Petitioners Brief — Trans World Airlines, Inc. v. Franklin Mint Corp.

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Nos. 82-1186, 82-1465

L ED

AUC 29 1983

IN THE

ALEXANDER

Supreme Court of the United St a

OCTOBER TERM, 1983

TRANS WORLD AIKLINES, INC.,

Petitioner,

FRANKLIN MINT CORPORATION, FRANKLIN MINT LIMITED,

and MCGREGOR, SWIRE AIR SERVICES LIMITED,

Respondents.

FRANKLIN MINT CORPORATION, FRANKLIN MINT LIMITED,

and MCGREGOR, SWIRE AIR SERVICES LIMITED,

Petitioners,

aad salts

TRANS WORLD AIRLINES, INC.,

Respondent.

ON WRITS OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF TRANS WORLD AIRLINES, INC.

Petitioner in No. 82-1186 and

Respondent in No. 82-1465

JOHN N. ROMANS

Counsel of Record

ROBERT S. LIPTON

101 Park Avenue

New York, New York 10178-0061

(212) 696-6000

Attorneys for

Of Counsel: Trans World Airlines, Inc.

CURTIS, MALLET-PREVOST,

COLT & MOSLE

Scott J. MCKAY WOLAS

MICHAEL L. M. QUINTTUS

August 29, 1983

QUESTIONS PRESENTED

1. Whether the courts of the United States may abrogate a

provision of a treaty which is both constitutionally sound and

capable of enforcement?

2. Whether the court of appeals erroneously failed to exer-

cise its constitutional responsibility to construe the Warsaw

Convention’s limitation of liability provisions to effectuate the

intent of the signatory States in light of changed circum-

stances?

3. What is the proper conversion factor for the gold franc

provisions of the Warsaw Convention in view of the unequivo-

cal intent of the Convention’s signatories to fix air carrier

limits of liability at a predictable, stable and definite level?

TABLE OF CONTENTS

PAGE

See ee POR I o ccc pw ccedeecevesesccuss i

PRELIMINARY STATEMENT..............-cceee: |

Tee aS iS mag 2

re . enss obec teed epmeote 2

CONSTITUTIONAL AND TREATY PROVISIONS

RE A Fe ire ser ee ema 2

Gn (WOES CPM s Sods cviviccacvaveces 3

I ad eae saben

ee a ED. . . coe bwdvicces vouees 4

The Limitation of Liability and the Changing Role

of Gold in the World Economy................ 5

Be EE POD oc cwecccsceoepececsbode 10

The Decisions of the Courts Below............. 12

SUMMARY OF ARGUMENT .............ccccceces 13

6 oie. is oe chad teks Gene e ames 15

POINT I. THE COURT OF APPEALS EXCEEDED

ITS CONSTITUTIONAL POWERS BY

ABROGATING THE LIMITATION OF

LIABILITY PROVISIONS OF THE WAR-

CONVERSION FACTOR ......... .... 15

iii

PAGE

POINT II. SPECIAL DRAWING RIGHTS ARE

AN ALTERNATIVE CONVERSION

SUPINE chic cccvscebencoragsboncdeen 30

DPPPEMT Sk cc tbecevsvecrccdccccnecedese se tes 38

APPENDIX... ccsscccccccccves eereoberscepeses BAI

TABLE OF AUTHORITIES

Cases: PAGE

Association Aéronautique v. Thiérache (Trib. gr. inst.,

Paris, France Feb. 10, 1973), original text reprinted in

[1973] 27 Revue Francaise de Droit Aérien 212, dis-

cussed in C. Shawcross & M. Beaumont, Air Law

§ 452A, at 142 (4th ed. 1977 “Noter-up” Issue 10

SES Se a ee ey ar 22 n.28

Bacardi Corp. of America v. Domenech, 311 U.S. 150

i el ics va bobs paee'ee sé eye's bs 21, 24

Balkan Bulgarian Airlines v. Tammaro (Court of Milan,

i onc sh weanyeeetovbswnsoasoee 25 n.32

Benjamins v. British European Airways, 572 F.2d 913

(2d Cir. 1978), cert. denied, 439 U.S. 1114 (1979)... .22 n.28

Block v. Compagnie Nationale Air France, 386 F.2d 323

(Sth Cir. 1967), cert. denied, 392 U.S. 905 (1968) ...7 n.13,

37 n.43

Boehringer Mannheim Diagnostics, Inc. v. Pan Ameri-

can World Airways, Inc., 531 F. Supp. 344 (S.D. Tex.

1981), appeal docketed, No. 81-2519 (Sth Cir. Dec. 30,

MN Alia ei aes peg ceeecesebceoadewey 26 n.33,

27 n.33

British Caledonian Airways, Ltd. v. Civil Aeronautics

Board, 584 F.2d 982 (D.C. Cir. 1978) ............. 29 n.36

Burdell v. Canadian Pacific Airlines, Ltd., 10 Av. Cas.

