties. In recent years, IMF
lending increased dramatically as the institution played a central role in resolving a series of
economic and financial crises in emerging market countries in Asia, Latin America, and Europe.
IMF supervision of exchange controls

The effects of countries adopting new monetary policies, especially currency exchange controls,
might call into question the enforceability of many exchange and financing contracts. Exchange
controls can take the form of a limit upon the outflow of local currency, a limit on the outflow of
U.S. dollars, or mandatory rates of exchange.1 The IMF requires member states to enforce each
other’s exchange controls when imposed consistently with the IMF Articles of Agreement.

The Articles recognize exchange control in three main provisions. First, under Article VI
Section 3 members may control capital transfers without the necessity for seeking approval by
the IMF2

Under Article VIII Section 2(a), the second of the three main provisions, the IMF has
regulatory jurisdiction over restrictions on the making of payments and transfers for current
international transactions as defined by the Articles. A member may not impose such restrictions
unless they are approved by the IMF or are authorized by other provisions of the Articles. A
purpose of the IMF is to assist in the establishment of a multilateral system of payments in
respect of current international transactions, and in particular to assist in the elimination of
foreign exchange restrictions that hamper the growth of world trade3

Art. VIII 2 (b) International Monetary Fund Agreement

(a) Subject to the provisions of Article VII, Section 3(b) and Article XIV, Section 2, no member
shall, without the approval of the Fund, impose restrictions on the making of payments and
transfers for current international transactions.

(b) Exchange contracts which involve the currency of any member and which are contrary to the
exchange control regulations of that member maintained or imposed consistently with this
Agreement shall be unenforceable in the territories of any member. In addition, members may,
by mutual accord, cooperate in measures for the purpose of making the exchange control

1
Callejo v. Bancomer, S.A., 764 F.2d 1101, 1106 (5th Cir. 1985)
2
Art.VI s.3 of IMF ARTICLES OF AGREEMENT
3
Art.I (IV). Of IMF ARTICLES OF AGREEMENT
regulations of either member more effective, provided that such measures and regulations are
consistent with this Agreement.

Article VIII section 2(b) of the International Monetary Fund Articles of Agreement' makes
"exchange contracts" which are contrary to approved foreign exchange regulations of members
"unenforceable" and provides that member nations may further agree upon measures to enforce
each other's foreign exchange laws. In Banco do Brasil, S.A. v. A. C. Israel Commodity Co. 4
illustrates the serious shortcomings of IMF provisions for enforcing foreign exchange controls.
The case also suggests that general conflict of laws rules can be used to effectuate the policies
underlying exchange control laws.

This provision applies to both governments and private contracting parties in IMF member states
where exchange controls are imposed. Article VIII (2)(b) completely bars the enforcement of an
illegal exchange contract in any IMF member state.5

First the clause applies only to contracts and has therefore, it would appear, no application in
several other situations which may and do frequently arise in conflict of laws such as
proceedings in rem, claims in torts and restitution and suits based on foreign judgments It has
been suggested that the clause would not apply unless the transaction involves payment across
national frontiers, and that it may not have application to capital transactions.6

The clause however only renders exchange contracts unenforceable, a number of points have
been made, namely that to be hit by the clause the contract must be an “exchange contract” when
it was entered into, that the phrase “exchange contract” should be confined to contracts to
exchange one currency for another, and should not cover what English courts have called
monetary transactions in disguise.

