* Formerly Counselor, Legal Department, International Monetary Fund, Chargé de Cours des Facultés de Droit, France. The views expressed in this article are those of the author and do not necessarily represent the views of the International Bank for Reconstruction and Development.

1 Trib. Civ. Seine, March 3, 1875, Sirey 1877.2.25 (dictum only). As security for a loan, the borrowing government had pledged certain securities with French bankers and had agreed that the bankers could forfeit the security in the event of a default. Under French law, the forfeiture clause was invalid; it was apparently valid under Turkish law which was held to be the applicable law.

2 See, e.g., Mann, , “The Law Governing State Contracts” (hereinafter cited as “State Contracts” ), 21 Brit. Yr. Bk. of Int. Law 11 (1944)Google Scholar; “The Proper Law of Contracts Concluded by International Persons” (hereinafter cited as “The Proper Law” ), 35 ibid. 34 (1959); McNair, “The General Principles of Law Recognized by Civilized Nations “(hereinafter cited as “The General Principles” ), 33 ibid. 1 (1957); Schwarzenberger, , “The Protection of British Property Abroad,” 5 Current Legal Problems 294 (1952)Google Scholar; Verdross, , “Protection of Private Property under Quasi-International Agreements,” 6 Nederlands Tijdschrift voor Int. Becht 355 (1959)Google Scholar; Bourquin, , “Arbitration and Economic Development Agreements,” 15 The Business Lawyer 860 (1960)Google Scholar; Jessup, , Transnational Law (1956)Google Scholar; Priedmann, , “Some Impacts of Social Organization on International Law,” 50 A.J.I.L. 475 (1956)CrossRefGoogle Scholar.

3 Such is particularly the case of Professor Verdross’ theory according to which there would exist “quasi-international agreements” between international and private persons, constituting “a new legal order, created by the concurring wills of the parties, i.e., the agreed lex contractus” which would regulate “the relation between the parties exhaustively” (loe. cit. note 2 above, p. 358). The idea that a contract can be the “law” of the parties is not new; it is characteristic of the well-known hypertrophy of the doctrine of autonomy proper to the French notion of “international payments,” sometimes referred to (not always correctly, see, e.g., Ray, “Law Governing Contracts between States and Foreign Nationals,” Proceedings of the 1960 Institute on Private Investments Abroad 5, at 30 (I960)) by Professor Verdross’ followers. Under the circumstances, it is not surprising that Professor Verdross’ proposal has encountered the same criticism as that which has been directed, both in France and abroad, against the French doctrine. See Mann, “The Proper Law,” p. 49.

4 Arbitral Award dated July 5, 1901, Descamps and Renault, Recueil International des Traités du XXème Siècle 188 (year 1901). As security for external loans, Peru had given to lenders a “Guano Guarantee” authorizing them to exploit guano deposits and to retain the profits derived from the exploitation to maintain loan service. Under Peruvian law, the “guarantee “amounted at best to a personal obligation of Peru and did not create any valid and effective security. To overcome the consequences of this conclusion, one plaintiff argued that the guarantee was not subject to the law of Peru but rather to international law, and constituted “un droit réel identique à l’hypothèque et consacré par le droit des gens. “Ibid. 370; see also pp. 252–253. It was held that, since only transactions between states can be subject to international law, the guano guarantee was governed by Peruvian law and the claim was consequently denied. Ibid. 370.

5 Series A, Nos. 20 and 21, pp. 42 and 121.

6 See, e.g., Broches, , “International Legal Aspects of the Operations of the World Bank” (hereinafter cited as Broches), 98 Hague Academy Recueil des Cours 301 (1959)Google Scholar; Sereni, , “International Economic Institutions and the Municipal Law of States” (hereinafter cited as Sereni), 96 Hague Academy Recueil des Cours 133 (1959)Google Scholar; Salmon, Le Rôle des Organisations Internationales en Matière de Prêts et d’Emprunts (hereinafter cited as Salmon) (1958); Delaume, , “International Machinery for Financing Economic Development,” 28 Geo. Washington Law Bev. 533 (1960)Google Scholar; Cutler, , “The Inter-American Development Bank,” 16 The Business Lawyer 22 (1960)Google Scholar; Metzger, , “The New International Development Association,” 49 Georgetown Law J. 23 (1960)Google Scholar; Fromentin, , “La Banque Européenne d’Investissement,” Ministère des Finances, Bulletin d’Information No. 2, p. 95 (Brussels, 1960)Google Scholar; Townsend, , “The Export-Import Bank of Washington: Organization and Operation,” U. of Illinois Law Forum, Legal Problems of International Trade 237 (1959 Spring Number)Google Scholar; Sauer, , “The Export- Import Bank and Private Investment,” 19 Fed. Bar J. 327 (1959)Google Scholar; Golby, , “The Development Loan Fund and Private Investment,” Ibid. 316 Google Scholar; Nurick, “The World Bank, The International Finance Corporation and Foreign Investment,” ibid. 308; Olmstead, , “Economic Development Agreements, Part I, Public Economic Development Loan Agreements; Choice of Law and Remedy,” 48 Calif. Law Bev. 424 (1960)CrossRefGoogle Scholar.