(CCH) 18,151 (Ill. Cir. Ct. 1968), opinion withdrawn,

11 Av. Cas. (CCH) 17,351 (Ill. Cir. Ct. 1969) ...... 21 0.27

Chamie v. Egyptair, No. 80-12.428 (Cass. civ. com.,

EE F BOUED onnscdacccccsncesednecceees 34 n.40

Companhia de Seguros Maritimos v. Varig ‘Federal

Court of Appeals, Brazil June 3, 1975), discussed in

C. Shawcross & M. Beaumont, Air Law § 452A, at

142 (4th ed. 1977 “Noter-up” Issue 10 1982) .......22 n.28

vagal

—

PAGE

Cook v. United States, 288 U.S. 102 (1933) ....... 7 n.13, 16

Corocraft Ltd. v. Pan American Airways Inc., {1969} 1

Si CURED. oc vans Ke eis Rae bus sae ban oeee ed 26 n.33

Cosida S.p.A. di Assicurazioni e Riassicurazioni y.

B.E.A., No. 2796/77 (Milan Court of Appeal, Italy,

Judgment No. 861 June 9, 1981).................25 0.32

Costell v. Iberia, Lineas Aéreas de Espana, S.A., No.

255 (Court of Appeal of Valencia, Spain Oct. 16,

re re 6 ae Gates te ee a ee eid ae oe 22 n.28

Dames & Moore v. Regan, 453 U.S. 654 (1981) ....... 19

Day v. Trans World Airlines, Inc., 528 F.2d 31 (2d Cir.

1975), cert. denied, 429 U.S. 890 (1976) ........... 7n.13,

11 n.18, 30

Deere & Co. v. Deutsche Lufthansa A.G., No. 81 C

4726 (N.D. Ill. Dec. 30, 1982)............. 24, 24n.31, 26

Deutsche Bank Filiale Nurnberg v. Humphrey, 272 U.S.

ES On ew dd auas hahah dele sheen ee eaaee 23 n.29

Doe ex dem. Clark v. Braden, 57 U.S. (16 How.) 635

STE asin 6 4.0 Wick 4 Gouna cma ed hen ccakoees 21, 21 n.27

Duke Power Co. vy. Carolina Environmental Study

cee Bie.. 46. UB. Tew ccc vccdccdwecece 21 n.27

Eck vy. United Arab Airlines, Inc., 360 F.2d 804 (2d Cir.

Stinks Sib dda seen bbe p baw ed nee e+ cena eeese 36

Ethyl Corp. v. Environmental Protection Agency, 541

F.2d 1 (D.C. Cir.) (en banc), cert. denied, 426 U.S. 941

SE .4.dhseud0'es babedavoeptnesteoemeeeds beds 29

Factor v. Laubenheimer, 290 U.S. 276 (1933) ......... 21

Federal Communications Commission v. WNCN Lis-

teners Guild, 450 U.S. $82 (1981) ....... 00.0 cece 29

PAGE

Florencia, Cia. Argentina de Seguros S.A. v. Varig S.A.

(Federal Civil & Commercial Court, Buenos Aires,

Argentina Aug. 27, 1976), original text reprinted in

SOFT Teens £. BV. Wie nc civucccdcuavteerees 25 n.32

Franklin Mint Corp. v. Trans World Airlines, Inc., 525

F. Supp. 1288 (S.D.N.Y. 1981), aff'd, 690 F.2d 303 (2d

Eats SD < wes-cedd Sevcgnenssones cn ebn aie passim

Garcia v. Pan American Airways, Inc., 269 A.D. 287, 55

N.Y.S.2d 317 (2d Dep’t 1945), aff’d, 295 N.Y. 852, 67

N.E.2d 257, cert. denied, 329 U.S. 741 (1946)....... 19

Geofroy v. Riggs, 133 U.S. 258 (1890) .............06. 20, 25

Greater Tampa Chamber of Commerce v. Goldschmidt,

Gar Gia ae es GO Te o's voc dnssususawenes 31 n.37

Hoppe v. Russo-Asiatic Bank, 235 N.Y. 37, 138 N.E.

GEe GERI 4 600 cavadecopaucvedawanaasieacceeue 23 n.29

Hornlinie A.G. v. Société Nationale Pétrole Aquitaine,

1972 Nederlandse Jurisprudentie No. 269, at 728 (Su-

preme Court of The Netherlands Apr. 14, 1972),

reprinted in 7 Eur. Trans. L. 933 (1972) ........... 22 n.28

Husserl v. Swiss Air Transport Co., Ltd., 351 F. Supp.

702 (S.D.N.Y. 1972), aff’d per curiam, 485 F.2d 1240

CE Ge FOTO c vc cntivessc siebewtcognes denne 31 n.37

In re Air Crash Disaster at Warsaw, Poland on March

14, 1980, 535 F. Supp. 833 (E.D.N.Y. 1982), aff’d on

other grounds, 705 F.2d 85 (2d Cir. 1983), petition for

cert. docketed, No. 83-5 (July 11, 1983)....... 24, 25 n.32,

26, 27 n.33

In re Aircrash in Bali, Indonesia on April 22, 1974, 684

F.2d 1301 (9th Cir. 1982)... 0... 0... cece eee eee 21 0.27

In re Aircrash at Kimpo International Airport, Korea on

November 18, 1980, $58 F. Supp. 72 (C.D. Cal. 1983),

Vii

— PAGE

Indemnity Ins. Co. of North America v. Pan American

Airways, Inc., 58 F. Supp. 338 (S.D.N.Y. 1944) ..... 19,

21 n.27

Kinney Shoe Corp. v. Alitalia Airlines, 15 Av. Cas.