The contract must involve the currency of a member, and it has been suggested that the phase
covers contracts which do so in substance as the manifest object of the clause is to conserve the
foreign exchange of countries7 The contract must be inconsistent with the exchange regulations

4
12 N.Y.2d 371, 190 N.E.2d 235, 239 N.Y.S.2d 872 (1963
5
. "Exchange Control and the International Monetary Fund" (1949-1950) 59 Yale L.J. 421-430.
6
Mann on legal aspects of money 6th edition paras 15.19 to 15.23
7
Ibid, para 15.29
of a member; it follows that a contract contrary to tariffs or other regulations of a member
country does not come within the ambit of the clause.8

The exchange regulations of the country must be consistent with the agreement; it would appear,
therefore, that regulations not approved by the fund would be outside the scope of the clause, and
a contract contrary to such a regulation would not be affected by the clause 9

It has been held by the courts of appeal that what are rendered unenforceable are exchange
contracts, that is, contracts to exchange currency of one country with the currency of another and
the clause doesn’t apply to legitimate trading contracts for the sale and purchase of metals10

 If “exchange contracts” are interpreted as contracts requiring settlements with means of
payment, whatever the contract may be under which the obligation arises the word “exchange” is
not redundant and the words “involve the currency of any member” can be understood to
perform two further purposes that are essential. The first purpose is to clarify that, in the
circumstances of the case, use of the means of payment would affect the balance of payments of
a member; the second purpose is to point to the member whose balance of payments would be
affected. Means of payment most often will be currency by any test, but they can include
whatever else is considered, from time to time, to fall into the category of means of payment in
international financial and commercial intercourse.11

It is submitted that Art VIII (2) (b) must be interpreted to ensure that it achieves its manifest
purpose, and as contracts to evade the exchange controls of a country are often likely to be given
a veneer of legitimacy, and the article would not be effective unless courts pierce the veneer of
the transaction to ascertain the substance of the arrangement, as the English courts have done.12

Legal writers, by contrast, are in a position to examine the theoretical, historical, and economic
foundations on which the law rests, to introduce new thoughts into the legal discussion, to
analyze carefully article VIII, section 2(b) from a comparative point of view and to put the
provision in the broader perspective of the international monetary system as a whole. Academics,
however, are not in a position to determine which of their views will ultimately prevail. The

8
Ibid, para 15.31S
9
EXCHANGE CONTROL AND THE INTERNATIONAL MONETARY FUND by ARTHUR NUSSBAUM
10
Wilson, Smithett & Cope ltd. v. Terruzzi, (1976) QB 683, (1976).
11
"EXCHANGE CONTRACTS", EXCHANGE CONTROL, AND THE IMF ARTICLES OF AGREEMENT by JOSEPH GOLD
12
Conflict of laws by Atul M Setalvad,LexisNexis,1st edition,pgno-726
implementation of a thought is largely in the hands of lawyers who, in their capacities as
legislators, judges, and administrators, understand that law must contribute to, rather than hinder,
the solutions of the problems today and prospects for tomorrow

Special drawing rights 

The SDR was created by the IMF in 1969 as a supplementary international reserve asset, in the
context of the Bretton Woods fixed exchange rate system. A country participating in this system
needed official reserves government or central bank holdings of gold and widely accepted
foreign currencies that could be used to purchase its domestic currency in foreign exchange
markets, as required to maintain its exchange rate. But the international supply of two key
reserve assets gold and the U.S. dollar proved inadequate for supporting the expansion of world
trade and financial flows that was taking place. Therefore, the international community decided
to create a new international reserve asset under the auspices of the IMF.13

The value of a SDR is based on a basket of key international currencies reviewed by IMF every

Basket of currencies determines the value of the SDR

The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which,
at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods
system in 1973, the SDR was redefined as a basket of currencies. Currently, the SDR basket
consists of the U.S. dollar, euro, Japanese yen, and pound sterling. Effective October 1, 2016, the
basket will be expanded to include the Chinese renminbi. The value of the SDR in terms of the
U.S. dollar is determined daily and posted on the IMF’s website.