7 See Sommers, , Broches, and Delaume, , “Conflict Avoidance in International Loans and Monetary Agreements,” 21 Law and Contemporary Problems 463, at 466–469 (Summer, 1956)Google Scholar; Nurick, , “Choice of Law Clauses and International Contracts,” 1960 Proceedings, American Society of Int. Law 56 Google Scholar.

8 Loan Agreement dated Oct. 31, 1949, between the Republic of France, The Chase National Bank of the City of New York and other bankers, Sec. 10, par. 10.3. Similar stipulations are also found in various loan contracts, the provisions of which the present writer is not authorized to quote, negotiated in other, including European, financial centers. For an earlier American example, see Loan Contract between the Bepublic of Nicaragua and Brown Brothers & Co., etc., dated Oct. 8, 1913, Art. XV, reprinted in Dunn, American Foreign Investments 378 (1926, hereinafter cited as Dunn).

9 The provision currently used reads as follows:

“Applicable Law. This Loan Agreement shall be deemed to be a contract made under the laws of the District of Columbia, United States of America, and shall be governed by and construed in accordance with the laws of the District of Columbia, United States of America.”

10 Agreement dated Feb. 25, 1957 (Cmnd. 104), Art. XVI:

“ All questions with respect to the execution and interpretation of this Agreement and the notes or with respect to performance or non-performance hereunder or thereunder shall be interpreted according to New York law.’“ See also Townsend, loc. cit. note 6 above, at 241–245.

11 See Nurick, loc. cit. note 7 above, at 61. The majority of IFC investments provide for the issuance of notes denominated in U. S. dollars and payable in New York. IFC takes care that these notes are in any case valid under the laws of New York. This is especially important where “proper law” rules are relevant, and would render New York law applicable to such notes even in the absence of a specific provision stipulating the applicability of New York law.

12 Blondeel and Vander Eycken, “Lea Bmprunts de la Communauté Européenne du Charbon et de l’Acier,” 19 Eevue de la Banque 249, at 274 (1955).

13 Stein, and Hay, , “Legal Remedies of Enterprises in the European Economic Community,” 9 A. J. Comp. Law 375, at 407 (1960)Google Scholar. If the loan is guaranteed or secured and the guarantor belongs to a country other than that of the borrower, or the security is located outside that country, the law of the guarantor or that of the situs may be stipulated as applicable.

14 The following discussion is based largely on the views developed in Broches 316–353.

15 This conclusion is not impaired by the second sentence of Sec. 7.01, which reads as follows:

“. .. . Neither the Bank nor the Borrower shall be entitled in any proceeding under this Article to assert any claim that any provision of these Regulations or of the Loan Agreement or the Bonds is invalid or unenforceable because of any provision of the Articles of Agreement of the Bank or for any other reason.”

This provision is justified by the following considerations. On the one hand, the Loan Regulations (Sec. 7.04) provide for the settlement of loan disputes by an arbitral tribunal. On the other hand, the Articles of Agreement of the IBRD (Art. IX) stipulate that any question of interpretation of the Articles shall be submitted to the Executive Directors of the IBRD for their decision. In order to account for the Directors’ statutory prerogatives and to avoid having the arbitral tribunal pass judgment upon arbitrable issues conceivably involving the consistency of a loan transaction with the Articles of Agreement, it was necessary to remove all such issues from the jurisdiction of the arbitral tribunal. This is the rationale of the provision under review. Par from making the Loan Agreement a self-supporting instrument or from subjecting the loan relationship to the “internal law” of the IBRD (as suggested by Salmon 230; but see Adam, , “Les Accords de Prêt de la Banque Internationale pour la Reconstruction et le Développement,” 55 Revue Générale de Droit International Public 41, 55–56 (1951)Google Scholar; Sereni 160), this provision, therefore, is the natural complement of the first sentence of Sec. 7.01. It is intended only to avoid having specific issues within the jurisdiction of the Executive Directors adjudicated by the arbitral tribunal, which is otherwise competent to settle, on the basis of international law, disputes arising between the IBRD and a borrowing member country. See Broches 362–373.

16 “The rights and obligations of the Bank, the Borrower and the Guarantor under the Loan Agreement, the Guarantee Agreement and the Bonds shall be valid and enforceable in accordance with their terms notwithstanding the law of any state, or political subdivision thereof, to the contrary. .. “

17 Difficult questions may arise when the borrower is a dependent territory in a transitional stage towards full independence. See Broehes 351.

18 Ibid.

19 For examples, see ibid. 352–353.

20 See, e.g., Guarantee Agreement dated Feb. 17, 1959, between Japan and the IBRD (Sec. 2.01) relating to a loan made by the IBRD to the Japan Development Bank, 337 U.N. Treaty Series 205.