SEPED Bee CLEDLIN. Us BSOO). esc cccccepsccces 12 n.21

Kislinger v. Austrian Airtransport, No. 1 R 145/83

(Commercial Court of Appeals of Vienna, Austria

MEG rn hie bb vibb céb'e race dbacedeees 34

Kolovrat v. Oregon, 366 U.S. 187 (1961) ............. 29

Kuwait Airways Corp. v. Sanghi, No. 54/77 (Court of

the Principal Civil Judge, Civil Station Bangalore,

EE a wees eb vaéicestacteesewels 25 n.32

Linee Aeree Italiane v. Riccioli, No. 609/79 (Rome Civil

ee BOW. BG, BDTED. ccc ccccccaccccces 32 n.38, 34,

34 n.41

Maschinenfabrik Kern, A.G. v. Northwest Airlines,

Inc., 562 F. Supp. 232 (N.D. Ill. 1983).......... 24, 26, 27

Maugnie v. Compagnie Nationale Air France, 549 F.2d

1256 (9th Cir.), cert. denied, 431 U.S. 974 (1977).... 36

McCarthy v. East African Airways Corp., 13 Av. Cas.

SY BP gee CEeaEe. Be OPO) oo ccc cccccccccsscee 21 n.27

Menominee Tribe of Indians v. United States, 391 U.S.

EC. i sce cadcn ese cehevssevesibecbae 16

Missouri v. Holland, 252 U.S. 416 (1920) ............ 36

Nielsen v. Johnson, 279 U.S. 47 (1929) .............. 21

Pakistan International Airlines v. Compagnie Air Inter

S.A., No. 79/2278 (Court of Appeal of Aix-en-Pro-

Permian Basin Area Rate Cases, 390 U.S. 747 (1968) .. 29

Pierre v. Eastern Air Lines, Inc., 152 F. Supp. 486

GED. TEED occ cccccccccccccvccccccescoesoes .21 1.27

viii

PAGE

Pigeon River Improvement, Slide & Boom Co. vy.

Charles W. Cox, Ltd., 291 U.S. 138 (1934)...... 16, 21, 30

Reed v. Wiser, 555 F.2d 1079 (2d Cir.), cert. denied, 434

ie Tah ccukvchcacreh besa bash aeabeenieewe 5

Rendezvous-Boutique-Parfumerie Friedrich und Albine

Breitinger GmbH vy. Austrian Airlines, No. 14 R

11/83 (Court of Appeals of Linz, Austria June 17,

Saga v. Sagoland (Lower Court, Goteborg, Sweden Oct.

2, 1973), discussed in [1975] 29 Revue Francaise de

CL, «ch occd oneness véueeeeebobe nia 32 n.38

State of The Netherlands v. Giants Shipping Corp.,

Rechtspraak van de Week 321 (May 30, 1981) (Su-

preme Court of The Netherlands May 1, 1981) ..32, 33, 37

Sumitomo Shoji America, Inc. v. Avagliano, 457 U.S.

SL hie dnceke Ua sdee kine 6s catuemked skaeeaen 22, 29

Tucker v. Alexandroff, 183 U.S. 424 (1902). .......... 21

United States v. D’Auterive, 51 U.S. 609 (1850)...... 30 n.37

United States v. Lee Yen Tai, 185 U.S. 213 (1902) ..... 16

United States v. Midwest Oil Co., 236 U.S. 459 (1915) 19

Valentine v. United States ex rel. Neidecker, 299 U.S. §

SE bac cibesadcsanesetcnchepneeecnehs eeeeuene 21

Washington v. Washington State Commercial Passenger

Fishing Vessel Ass’n, 443 U.S. 658 (1979). .......... 16

Weinberger v. Rossi, 456 U.S. 25 (1982) ......... 16, 31 n.37

Wright v. Henkel, 190 U.S. 40 (1903) ..........00005- 21, 24

Zakoupolos v. Olympic Airways Corp., No. 256/74

(Court of Appeal, 3d Dep’t, Athens, Greece Jan. 10,

PGi) openiatthoeds o0600e00006600006"naeEE .25 n.32

PAGE

Constitution, Statutes, Treaties, and Rules:

rn eee. a ie GE... ceseencccodeneceene 2, 15

Administrative Procedure Act § 10(e), 5 U.S.C.

Te nee ee bn kbd lees Copee anke 29

Agreement Establishing the Asian Development Bank,

done Dec. 4, 1965, 17 U.S.T. 1418, T.I.A.S. No. 6103,

SY Mee + pwn bidckn ds atinamass own deunahe 18 n.24

Agreement Establishing the Inter-American Develop-

ment Bank, done Apr. 8, 1959, 10 U.S.T. 3029,

T.1L.A.S. No. 4397, 389 U.N.T.S. 69............... 18 n.24

Articles of Agreement of the International Bank for

Reconstruction and Development, opened for signa-

ture Dec. 27, 1945, 60 Stat. 1440, T.1.A.S. No. 1502, 2

SRS sahinedincdunkdkeacdend bhshauewares 17 n.24

Articles of Agreement of the International Development

Association, done Jan. 26, 1960, 11 U.S.T. 2284,

T.I.A.S. No. 4607, 439 U.N.T.S. 249..........0065 18 n.24

Articles of Agreement of the International Monetary

Fund, opened for signature Dec. 27, 1945, 60 Stat.