SDR allocations to IMF members

Under its Articles of Agreement (Article XV, Section 1, and Article XVIII), the IMF may
allocate SDRs to member countries in proportion to their IMF quotas. Such an allocation

13
Special Drawing Rights: A Major Step in the Evolution of the World's Monetary System by Martin Barrett and
Margaret L. Greene.
provides each member with a costless, unconditional international reserve asset. The SDR
mechanism is self-financing and levies charges on allocations which are then used to pay interest
on SDR holdings. If a member does not use any of its allocated SDR holdings, the charges are
equal to the interest received. However, if a member's SDR holdings rise above its allocation, it
effectively earns interest on the excess. Conversely, if it holds fewer SDRs than allocated, it pays
interest on the shortfall. The Articles of Agreement also allow for cancellations of SDRs, but this
provision has never been used.

CASE LAWS –

Case Name -Wilson, Smithett & Cope ltd. v. Terruzzi

Citation - (1976) QB 683, (1976)

Facts –The plaintiffs were members of the London Metal Exchange and carried on business as
dealers and brokers in metals. Terruzzi was a resident of Italy who dealt in metals. The parties
entered into a series of contracts, including the six on which the plaintiffs sued in this case. The
six contracts provided for the delivery of specified volumes of copper and zinc three months
after the date of each contract. All dealings were in sterling. Under the contracts, Terruzzi was a
“bear,” selling specified amounts of metal for future delivery to the plaintiffs in the expectation
that the price would fall before delivery. He was not selling metals that he owned, but was
intending to gain a profit by receiving from the plaintiffs the difference after three months
between the higher price at which he purported to sell to them and the lower price at which he
was entitled to buy from the plaintiffs before the delivery date the amounts to be delivered. The
plaintiffs were bound under English law by their contracts in the LME form to buy and sell the
metals, even though Terruzzi was speculating. Contrary to his expectation, prices rose
substantially before the delivery date. The plaintiffs demanded “margin” in accordance with the
contracts, but Terruzzi refused to pay anything. The plaintiffs, exercising their contractual rights,
closed out the contracts and sold the metals back to Terruzzi. As a result, Terruzzi owed the
plaintiffs a substantial amount in sterling, for which they sued. Terruzzi defended on the ground
that, because the contracts were exchange contracts and contrary to exchange control regulations
of Italy, the contracts were unenforceable under the provisions of English law that give effect to
Article VIII, Section 2(b).

ISSUE

Whether the contracts were “exchange contracts” or not within the meaning of Article VIII,
Section 2(b).

Reasoning

Exchange transactions are generally understood to mean transactions which have as their
immediate object “exchange,” that is, international media of payment. The meaning of
“exchange contracts” cannot be broader. However, national enactments on exchange control
often invalidate unlicensed contracts not directly concerned with international media of payment,
such as unlicensed contracts for sale of foreign securities, or contracts for import or export
particularly where the price is determined in foreign currency. The criteria of “exchange
contract” must be gathered from the Agreement itself. The latter is exclusively concerned with
the handling of international media of payment as such. Therefore, contracts involving securities
or merchandise cannot be considered as exchange contracts except where they are monetary
transactions in disguise. And save for this exception, even if invalid under the law of the
“country of the currency,” other countries are not compelled to hold them unenforceable.

Judgment -

If Article VIII Section 2(b) was primarily a provision dealing with exchange rates, a member
would have had to ensure that its courts would treat as unenforceable an exchange contract
involving the currencies of two other members. For example, suit might be brought in England
on a contract made in England by which a resident of Greece agreed with a resident of Italy to
exchange drachma for lire at an exchange rate outlawed by either Greece or Italy or both. The
United Kingdom would have had no obligation with respect to the exchange rate for this
transaction under its exchange rate obligations, but Article VIII Section 2(b) would apply to the
case
BATRA VS EBRAHIM