21 Broehes 351–353, 355–356; Adam, loc. cit. note 15 above, pp. 57–58.

22 Broches 352.

23 Loan Agreement between the IBRD and Crédit National pour faciliter la réparation des dommages causés par la guerre (guaranteed by the Republic of France), May 9, 1947, Art. IX, Sec. 2, 152 U.N. Treaty Series 111.

A slightly different formulation is found in other loan agreements of the same period such as the Agreement of Aug. 18, 1949, between India and the IBRD, Art. IX, Sec. 2, 154 U.N. Treaty Series 4:

“ The provisions of this Agreement and of the Bonds shall be interpreted in accordance with the law of the State of New York, as at the time in effect.’’

24 Sereni 206; Mann, “The Proper Law,” p. 38. See, however, note 28 below.

25 Re Helbert Wagg & Co., Ltd., [1956] 1 All E.R. 129, at 135.

26 See, e.g., in the case of loans, Barcelo v. Electrolytic Zinc Co. of Australasia, Ltd., (1933) Vict. L. R. 94, 48 C.L.R. 391. Cf. Irving Trust Co. v. Deutsch Atlantische Tel., 22 N.Y.S. 2d 581 (1940), dictum only.

Most cases concern shipping or other commercial contracts. See, e.g., Vita Food Products v. Unus Shipping Co., Ltd., [1939] A.C. 277; Overseas Trading Company, S.A. v. U. S., 159 F. Supp. 382 (Ct. CI., 1958). But see the Torni [1932], P. 78; Cass., March 3, 1924, The Produce Brokers Co. v. Société Maritime et Commerciale de France, Sirey 1924.1.252, Clunet 1926, p. 349.

27 See, e.g., Batiffol, Les Conflits de Lois en Matière de Contrats 151–155 (1938); Dicey, Conflict of Laws 728–729 (7th ed., 1958); Mann, The Legal Aspects of Money 138–139 (2d ed., 1953).

28 See Adam, loc. cit. note 15 above, p. 58; Salmon 228–229; Broches 357. See also Van Hecke, Problèmes Juridiques des Emprunts Internationaux 29, note 78 (1955).

Dr. Mann (“ The Proper Law,” p. 38, note 2), who bases his critical reasoning on the second type of provision quoted in note 23 above, which was avowedly less clear than that quoted in the text above, agrees that the fixation in point of time of the reference to the law of New York “would, indeed, involve a mere case of incorporation, not a choice of New York law.” However, even the second type of provision, whatever its meaning in the absence of any other indication of the parties’ intention as to the applicable law, cannot reasonably be construed as a choice-of-law provision in the face of the unambiguous statement of Sec. 7.01 of the IBRD Loan Regulations.

29 I t is believed that the last time this provision was used was on the occasion of the July 7, 1950, loan to Turkey (156 U.N. Treaty Series 75), which was the 28th loan made by the IBRD since the beginning of its operations.

30 See Mann, “Reflections on a Commercial Law of Nations,” 33 Brit. Yr. Bk. of Int. Law 20 (1957).

31 See Development Credit Agreement dated May 12, 1961, between Republic of Honduras and IDA, Art. VII, Sec. 7.01; Development Credit Agreement dated June 21, 1961, between India and IDA, incorporating by reference the provisions of Development Credit Regulations No. 1 of the IDA.

32 The relevant provision employed by the IADB appeared in various slightly differing forms in the initial loan contracts of that institution. The provision currently being used is:

“Los derechos y obligaciones establecidos en este Contrato son válidos y exigibles de conformidad con los términos en é1 convenidos, sin respecto a legislación determinada, y, en consecueneia, ni el Banco ni el Deudor podrán alegar la inválidez de ninguna de sus disposiciones.’’

33 See, e.g., in Switzerland, the prospectus of the Commonwealth of Australia 4½% Loan of 1960, reading as follows:

“ Any dispute between the bondholders, on the one side, and on the other side the Australian Government arising in connection with the bonds or the coupons of this loan shall be governed by Swiss law and shall be decided by the ordinary courts of the District [canton] of Bâle-Ville, subject to appeal to the Federal Tribunal at Lausanne.” (As translated.)

Similar provisions are found in other Swiss issues, such as those regarding the Belgian Congo Guaranteed 4% Loan of 1953; the Union of South Africa 4% Loan of 1952; or the Kingdom of Denmark 4½% Loan of 1959. Cf. in Germany the prospectus respecting the Oesterreichische Donaukraftwerke A.G. 6% DM Bonds of 1959, guaranteed by the Republic of Austria and two power companies.