1401, T.I.A.S. No. 1501, 2 U.N.T.S. 39; enabling

legislation, Bretton Woods Agreements Act of 1945,

Pub. L. No. 79-171, 59 Stat. 512, codified at 22

Ei Tec: dhsccses cob scanutasera’ 8 n.15, 35

Articles of Agreement of the International Monetary

Fund (Second Amendment), approved Apr. 30, 1976,

29 U.S.T. 2203, T.1.A.S. No. 8937; enabling legisla-

tion, Bretton Woods Agreements Act of 1976, Pub. L.

No. 94-564, 90 Stat. 2660, codified at 22 U.S.C.

DET 0000002 edccecenccseeseensebans 9, 9 n.16,

Can., Currency and Exchange Act: Carriage by Air Act

Gold Franc Conversion Regulations, Jan. 13, 1983,

117 Can. Gaz., pt. Il, No. 2, at 431 (Jan. 26,

5b 0544000000005665008600240005Rsbbeee 32 0.38

Convention for the Unification of Certain Rules Relat-

ing to Bills of Lading for the Carriage of Goods by

Sea, opened for signature Aug. 25, 1924, 51 Stat. 233,

Da BE Sie SE Eaee Gas BOS ke cbisconscuencant 28 n.34

Convention for the Unification of Certain Rules Relat-

ing to International Transportation by Air, opened for

signature Oct. 12, 1929, 49 Stat. 3000, T.S. No. 876,

137 L.N.T.S. 11, reprinted in 49 U.S.C. § 1502 note

NG ako ardid oct seal oka 0d en wletacaele eee passim

Convention Relating to the Limitation of the Liability of

Owners of Sea-Going Ships, done Oct. 10, 1957,

reprinted in 6 Benedict on Admiralty 5-11 (7th ed.

cei encevereecvepcnrandions cesusthensecernn 33 n.39

Federal Aviation Act of 1958, § 403(a), 49 U.S.C.

RT CIP oc isc cco canssesosebic crmvewend 29 n.36

Guatemala City Protocol, done Mar. 8, 1971, reprinted

in A. Lowenfeld, Aviation Law 975 (2d ed. Doc.

Dl MEN Sscekpaces cvsenescteanougueataseunel 10 n.18

Hague Protocol, done Sept. 28, 1955, 478 U.N.T.S. 371,

reprinted in A. Lowenfeld, Aviation Law 955 (2d ed.

BES I BOD oc cesccvcistcccevinccesoustend 10 n.18

Italy, Law No. 84 of March 26, 1983, 90 Gazetta Uffi-

ciale della Republica Italiana (Apr. 1, 1983) ...... 25 0.32,

32 n.38

Montreal Agreement of 1966, reprinted in A. Lowen-

feld, Aviation Law 971 (2d ed. Doc. Supp. 1981) .. .10 2.18

Montreal Protocols Nos. 3 & 4, done Sept. 25, 1975,

reprinted in A. Lowenfeld, Aviasion Law 985 (2d ed.

Doc. Supp. 1981) ... 2... 2... cece cece eeeee . 10, 11, 30,

PAGE

Omnibus Budget Reconciliation Act of 1981, Title XIII,

Pub. L. No. 97-35, §§ 1311, 1321, 1351(a), 1352(a), 95

Stat. 739, codified at 22 U.S.C. §§ 286e-lh, 2840,

Se EE, FP SNEED a ciViveveldcueniane 18 n.24

Par Value Modification Act of 1972, Pub. L. No. 92-

268, 86 Stat. 116, amended by Par Value Modification

Act of 1973, Pub. L. No. 93-110, 87 Stat. 352, 31

U.S.C. § 449 (1976), repealeo by Bretton Woods

Agreements Act of 1976, Pub. L. No. 94-564, § 6, 90

I a hod ain G0 aa Wn 0 Re Whee 08 Os 13, 16, 16 n.22,

18, 19, 20, 31

Price-Anderson Act of 1957, Pub. L. No. 85-256, 71

TEE fad bad pela tensed bedewle Ls eeemene ’ 21 n.27

S. Afr., Carriage by Air Act, No. 17 of 1946, § 3(7), as

amended by No. 5 of 1964 and No. 81 of 1979, Stat.

S. Afr. (Issue No. 13) 15, implemented by Dep’t of

Transport Notice %203! (Sept. 14, 1979) .......... 32 n.38

Swed., Carrier by Air Act (1957:297), ch. 9, § 22 (as

Ss Se Se SOM caaus cdl ovesscceekesaete 32 n.38

Sis ena, GOR, Hee SOs MOE oivodecs beccevceavevns 32 n.38

Vienna Convention on the Law of Treaties, opened for

signature May 23, 1969, reprinted in 8 Int’] Legal

ED OPS CEE fs Conic catcreccsscavaenbenes 30 n.37,

31 n.37

Legislative Materials:

Senate Comm. on Foreign Relations, Bretton Woods

Agreements Act, S. Rep. No. 1148, 94th Cong., 2d

Sess. (1976), reprinted in 1976 U.S. Code Cong. &

RE DOS acct sccewass dakpeneadsinobes 17

Senate Comm. on Foreign Relations, Montreal Aviation

Protocols Nos. 3 and 4, S. Exec. Rep. No. 45, 97th

Ae SI APO eas din o hepa apen sews nnceucne 11

Senate Exec. Sess., Montreal Aviation Protocols Nos. 3

and 4, 129 Cong. Rec. $2270 (daily ed. Mar. 8,

I ia i i take an dd pe oneal mada 11, 31 0.37

xil

PAGE.