CITATION -[1982] 2 Lloyd's Rep. 11

Facts -

Batra, resident in England, was a frequent visitor to India, where a daughter of his resided. To
obtain Indian rupees he paid sterling to Ebrahim, a money changer resident in England, who
provided rupees at the rate of 31 rupees, instead of the official exchange rate of 18 rupees, per
pound sterling. The proceedings instituted by Batra involved two of the transactions between the
parties. In one, entered into in 1970, Ebrahim undertook to provide two sums in India, 5,000
rupees in New Delhi and 15,000 rupees in Amritsar, on the occasion of Batra’s visit to India in
early 1971. Payment of the 5,000 rupees was a year late, and Batra claimed interest for that
year.The second transaction was entered into in 1972, when Ebrahim undertook to pay 74,000
rupees to the account of Batra’s daughter in Chandigarh. Ebrahim never paid this amount, and
Batra stopped his check for the sterling quid pro quo. Batra claimed damages based on the
difference between the official and the contractual exchange rates. The lower court gave
judgment for Batra, and Ebrahim appealed to the Court of Appeal.

 ISSUE

Whether the court in which an action is brought on an exchange contract that is unenforceable
under the provision must apply the provision even though it is not cited and relied upon by a
party to the proceedings

Reasoning

The transactions in this case are clearly within that article. Both England and India are members
of the International Monetary Fund. Both these transactions were exchange contracts involving
the currencies of England and India. If they were contrary to the exchange control regulations
either of England or India they are unenforceable in the territory of any member.

Expert evidence had been given that, except with the prior general or special permission of the
Reserve Bank of India, no person was permitted to enter into contracts for the sale of rupees for
foreign currency or the sale of foreign currency for rupees otherwise than at rates of exchange for
the time being authorized by the Reserve Bank. The transactions in issue had not been authorized
by the Reserve Bank.

Judgment -

Given Lord Denning’s view of “exchange contracts,” it was logical that he should explain the
objective of the Indian exchange control regulation, and by implication of Article VIII, Section
2(b), as follows:

 If the word “unenforceable” were used in the strict sense in which an English lawyer uses that
word, the Courts could leave it to the parties to decide whether or not to raise the point, just as
they did in the Statute of Frauds. We should construe this article in the same way as we construe
other international agreements. We should adopt such a construction as will promote the general
legislative purpose.

 On this basis it seems to me that if it appears to the Court that a party is suing on a contract
which is made unenforceable by art. VIII, (2)(b), then the Court must itself take the point and
decline to enforce the contract. It is its duty to do so. Otherwise the law of exchange control
would be easily evaded.

If money has been paid under it [a contract unenforceable because of Article VIII, Section 2(b)]
—and the consideration has failed then the money can probably be recovered back, Restitution
was not claimed in this case. It would give rise to problems related to Article VIII, Section 2(b),
because it would provide parties with the opportunity of riskless contravention of the exchange
control regulations to which they are subject. Lord Denning’s tentative view is an example of the
tendency of courts to rely on principles of their domestic law in interpreting provisions of a
treaty, even though the courts subscribe to the view that a treaty must be interpreted in a way that
gives effect to its purpose. The Court of Appeal considered its conclusion so obvious that the
defendant’s request for an adjournment or a new trial was refused. The court also refused leave
to appeal to the House of Lords.

BANK OF INDIA V. TRANS CONTINENTAL COMMODITY MERCHANTS LTD. & ANOR.

Citation - (1986) 2 Malayan Law Journal (M.L.J.) 342.

FACTS -

The first defendant ("TCCM"), a company resident in England, dealt in commodities throughout
the world and was a customer of the London branch of an Indian bank ("Bank"). The Bank
alleged that in 1975 TCCM had entered into 12 forward exchange contracts for the sale of U.S.
dollars to the Bank, but had defaulted by failing to make delivery, as a result of which the Bank
suffered loss and issued a writ in January 1976. Patel, whose residence is not mentioned in the
report but who may have been resident in Malaysia, had guaranteed TCCM's performance of its
contractual obligations, although Patel challenged the alleged scope of the guarantee. The
proceedings were protracted and led to judgment against TCCM, which for practical purposes
had disappeared, so that the substantive claim of the Bank was against Patel as guarantor. Patel
had succeeded in making amendments to his defense before the application was entered to make
the amendment proposed in this case. The proposal to make the amendment that was in issue in
the case was made after that date. Patel argued that once the court's attention is drawn to
illegality, however late, it is incumbent on the court to entertain the plea.