34 See, e.g., the following provision regarding the IBRD 5% Deutsche Mark Bonds of 1959:

“All rights and duties arising out of or in connection with this issue are exclusively determined in accordance with the law of the Federal Republic of Germany. The place of performance and jurisdiction will be in Frankfurt am Main for all parties concerned.” (As translated.) Similar provisions are found in other IBRD bond issues in Switzerland (see, e.g., the prospectus of the 4½% Swiss Franc Loan of 1960) and in The Netherlands (see, e.g., the prospectus of the 3½% Netherlands Guilder Bonds of 1955). See also the prospectuses of the High Authority of the ECSC Swiss franc 4½% Loan of 1956 (quoted in note 69 below) and Netherlands Guilder 4½% Loan of 1961.

35 For example, no conflict-of-laws provision is found in bonds issued in New York by the Kingdom of The Netherlands, the Italian Republic, and the Kingdom of Norway in 1947, the State of Israel in 1950, the Kingdom of Belgium in 1954, and the Union of South Africa in 1955; or in bonds issued in Canada by the Commonwealth of Australia in 1955; or in bonds issued in England by the Commonwealth of Australia in 1948–1949. But see the prospectus (p. 4) of the Belgian Congo $15 million, Fifteen-Year 5¼% External Loan Bonds of 1958, due April 1, 1973, which provides that: “The Bonds will provide that the rights and obligations of the Government and the holders of the Bonds shall be governed by and construed in accordance with the laws of the State of New York.”

No provision of applicable law was made in bonds issued in the United Kingdom by the Japanese Government (6% Sterling Loan of 1924) or by the Kingdom of Iraq (Secured Sterling Loan of 1937). But see the Kingdom of Belgium Sterling Conversion Bonds of 1936 providing that English law would be applicable.

Bonds issued by the IBRD in the United States, Canada and the United Kingdom contain no stipulation of applicable law. Bonds issued by the High Authority of the ECSC in New York are governed by the law of that State (5½% Secured Bonds (Eighth Series) of 1957).

36 See Sommers, Broches and Delaume, loc. cit. note 7 above, pp. 472–473.

37 See the 5% 1932 and 1937 Bonds of the Czechoslovak Republic guaranteed by the Republic of Trance; the external loan of the French Republic of 1939 issued both in Switzerland and The Netherlands. Both provisions are quoted by Mann, “State Contracts, “pp. 20–21, and Delaume, , “Jurisdiction of Courts and International Loans,” 6 A. J. Comp. Law 189, at 205 and 206, note 46 (1957)Google Scholar.

38 See the provision in bonds issued in Switzerland by the Régie des Télégraphes et Téléphones, guaranteed by the Belgian Government (External Loan 4% of 1947), quoted by Delaume, ibid. 206.

39 “The Proper Law,” p. 51.

40 See Delaume, loc. cit. note 37 above, pp. 205–207; Sereni 223–224.

41 Delaume, ibid.

42 Delaume, ibid.

43 In the same sense, McNair, “General Principles,” p. 6. Bonds issued in the United States by the High Authority of the ECSC constitute a remarkable exception to the maxim “qui elegit judicem elegit jus.” The Bonds indeed provide simultaneously for the jurisdiction of the Court of Justice of the Community and for submission of the loan relationship to the law of New York. See Delaume, loc. cit. note 37 above, at p. 208.

44 Thus, in 1959 the Kingdom of Denmark borrowed $20 million in the New York market and contracted concurrently a loan from the IBED for the equivalent of $20 million. The proceeds of the bond issue were not allocated to a specific purpose. The IBED loan is intended to assist in the financing of specific power projects. See Loan Agreement dated Feb. 4, 1959, 328 U.N. Treaty Series 143, and the prospectus of the 5%% Fifteen-Year External Loan Bonds of 1959, p. 3. For other illustrations, see The World Bank, Policies and Operations 102–105 (IBED pub., 1960).

45 Thus, in 1959 Japan borrowed the equivalent of $40 million in a combined operation consisting of public offerings of $30 million of bonds in New York and of $10 million in the form of a loan made by the IBED to the Japanese Development Bank, a government agency. The purpose of the borrowings was to provide part of the funds needed for a hydroelectric power project. See Loan, Guarantee and Project Agreements dated Feb. 17, 1959, 337 U.N. Treaty Series 205, and the prospectus of the External Loan Bonds dated Jan. 15, 1959, p. 4.

46 Only the IBED Agreements dated March 5, 1957, have been published. See 272 U.N. Treaty Series 201. See, in particular, Sec. 5.02 of the Loan Agreement. The due execution of the Bankers’ Agreement was a condition of effectiveness of the IBRD loan (Loan Agreement, Sec. 7.02(b)), while the bankers’ obligation to make loans under their Agreement was conditional upon the execution of the IBRD Loan Agreement.

47 See the preamble of the Loan Agreement dated April 21, 1959, between the IBRD and the Cassa per Opere Straordinarie di Publico Interesse nell’Italia Meridionale (Cassa per il Mezzogiorno), guaranteed by the Republic of Italy (359 U.N. Treaty Series 191). See also the prospectus of the Southern Italy Development Fund, Guaranteed External Loan Bonds of 1959, pp. 3–4.