Books and Pamphlets:

H. Drion, Limitations of Liabilities in International Air

EN 5 ob aco kb so Vlada tesa tCt ena ere ren 6

The Federalist No. 64 (J. Jay) (B. Wright ed. 1961).... 19

J. Gold, Floating Currencies, SDRs, and Gold, IMF

a ge Bs) ey 32

J. Gold, SDRs, Currencies, and Gold, 'MF Pamphlet

A, Se a ccs chovetnectbesésawne 10, 10 n.17

R. Horner & D. Legrez, Second International Con-

ference on Private Aeronautical Law, Minutes, War-

gen, saber 6-12, ISEO CISTS). oo oo vc ccccaccecvesss 7

A. Lowenfeld, Aviation Law (2d ed. 1981)........ 5, 10 n.18,

11 n.19,11 n.20,

23, 30

G. Miller, Liability in International Air Transport

SPER US AKb A cachtih> coeake «4b oc kwemeeweraledas 25 n.32

P. Samuelson, Economics (11th ed. 1980)............. 10, 30

C. Shawcross & M. Beaumont, Air Law (4th ed. 1977

—, , wt = |. Serr ore ee 22 n.28

J. Sutherland, Statutes and Statutory Construction (4th

DE heal tatilagaes das obuectetuns dames 36

U.S. Dep’t of State, Treaties in Force (1983) ........ 4,4n.8

E. de Vattel, 2 Droit des Gens (Pradier-Fodéré ed. Paris

A Proposul for a Pilot Program Concerning Cargo

Damage Cases, 37 Rec. A.B. City N.Y. 103 (1982). .28 n.34

Asser, Gokien Limitations of Liability in Internat.onal

Transpor' Conveniions and the Currency Crisis, 5 J.

Mar. L. & Com. 645 (1974).................... 6 n.11, 6,

xiii

PAGE

Fitzgerald, The Four Montreal Protocols to Amend the

Warsaw Convention Regime Governing International

Carriage by Air, 42 J. Air L. & Com. 273 (1976) ...11 n.19

Gold, Gold in International Monetary Law: Change,

Uncertainty, and Ambiguity, 15 J. Int’| L. & Econ. 323

SGC Lact ta eGGh an bdsd cab ehaat Rabkee en ee 10

Lowenfeld & Mendelsohn, The United States and the

Warsaw Convention, 80 Harv. L. Rev. 497 (1967)... 5

McGilchrist, Four New Protocols to the Warsaw Con-

vention, 1976 Lloyd’s Mar. & Com. L. Q. 186...... 11

Silard, Carriage of the SDR by Sea: The Unit of Ac-

count of the Hamburg Rules, 10 J. Mar. L. & Com. 13

NUE Lc Gala ptuin's-b ou sade heme U Adil we wees Gea 9 n.16

Other Materials:

Division of Government Accounts & Reports, U.S.

Dep’t of the Treasury, Status Report of U.S. Govern-

ment-Owned Gold (Apr. 30, 1983)................ 17 n.23

J. Gaynes, Memorandum, Legal Division, Bureau of

International Aviation, Civil Aeronautics Board (Apr.

CS; \k Hh bw vas ead hd Oba iand alc hineala eet $ n.10

J. Golden, “Warsaw Convention Liability Limits,”

Memorandum, Director, Bureau of Compliance and

Consumer Protection, Civil Aeronautics Board (May

BA GUE ckccbeacutveweesusdecneneaneanne 5, 5n.10, 6,

10, 11, 29,

29 0.36

P. Kennedy, Memorandum, Policy Development Divi-

sion, Bureau of Consumer Protection, Civil Aero-

nautics Board (Mar. 18, 1980)..................... § n.10

Legal Committee of the International Civil Aviation

Organization, Resolution Concerning the Conversion

of Poincaré Francs to National Currencies in the

Warsaw and Rome Conventions, 21st Sess., Minutes

84, ICAO Doc. 9131-LC/173-1 (1974) ............ 25 n.32

xiv

PAGE

Letter from Benjamin Franklin to Charles Thomson

(May 13, 1784), 9 The Writings of Benjamin Franklin

212 (A. Smyth ed. 1907) ..........-0e00. .. +20, 20 1.26

Letter of Submittal from Secretary of State William P.

Rogers to the President, S. Exec. Doc. L., 92d Cong.,

Ist Sess. (Oct. 18, 1971), (submitting the Vienna

a Fae ialia ok bd wt 06 oun seis cceees 31 n.37

National Advisory Council on International Monetary

and Financia! Policies, Special Report to the President

and to the Congress on the General Capital Increase

of the International Bank for Reconstruction and

Development (May 1981) (unpublished report) ..... 18 n.24

Report of G. Moschetti, Italian Central Exchange Con-

trol Board, ordered April 5, 1976, by Rome Civil

Court in Linee Aeree Italiane v. Riccioli, No. 609/79

ds son octuscnce sieseusbae 34 n.41

Report of Secretary of State Cordell Hul!, Mar. 31,

ar 0, Ws OD os ccccccccveveccecces 5

IN THE

Supreme Court of the United States

OCTOBER TERM, 1983

Nos. 82-1186, 82-1465

TRANS WORLD AIRLINES, INC.,

Petitioner,

—Y

FRANKLIN MINT CORPORATION, FRANKLIN MINT LIMITED,

and MCGREGOR, SWIRE AIR SERVICES LIMITED,

Respondents.