The Queen's Bench Division laid down the following principles on the treatment of illegality:

(1) When a transaction is on its face manifestly illegal, the court will refuse to enforce it whether
the point is pleaded or not and whether either party raises the point or not, and even though the
point arises for the first time on appeal. The reason is that the courts may not be used to enforce
unlawful contracts whatever the wishes of the parties may be.
(2) When a transaction is not on its face manifestly illegal, the ordinary rule applies that only
evidence relevant to a pleaded allegation is permissible.

(3) When a transaction is not on its face manifestly illegal, no special rule exists on pleading or
on granting leave to amend, save only that if persuasive and comprehensive evidence of illegality
emerges, even in the absence of a pleading of illegality, the court will take notice of it.

The court held that the case before it involved no necessary illegality. The Bank was an
authorized bank and had been doing foreign exchange business for many years without breach of
exchange control or illegality. TCCM had dealt in commodities and entered into numerous
foreign exchange transactions. The question of pleading had to be considered according to
principles (2) and (3) above. The court decided that in the circumstances of this case it would be
inappropriate to give leave to amend five years after the defense had been delivered, because
amendment would involve serious prejudice to the plaintiff and would be contrary to Patel's
voluntary undertaking. The Court of Appeal confirmed the principles set forth by the lower court
and the court's application of them. The Court of Appeal set forth the text of Patel's proposed
amendment and in commenting on it offered two remarks of some interest. First, part of the
proposal was an attempt to have the plaintiff prove that the contract sued upon was legal. That
proposition, the court held, could not be correct.

ISSUE

Whether the three principles laid down by the Queen's Bench Division for dealing with illegality
apply also to unenforceability under Article Vlll, Section 2(b)?

Reasoning

Batra v. Ebrahim strongly suggests that the three principles apply to unenforceability under
Article VIII, Section 2(b) even if the exchange contract that is unenforceable under the provision
is not illegal under the exchange control regulations that have not been observed.

Article VIII, Section 2(b) provides no support for the hypothesis that a contract is to be treated as
unenforceable only if the contract is illegal under the exchange control regulations that have not
been observed. The provision refers to contracts that are “contrary” to exchange control
regulations. The word seems to have been chosen with care to narrow the provision to a
particular legal consequence attached to a failure to observe exchange control regulations, and to
sweep up all cases of nonobservance if the conditions of the provision are satisfied.

Judgment -

Suppose that the parties do not draw Article VIII, Section 2(b) to the attention of a court in a
member country, and the court gives judgment for the plaintiff having had no knowledge of the
exchange control regulations offended by the contract. The plaintiff then seeks to enforce the
judgment in the court of another member

In dealing with Article VIII, Section 2(b), the High Court of Singapore decided to follow United
City Merchants (Investments) Ltd v.Royal Bank of Canada and Batra v. Ebrahim without
examining the merits of those decisions. This practice represents a traditional respect by other
courts of the Commonwealth for the decisions of English courts and not a conscious effort to
achieve the uniform interpretation of the Articles as a multilateral treaty

Irving Trust Company v. Mamidakis

Facts -

The plaintiff bank, chartered in New York State, sued the defendant, a citizen of Greece, who
had his office in Athens. He had the controlling interest in a Cypriot and two Panamanian
shipping corporations. One corporation had received a Eurodollar loan from the plaintiff in 1975,
and all three had received Eurodollar loans from the plaintiff in 1977. The defendant had
guaranteed the performance of all obligations under the loan agreements and the payment of
attorneys’ fees if the plaintiff placed collection with an attorney. One agreement of guaranty was
executed in London, and the other in Greece. One loan was disbursed through the plaintiff’s
branch in London, the other was a refinancing of accrued obligations. The corporations
defaulted, and the plaintiff sued the defendant for approximately $2.5 million. The court gave
judgment for the plaintiff.