48 IBED Loan Agreement, Art. II, Sec. 2.02 and Schedule 3(d) (h) (i) and (k). Both loans also provided that the subsidiary loan agreements and other arrangements between the Cassa and the three beneficiary enterprises concerning the financing, construction and operations of the projects should contain provisions adequate to protect the interests of the Cassa and of the two lending organizations and could not be amended without the latters’ consent (IBED Loan Agreement, Art. IV, Sees. 4.01 and 4.03).

49 Loan Agreement dated Sept. 19, 1960. The text of the Water Treaty (in a French translation) is found in 65 Revue Générale de Droit International Public 452 (1961); English text reprinted in 55 A.J.I.L. 797 (1961).

50 For examples of such arrangements, see, e.g., Mann, , “Reflections on a Commercial Law of Nations,” 33 Brit. Tr. Bk. of Int. Law 20, at 26–27 (1957)Google Scholar; Delaume, , “Gold and Currency Clauses in Contemporary International Loans,” 9 A. J. Comp. Law 199 (1960)CrossRefGoogle Scholar. See also recently the agreements between the United States and (1) Ceylon (March 13, 1959, 342 U.N. Treaty Series 51) and (2) France (March 21, 1959, ibid. 71); the agreement dated Feb. 3, 1959, between the United Kingdom and Yugoslavia (343 ibid. 153), and the agreements between the United Kingdom and (1) Denmark (ibid. 258); (2) Austria (ibid. 263); (3) Belgium (ibid. 271); (4) France (ibid. 277); (5) Norway (ibid. 283).

51 Sept. 17, 1956, 340 U.N. Treaty Series 312. The view has been advanced that the loan would be subject to “American” law (see Blondeel and Vander Eyeken, loc. cit. note 12 above, at pp. 273–274). It would seem that the better view is that the loan is governed by international law. See Mann, “The Proper Law,” pp. 39–40; X. .., “La Personnalité Juridique de la Communauté Européenne du Charbon et de 1’Acier dans les Relations Internationales,” 1959 Annuaire Français de Droit International 714, at 722–723; De Soto, , “Les Relations Internationales de la Communauté Européenne du Charbon et de 1’Acier,” 90 Hague Academy Eecueil des Cours 29, at 59 (1956)Google Scholar.

Sereni is mistaken when he states that the loan is governed “b y national law, although it was pre-arranged through an international agreement” (p. 162); this statement is based on the erroneous assumption that the Export-Import Bank acted on its own account rather than as agent for the U. S. Government, a fact which is clearly stated in Art. I of the Loan Agreement. See also the U. S. Government loan to the United Nations for the construction of the headquarters building, March 23, 1948, 19 U.N. Treaty Series 43. Cf. the French Government loan to UNESCO for the same purpose, analyzed by Salmon 114–120, 313–317.

52 A first loan was made on Sept. 17, 1956 (340 U.N. Treaty Series 312). See Broches 383–384. A second loan was made on Oct. 23, 1961.

53 These transactions are equivalent to short-term loans. See Mann, , “Money in Public International Law,” 96 Hague Academy Eecueil des Cours 7, at 23–25 (1959)Google Scholar; see also Tew, , “The International Monetary Fund: Its Present Bole and Future Prospects,” Essays in International Finance 16–17 (Princeton University, No. 36, March, 1961)Google Scholar. From a strictly legal standpoint, however, they can be analyzed as a purchase and sale of currencies. See Fawcett, , “The Place of Law in an International Organization,” 36 Brit. Yr. Bk. of Int. Law 321 (1960)Google Scholar.

54 See, e.g., Agreement dated Oct. 6, 1959, between the Fund and Iran, 342 U.N. Treaty Series 89; Agreement dated Oct. 15, 1959, between the Fund and the Polish People’s Republic, 344 U.N. Treaty Series 29.

55 See, e.g., Agreement dated March 19, 1936, between Italy and Albania (Art. 3), 173 L.N. Treaty Series 83 (secured on the revenues of the Albanian tobacco monopoly).

56 See, e.g., Agreement Eegarding the Relief of Debts Contracted by the Kingdom of the Serbs, Croats and Slovenes, towards Australia, Denmark, France, Great Britain, The Netherlands, Norway, Sweden and Switzerland, dated Aug. 8–12, 1927 (Art. 6), 101 L.N. Treaty Series 483; the form of Bond annexed to the Agreement Concerning Polish Eeconstruction Debts, dated March 14, 1935, reproduced in 7 Hudson, International Legislation 39, 43 (1941).

57 Oct. 17, 1949, 155 U.N. Treaty Series 3.

58 Loan Agreement dated Jan. 22, 1957, between Iran and the IBED, 317 U.N. Treaty Series 129 (oil revenues); Loan Agreement dated Sept. 9, 1960, between Israel and the IBED (port revenues).