FRANKLIN MINT CORPORATION, FRANKLIN MINT LIMITED,

and MCGREGOR, SWIRE AIR SERVICES LIMITED,

Petitioners,

—_—V—

TRANS WORLD AIRLINES, INC.,

Respondent.

ON WRITS OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF TRANS WORLD AIRLINES, INC.

Petitioner in No. 82-1186 and

Respondent in No. 82-1465

PRELIMINARY STATEMENT

Trans World Airlines, Inc. (“TWA”),' petitioner in No.

82-1186 and respondent in No. 82-1465, respectfully submits

this brief on the merits in these consolidated cases.”

| In compliance with Rule 28.1 of this Court, TWA states that as of the

date hereof 81.34 percent of its common shares are owned by Trans

World Corporation and 18.66 percent of its shares are publicly heid.

2 Cases No. 82-1186 and No. 82-1465 were consolidated pursuant to an

Order of this Court entered on June 13, 1983.

OPINIONS BELOW

The opinion of th: United States Court of Appeals for the

Second Circuit is rep, ~ted at 690 F.2d 303 (2d Cir. 1982)and is

reprinted in the Joint Appendix hereto at JA190.’ The opinion

of the United States District Court for the Southern District of

New York is reported at 525 F. Supp. 1288 (S.D.N.Y. 1981) and

is reprinted at JA187.

JURISDICTION

This Court’s jurisdiction exists by virtue of 28 U.S.C.

§ 1254(1) (1976). Both TWA and Respondents-Petitioners

Franklin Mint Corporation, Franklin Mint Limited, and Mc-

Gregor, Swire Air Services Limited (collectively, “Franklin

Mint”) petitioned this Court for writs of certiorari in order to

review the judgment and opinion of the United States Court of

Appeals for the Second Circuit. On June 13, 1983, both

petitions for certiorari were granted. 51 U.S.L.W. 3879 (U.S.

June 13, 1983) (Nos. 82-1186 and 82-1465).

CONSTITUTIONAL AND TREATY PROVISIONS

INVOLVED

Article II, Section 2, Clause 2 of the United States Con-

stitution and Article 22 of the Warsaw Convention are in-

volved herein.‘

3 References in the form “JA___” are to the Joint Appendix to these

consolidated cases.

4 The applicable provisions of the United States Constitution and the

Warsaw Convention are set forth in the Appendix to TWA’s petition

for certiorari at A34 and A35, respectively.

All references to the “Warsaw Convention” or to the “Convention”

are to the Convention for the Unification of Certain Rules Relating to

International Transportation by Air, opened for signature Oct. 12,

1929, 49 Stat. 3000, T.S. No. 876, 137 L.N.T.S. 11, reprinted in 49

U.S.C. § 1502 note (1976).

STATEMENT OF THE CASE

Introduction

This action arises out of the loss, during a TWA flight, of

four packages of numismatic materials allegedly valued at

$250,000. Since it is undisputed that the Warsaw Convention

provides the sole basis for liability herein (JA15-16), the only

question before the lower courts was the proper interpretation

of the limitation of liability provisions of that Convention. In

view of that narrow question, both the legal and factual

background of the action were stipulated to by the parties and

ordered by the district court in a Stipulation and Pre-Motion

Order (the “Pre-Motion Order”). (JA13).

The Pre-Motion Order provides that the Warsaw Convention

governs the legal relationship between the parties (JA15);° that

the sole basis for liability herein arises under the Convention

(JA15-16); and that TWA is entitled to limit its liability in

accordance with the provisions of Article 22 thereof. (JA15-

16). With respect to the basic facts underlving the action, the

Pre-Motion Order provides that the four packages of numis-

matic materials in question, weighing 714 pounds (JA14-15),

were delivered by Franklin Mint to TWA for shipment by air to

London Heathrow Airport, England (JA15); that the total

freight charge to Franklin Mint was $544.96 (JA15); that

Franklin Mint made no special declaration of value at the time

the packages were delivered to TWA® (JA15); and that the

shipment never reached its destination. (JA15).

5 The Warsaw Convention is applicable to all carriage which falls within

the definition of “international transportation” set forth in Article 1(2)

thereof. As the Pre-Motion Order provides, the carriage in question is

within that definition. (JA15).

6 Franklin Mint could have avoided the Convention’s limitation of

liability by making a special declaration of value pursuant to Article

22(2) and paying an additional charge for full coverage. However, it

chose not to do so. (JA15). It can only be assumed that Franklin Mint,

an experienced and sophisticated shipper of air freight, chose to

insulate itself against the risk of loss through its own insurance.

In accordance with the terms of the Pre-Motion Order, TWA

moved for partial summary judgment seeking to limit its

maximum liability pursuant to Article 22 of the Warsaw

Convention (JA187, 525 F. Supp. at 1289); the district court

granted TWA’s motion, limiting its liability to $6,475.98

(JA189, 525 F. Supp. at 1289); Franklin Mint moved for

reargument, which was denied and, thereafter, appealed.