The guaranty agreements provided that they “shall be governed by and construed and interpreted
in accordance with the laws of the State of New York.” The customary legal language of similar
transactions entered into in the State of New York was employed. The underlying loan
agreements and promissory notes also provided that they were “deemed to have been made under
and governed by the laws of the State of New York as to all matters of construction, validity,
effect and performance.” Each note contained a covenant that payments to be made at New York
should be “free and clear of and without deduction for any restrictions or conditions of any
nature hereafter imposed by the Republic of Panama, the Republic of Greece, the Republic of
Cyprus or the United States of America.” Repayment of the loans was to be made by requiring
the charterers of certain vessels to pay hire to an account at the plaintiff bank in New York.
Under the loan agreements, all notices, requests, and other communications were to be addressed
to the plaintiff in New York. The plaintiff retained the power to transfer the loan, from time to
time at its sole discretion, from any one of its branches to another branch. Any legal action was
to be brought in the courts of the State of New York or of the United States for the Southern
District of New York, as the plaintiff might elect. The defendant consented to all these
provisions.

The defendant pleaded that the foreign exchange control regulations of Greece prevented the
payment of U.S. dollars in New York to satisfy the guaranties without a license from the Bank of
Greece, and that the guaranties were null and void under Greek law because they had not been
licensed. The court held that Greek law had not been proved to its satisfaction, but the court
would assume, although it did not decide, that in the absence of a license, the defendant would be
subject to criminal penalties under Greek law.

Issue -

Whether in the commercial transactions the domestic law selected by the parties to govern their
agreement is binding on the parties?
Reasoning

. That rule, with respect to commercial transactions, is that the selection by the parties of the
domestic law to govern their agreement is binding when, as in this case, the law bears a
reasonable relationship to the agreement. The guaranty of an agreement to be performed in New
York in itself would be a sufficient contact with New York for this purpose. The court would
have concluded that the law of New York was the governing law even in the absence of a choice-
of-law clause. A passage from the opinion in the Zeevi case was quoted in which it was pointed
out that New York could maintain its pre-eminent financial position only if the justified
expectations of the parties to a contract were protected. A further passage was quoted for the
proposition that foreign legislation will not be given effect if it conflicts with the public policy of
New York. The Fund’s interpretation of Article VIII, Section 2(b), however, emphasizes that the
objection of the public policy of the forum cannot be raised against foreign exchange control
regulations in circumstances in which Article VIII, Section 2(b) applies.

Judgment-

The court held that it would apply the New York rule on the choice of law. Assuming that Greek
law would be violated by making payment as required by these agreements, Mr. Mamidakis
would be obligated under his agreement with the Bank to seek and obtain the currency control
licenses which he claims are necessary. Both plaintiff’s and defendant’s experts on Greek law
agree in their affidavits, that payment of the debt could be made if a license were obtained from
the Bank of Greece. Under those conditions, the risk of future inability to obtain such a license,
and its refusal by a government is ordinarily not a defense in a suit for breach of contractual
agreements. 

The effect of this reasoning is to place in the hands of any party who is subject to the exchange
control regulations of a country the power to decide that they shall not apply to him. All that he
has to do is to undertake to obtain a license to make him liable under an exchange contract even
if he applies for the license and it is refused. This result would negate the intent of Article VIII,
Section 2(b), which is to place national welfare above private interest.
A distinction can be made between the refusal of a license by exchange control authorities and a
party’s failure to apply for one or to take all reasonable steps to obtain one if the conclusion can
be reached that he had a duty to apply. In the latter event, a party may be liable in tort in some
legal systems even though he cannot be made liable on the contract because of Article VIII,
Section 2(b). Liability in tort may have an effect equivalent or comparable to a recovery on the
contract, and so produce a financial result that Article VIII, Section 2(b) seeks to prevent.
Nevertheless, the provision is confined to the field of contract.