59 Loan Agreement dated June 15, 1950, 155 U.N. Treaty Series 267, and Annexed Indenture of Assignment (Arts. II and V).

60 Broches 358. Yet another situation is presented by the IBED loans to private borrowers. Even though under Sec. 7.01 of the Loan Regulations, the loan relationship itself (including the borrower’s obligation to create and maintain the security) is insulated against the operation of domestic law, reference is normally made in the loan agreement to domestic law in regard to such matters as those concerning the characterization, validity and enforcement of the security. See, e.g., the following loans made by the IBED to: (1) Corporación de Fomento de la Producción and Compania Carbonífera e Industrial de Lota (July 14, 1957, 228 U.N. Treaty Series 139, Art. V, Sec. 5.03), secured by “a hipoteca y prenda industrial of the first grade under the laws of the Republic of Chile”; (2) several Dutch shipping companies (July 15, 1948, 153 U.N. Treaty Series 211, 259, Art. VII, Sec. 1), secured by “a ship mortgage in accordance with the laws of the Kingdom of the Netherlands”; (3) K.L.M. Royal Dutch Airlines (March 20, 1952, 159 U.N. Treaty Series 207, Art. VI, Sec. 6.01), secured by a chattel mortgage on aircraft “executed in accordance with the laws of the respective states of the United States [California and New York], hereinafter specified”; or (4) Vorarlberger Illwerke Aktiengesellschaft (June 14, 1955, 221 U.N. Treaty Series 375, Art. V, Sec. 5.03), secured by “an assignment on account of payment (Abtretung zahlungshalber) within the meaning of the laws of the Guarantor. .. “[Austria], and by a mortgage on assets of the borrower (Sees. 5.04, 7.01(d) and 7.02(d) of the Loan Agreement).

61 See, e.g., Mann, “The Proper Law,” pp. 41–43; Sommers, Broches and Delaume, loc. cit., note 7 above, pp. 471–475.

62 An illustration is that of the IBRD bonds issued in the United States, the United Kingdom and Canada, which, unlike bonds issued by the IBRD on the Continent (see note 34 above), contain no stipulation of applicable law.

63 Mann, “State Contracts,” p. 21.

64 Ibid. See Swiss Fed. Trib., May 26, 1936, Aktiebolaget Obligationinteressenter v. the Bank for International Settlements, R.O. 62, II, 140. All the decisions, including those of the lower courts in this case, have been reproduced in League of Nations Doc. I.L. 18, Geneva, Feb. 11, 1937.

65 238 U.N. Treaty Series 340.

66 Blondeel and Vander Eycken, loc. cit. note 12 above, p. 274.

67 Salmon 293; Sereni 163.

68 Mann, “The Proper Law,” p. 54.

69 Prospectus, p. 26. See also the following provision in the prospectus relating to the High Authority 4¼% Loan of 1956 issued in Switzerland:

“ Le présent emprunt est régi par le droit Suisse, sauf en ce qui concerne 1’interprétation et 1’application du Contrat de Nantissement qui reste sounds au droit qui lui est propre.” (P. 4.)

70 An issue of this kind arose in 1934. Pursuant to Art. XIV of the Panama Canal Convention of 1903, it was agreed that the United States would pay to Panama “t he sum of ten million dollars in gold coin of the United States. .. and also an annual payment during the life of [the] Convention of two hundred and fifty thousand dollars in like gold coin.. .. “After the devaluation of the American dollar and the abrogation of gold clauses in 1933, the United States tendered payment in depreciated dollars. Panama refused to accept this payment and demanded instead that payment be made on a gold basis. The matter was finally settled by a new treaty increasing the balboa amount of the annuities payable by the United States while, simultaneously, the gold content of the balboa was reduced to that of the devalued U. S. dollar. See Broehes 346–350. See also 5 Hackworth, Digest of International Law 630.

71 See prospectus of the Republic of Panama 4.80% External Secured Bonds of 1958, containing as Appendix I the Fiscal Agency Contract, together with the form of bonds and the letters exchanged by the Panamanian and United States governments.

72 Such is not always the case. Thus, the Agreement concerning Polish Reconstruction Debts of March 14, 1935 (7 Hudson, International Legislation 39 (1941)), providing for the issuance of bonds by Poland to creditor countries, stipulated (Art. 5) that the bonds would remain in the creditors’ possession up to the date of their maturity. Other agreements are silent on the subject of the assignability of bonds issued thereunder, thereby probably excluding implicitly any assignment (see, e.g., Financial Agreement dated April 9, 1946, between Canada and France, Arts. 6 and 9, 43 U.N. Treaty Series 43). In other cases, assignments are subject to various restrictions and conditions (see, e.g., Loan Agreement dated Sept. 7, 1949, between Belgium and France, Arts. 5 and 6, 123 U.N. Treaty Series 14). See also Mann, “The Assignability of Treaty Eights,” 30 Brit. Yr. Bk. of Int. Law 475 (1953).