On appeal, the Second Circuit, although technically affirm-

ing the district court’s decision, held that 60 days from the

issuance of its mandate the Convention’s limit on liability

would be “unenforceable in United States Courts.”’ (JA209,

690 F.2d at 311-12). Subsequent to the Second Circuit’s denial

of TWA’s petition for a rehearing, TWA petitioned this Court

for certiorari primarily on the ground that by prospectively

abrogating the Convention’s iimitation of liability provisions,

the Second Circuit exceeded its constitutional powers. Franklin

Mint responded to TWA’s petition with its own petition for

certiorari, contending that the Second Circuit’s decision should

not have been limited to prospective application. On June 13,

1983, this Court granted both petitions for certiorari.

The Warsaw Convention

The Warsaw Convention was drafted at international con-

ferences held in Paris in 1925 and in Warsaw in 1929. It was

adhered to in 1934 by the United States, which continues to

regard the Convention as a binding international agreement.

See U.S. Dep’t of State, Treaties in Force 207-08 (1983). The

Convention is in force in more than 120 States* and is of

unquestionable significance to the aviation industry:

{T]he Warsaw Convention is by far the most widely

adopted treaty concerning private international law and

after the United Nations Charter one of the most widely

7 Upon the motion of TWA, the Second Circuit has stayed the issuance

of its mandate pending this Court’s decision. (JA210).

8 A list of the nations adhering to the Convention is contained in U.S.

Dep't of State, Treaties in Force 207-08 (1983).

adopted of all treaties .. . . (A. Lowenfeld, Aviation

Law § 4.11, at 7-98 (2d ed. 1981)).

The essential purposes of the Convention are: (i) “to estab-

lish a uniform body of world-wide liability rules to govern

international aviation, which would supersede . . . the scores

of differing domestic laws” (Reed v. Wiser, 555 F.2d 1079,

1090 (2d Cir.), cert. denied, 434 U.S. 922 (1977)); (ii) to limit

the maximum extent of a carrier’s potential liability for dam-

ages (see Lowenfeld & Mendelsohn, The United States and the

Warsaw Convention, 80 Harv. L. Rev. 497, 499-500 (1967));

and (iii) to set a “reliable and consistent basis for recovery for

injury or damage to persons or property” (“Warsaw Conven-

tion Liability Limits,” Memorandum prepared by John

Golden, Director, Bureau of Compliance and Consumer Pro-

tection,’ Civil Aeronautics Board, dated May 20, 1981 (the

“Golden Memorandum”))'° (JA34), which would provide uni-

form recoveries for claimants and foreseeable and insurable

liabilities for airlines (see Report of Secretary of State Cordell

Hull, Mar. 31, 1934, [1934] U.S. Av. R. 240, 242).

The Limitation of Liability and the Changing Role of Gold in

the World Economy

In order to ensure that the limits of liability under the

Convention would remain uniform and stable, the drafters of

the Convention expressed the limitation in terms of the French

9 This Bureau is now known as the Office of Congressional, Community

and Consumer Affairs.

10 The staff of the Civil Aeronautics Board (the “CAB”) has prepared

several memoranda concerning the method for converting Warsaw

gold francs into United States currency: the Golden Memorandum

mentioned above (JA33); a Memorandum prepared by Jeffrey Gaynes,

Legal Division, Bureau of International Aviation, CAB, dated April

18, 1980 (JA60); and a Memorandum by Patricia Kennedy, Policy

Division, Bureau of Consumer Protection, CAB, dated

March 18, 1980 (JA42).

gold franc (colloquially known as the Poincaré franc) which

was defined as consisting of 65-1/2 milligrams of gold of

millesimal fineness nine hundred.'' The actual limit of liability

was fixed at 250 French gold francs per kilogram of lost cargo

(Article 22(2)), convertible into national currency in round

figures (Article 22(4)).'?

The use of a gold franc clause as a medium of conversion is

readily understandable when it is considered in light of the

international gold exchange system in existence when the Con-

vention was drafted.

In 1929, when the Warsaw Convention was adopted,

currencies were either expressed in gold or easily convert-

ible to gold using an official rate... .

The drafters of the Warsaw Convention thus foresaw

no ambiguity in their use of gold as the unit of account

because at the time governments had an official rate of

gold which was easily discernible and virtually identical to

the market rate of gold, to the extent that a market rate

existed at all. (Golden Memorandum, supra p. 5, at

JA36).

Thus, the Warsaw signatories adopted a limitation of liabil-

ity based upon a gold franc clause in order to ensure stable and

predictable limits of liability (see Asser, supra note 11, at 664);

“to avoid, as far as the limits are concerned, the effects of

devaluations which would result from having the limits ex-

pressed in any local currency” (H. Drion, Limitations of

Liabilities in International Air Law 183 (1954)); and to assure

that damages awarded by different countries would be uniform

in value (see Asser, supra note 11, at 664).

11 The French gold franc takes its common name from the French prime

minister under whose government its gold content was set. See Asser,

Golden Limitations of Liability in International Transport Conven-

tions and the Currency Crisis, § J. Mar. L. & Com. 645, at 645 (1974)

(hereinafter “Asser™).

12 The relevant text of Article 22 is quoted infra p. 22.

A review of the travaux préparatoires’’ of the Convention

confirms that the gold value clause was employed in order to

provide stable and foreseeable limits of liability.

As the Swiss delegate stated:

Naturally, when we prepared our text, the French franc

was variable, it has been stabilized since. But the fact that

a currency has been stabilized does not imply that it is a

final thing; a law can always modify another iaw. For this

reason, in Switzerland, we have preferred to stick to the

gold standard... .

We would not be opposed to refer to the French franc,

but to the gold French franc, that is to say, based on a

weight of gold at such and such one thousandth.