73 Mann, “State Contracts,” pp. 28–31; “The Proper Law,” pp. 56–57.

74 See, e.g., the Government of the United Kingdom 62–Year 3–3½% Gold Bond quoted by Mann, “State Contracts,” pp. 28–29; the Rumanian Bond issued to the British Government, Ibid., p. 30.

75 See, e.g., the Finnish Bond issued to the United States Government, ibid., p. 29; the French Bond issued to the United States Government, reproduced in Petit, Le Règlement des Dettes Interalliées (1919–22) 676 (1932).

76 “State Contracts,” p. 31.

77 See, e.g., the Agreement dated Oct. 19, 1925, between Rumania and the British Government, Art. 5, 123 Brit, and For. State Papers 562 (1926, Pt. I ). On the other hand, the Agreement dated June 18, 1923, between Great Britain and the United States relating to the bonds referred to in note 74 above (reprinted in Fischer Williams, Chapters on Current International Law and the League of Nations 361–370 (1929), Art. 9), conforms to the text of the Agreement between France and the United States referred to in the following note.

78 See, e.g., the Agreement dated April 29, 1926, between France and the United States, Art. 7, reprinted in Petit, op. cit. note 75 above, at pp. 671, 674–675.

79 See also Sereni 164.

80 See Broches 359–362.

81 Ibid. at 361–362. See also Salmon 232.

82 Broches (pp. 361–362) lists the following relevant elements:

“ The loan and guarantee agreements under which the bonds are issued are generally signed in Washington; the bonds may be executed and delivered in Washington, in the borrowing country or in the country in which they are payable; and the bonds (or the guarantees thereon) are obligations of sovereign governments. Moreover, the Bank frequently disburses more than one currency under a loan. Since the borrower must repay the loan in whatever currencies are loaned, most of the Bank’s loans are repayable in more than one currency; that is to say, different portions of the loan are repayable in different currencies. And the same is true of the bonds which the Bank is entitled to receive. Furthermore, the several bonds issued under a loan agreement with the Bank are payable in the several countries in whose currencies they are payable. The points of contact with different jurisdictions are therefore likely to be more numerous than in the usual kind of international financial transactions, which normally involve only two jurisdictions, those of the lender and the borrower. This is likely to complicate the resolution of conflict of laws problems.’’

83 See, e.g., 3 Rabel, The Conflict of Laws 345 et seq. (1950); Batiffol, Les Conflits do Lois en Matière de Contrats 423 et seq. (1938); Domke, , “Les Garanties de Tiers dans les Emprunts Internationaux,” 34 Revue de Science et de Legislation Financières 598 (1936)Google Scholar.

84 See, e.g., Supreme Court of Austria, Sept. 5, 1934, Rechtsprechung 1934, p. 178, Clunet 1935, p. 190; Swiss Fed. Trib., Sept. 18, 1934, Nathan Institut A.G. v. Schweizerische Bank fuer Kapitalanlagen, 60 R.O. II, 294, J.T. 1935, p. 72, Clunet 1935, p. 1094. Cf. Swiss Fed. Trib., Feb. 28, 1950, Inleyman v. Tungsram Elektrizitaets, A.G., 76 R.O. II, 33; Cie Générale de Fourrures et Pelleteries v. Simon Herzig & Sons Co., 153 N.Y.S. 717, 89 Misc. 573 (1915).

85 See, e.g., Swiss Fed. Trib., June 19, 1935, Ruetz v. Ettlinger, 61 R.O. II, p. 181, Clunet 1936, p. 709, Sirey 1936.4.15, Revue Critique de Droit International Privé, 1936, p. 692; Supreme Court of Austria, April 24, 1936, Nouvelle Revue de Droit International Privé, 1936, p. 608, and Clunet 1937, p. 333; Supreme Court of Denmark, May 22, 1940, Nicolaysen v. Weiss, Clunet 1954, p. 496. Cf. Cass., Oct. 27, 1943, Sociéité des Grandes Minoteries Basset et Cie v. Crédit Foncier d’Algérie et de Tunisie, Sirey 1946.1.17; National Bank of Greece and Athens, S.A. v. Metliss, [1958] A.C. 509. See also Art. 501, par. 4, of the Swiss Code of Obligations authorizing a surety domiciled in Switzerland to invoke the benefit of the foreign law applicable to the principal debt.

86 A possible explanation for these variations might be the following: most stipulations making the law of the principal debt applicable also to the guarantor’s obligations are found in contracts providing for a joint and several guarantee. When the guarantee is merely several, the law governing the guarantee is frequently different from that applicable to the principal debt.

Examples of the first category of stipulations are found in the following prospectuses respecting bond issues in (1) Switzerland: Anglo-American (O.F.S.) Housing Company Limited, Johannesburg, 4½% Loan of 1955 (Swiss law applicable); California Texas Corporation (Caltex) 4½% Loan of 1955 (Swiss law applicable); and (2) The Netherlands: Naphtachimie S.A. Paris, 4%% Loan of 1955 (Dutch law applicable).

Examples of the second kind of stipulations are found in a 1953 indenture between an American trustee and a German borrower and a German guarantor (law of New York applicable to the loan; German law applicable to the guarantee), and in a 1954 indenture between a Canadian trustee and a Canadian borrower and a New York guarantor (law of Ontario applicable to the borrower’s obligations; law of New York applicable to the guarantee).

That broad generalizations are nevertheless dangerous is sufficiently illustrated by the fact that joint and several guarantees have sometimes been considered subject to a law other than that applicable to the principal debt (Scbering, Ltd. v. Stockholms Bank, [1946] 1 All E.E. 36, German law applicable to the principal debt, English law applicable to the guarantors’ obligations), while the latter law has been held to govern also, or has been made contractually applicable to the guarantor’s obligations in the case of ordinary guarantees. See, e.g., Indian and General Investment Trust Limited v. Borax Consolidated, Limited, [1920] 1 K.B. 539 (English law applicable); Aktieselkapet Union (Union Co.) Oslo, 4%% Loan of 1956 (Swiss law applicable); Sociéité Ferroviaire Internationale de Transports Frigorifiques (INTEBFEIGO), Bruxelles, 4½% Loan of 1959 (Swiss law applicable).

87 See, e.g., Schmitthoff, “The International Government Loan,” 19 J. Comp. Leg. & Int. Law (3d Series) 179, at 193 (1937); Mann, “State Contracts,” p. 32.

The Austrian Debt Settlement Plan reached at the 1952 Rome Conference would seem to support the view that different systems of law governed the relations between Austria and the bondholders, on the one hand, and, on the other, Austria and the guarantor governments, since the two sets of relations, although part of an over-all settlement plan, were the object of separate understandings. See Annex I regarding the claim of the guarantor governments against the Austrian Government, and Annex II concerning the agreement between Austria and the representative of the bondholders. It should be noted, however, that Annex I (par. 7) expressly provides that the guarantors “assume the rights of the bondholders” until the undertakings of the Austrian Government to the guarantors are finally discharged.

88 See the preceding note. See also John Fischer Williams, “La Convention pour 1’Assistance Financière aux Etats Victimes d’Agression,” 34 Hague Academy Recueil des Cours 81 at 137–138 (1930); Mann, “State Contracts,” at pp. 32–33.

89 Provisions to that effect are most frequent in direct loans between private lenders, e.g., in the United States or Switzerland, and foreign private or public entities when the loan is guaranteed by the borrower’s government. The DLF also extends to the case of government-guaranteed loans the provision ordinarily stipulated in its loan agreements that the law of the District of Columbia shall be applicable.

90 See, e.g., the prospectus of the Oesterreiehische Donaukraftwerke A.G. 6% Bearer Bonds of 1959, issued in Germany with the Guarantee of the Republic of Austria and of two private companies; the prospectuses relating to the following bonds issued in Switzerland by the Belgian Congo (Guaranteed Loan 4% of 1952), the Régie des Télégraphes et Téléphones (Guaranteed Loan 4% of 1947), the Société Nationale de Crédit à l’Industrie (Guaranteed Loan 4% of 1950), all guaranteed by Belgium.

91 Such is the case of most guaranteed loans made by the EIB and the High Authority of the ECSC, since the law declared applicable is common to both the borrower and the guarantor. However, a different solution may obtain if the borrower and the guarantor belong to different countries. See note 13 above.

92 There appears to be a tendency in some of the current legal literature to overestimate the frequency of attempts to “internationalize” concession agreements. To base broad generalizations on a relatively small number of cases of contractual stipulations in point is to overlook the fact that no “internationalization” of concessions or other agreements is attempted in contracts between foreign enterprises and the governments of underdeveloped countries which, unlike those currently referred to, do possess a modern legal system. Such is the ease of many African countries formerly under British or French control. See, e.g., the concession and other agreements between Compagnie Minière de 1’Ogooué (Comilog) and the Republics of Congo and Gabon, summarized in The Status of Permanent Sovereignty over National Wealth and Resources (Revised Study by the Secretariat, U.N. Doc. A/AC.97/5/Rev. 1, Dec. 27, 1960), and referred to in the Loan Agreement dated June 30, 1959, between the IBRD and Comilog, as well as in the Guarantee Agreements between the Republios of Congo and Gabon and the IBRD.

This fact lends support to Lord McNair’s view that when the parties can be satisfied that the legal system within which they are to operate is sufficiently developed to govern their relations, they are likely to adopt it as the proper law of their contract. See MeNair, “The General Principles,” p. 19.

93 Whether provisions in contemporary concessions effectively subject the relationship to international law or merely incorporate it, or some of it, into the agreement is still a matter of much controversy. See the literature referred to in notes 2 and 6 above.

94 This last consideration is of special importance to international lending organizations. It is certainly not by attempting to upset dramatically the legal traditions of the private capital market that these organizations could expect to mobilize private capital and induce it to participate in their respective operations.