Naturally, one can say “French franc” but the French

franc, it’s your national law which determines it, and one

need have only a modification of the national law to

overturn the essence of this provision. We must base

ourselves On an international value, and we have taken

the dollar. Let one take the gold French franc, it’s all the

same to me, but let’s take a gold value. (R. Horner & D.

Legrez, Second International Conference on Private

Aeronautical Law, Minutes, Warsaw, October 4-12, 1929,

at 89-90 (1975)).

Indeed, from the inception of the Convention until 1968,

gold clearly provided the stability and insulation from uni-

lateral acts of devaluation by individual nations, which the

drafters intended. Converting the Article 22 limitation into

United States dollars involved nothing more than a simple

mathematical computation employing the official rate of gold

13 The travaux préparatoires, ot legislative history, clearly provide a basis

for ascertaining the treaty’s purposes and intent. See, ¢.g., Choctaw

Nation of Indians v. United States, 318 U.S. 423, 431-32 (1943); Cook

v. United States, 288 U.S. 102, 112 (1933); Day v. Trans World

Airlines, Inc., $28 F.2d 31, 34 (2d Cir. 1975), cert. denied, 429 U.S. 890

(1976); Block v. Compagnie Nationale Air France, 386 F.2d 323,

336-38 (Sth Cir. 1967), cert. denied, 392 U.S. 905 (1968).

(then the only rate of gold) which remained virtually stable

throughout that period. (JA24; see graph at JA30).

However, for a variety of reasons arising from a changing

world economy, the central banks of most States instituted

procedures in 1968 which separated their official gold trans-

actions from other gold dealings. (JA21). This resulted in a

“two-tier” period, during which the stable official price of gold

existed side by side with a constantly fluctuating commodity

price for gold. (JA21).

Notwithstanding the existence of both an official price and a

market price for gold throughout the two-tier period, there was

no difficulty converting the Article 22 limitation into United

States currency. Pursuant to a series of CAB orders, the

Warsaw gold provisions were converted into national currency

at the official rate of gold, and the presently controlling CAB

regulation, Order 74-1-16, dated January 3, 1974, so pro-

vides."

In fact, it was not until 1978, when the International Mone-

tary Fund (the “IMF”)'° member nations ceased employing an

official price of gold for most purposes, that any question of

law arose in the United States with respect to the method of

conversion under the Warsaw gold provisions. Although the

two-tier system had been in effect since 1968, the market price

of gold did not differ significantly from the official rate of $35

per ounce until 1970, when this situation began to change

radically. (JA21). Thus, in late 1973, when the official price of

14 The full text of Order 74-1-16 is set forth at JAS4.

1S The IMF is affiliated with the United Nations. It was organized at the

Bretton Woods Conference in 1944 to promote international monetary

cooperation, to facilitate the growth of international trade, and to

assist in the establishment of a multilateral system of payments for

currency transactions among member States. (JA19-20). The United

States became a member of the IMF in 1945. Articles of Agreement of

the International Monetary Fund, opened for signature Dec. 27, 1945,

60 Stat. 1401, T.1.A.S. No. 1501, 2 U.N.T.S. 39; enabling legislation,

Bretton Woods Agreements Act of 1945, Pub. L. No. 79-171, 59 Stat.

$12, codified at 22 U.S.C. § 286 (1976).

gold was fixed at $42.22 an ounce, the commodity price of

gold rose to $200 an ounce. (JA24). Finally, in 1975, in an

attempt to ameliorate the severe economic pressures resulting

from this instability in the price of gold, the IMF formulated a

plan, known as the Jamaica Accords, to delete most references

to gold in its Articles of Agreement and to replace the official

function of gold with Special Drawing Rights (“SDRs”). Arti-

cles of Agreement of the International Monetary Fund (Second

Amendment), approved Apr. 30, 1976, 29 U.S.T. 2203,

T.L.A.S. No. 8937 (hereinafter “Second Amendment to the

IMF Articles of Agreement”); enabling legislation, Bretton

Woods Agreements Act of 1976, Pub. L. No. 94-564, 90 Stat.

2660, codified at 22 U.S.C. § 286e-5 (1976). (See discussion at

JA21-22).'°

As is fully set forth in the record, and as was undisputed in

the courts below, the SDR is a stable international unit of

account, valued on the basis of a basket of five national

currencies, which does not have a competing use as a commod-

ity. (JA22-23). Thus, SDRs are insulated from free market

speculation and other difficulties which led to instability in the

price of gold and to the ultimate breakdown of gold as an

international unit of account. (JA23). Employed as a medium

of exchange between governments, central banks and the IMF,

SDRs have replaced gold’s international monetary function

16 The concept of Special Drawing Rights was approved by the Board of

Governors of the IMF in 1967. Under the IMF's plan, a “Special

Drawing Account” was established to facilitate transactions among

members, and SDRs became a supplement to existing reserve assets.

Member States were allocated a number of SDRs, and a State having a

balance of payments deficit could use them to settle its accounts by

selling them to an IMF designated country. Designated countries were

obligated to take SDRs and to provide convertible currency in return.

Although SDRs were initially valued in terms of gold (1 SDR equal to

0.888671 gram of fine gold, which was equal to $1 U.S. at the rate of

$35.00 per ounce), the Second Amendment to the IMF Articles of

Agreement severed the link between gold and SDRs for virtually all

purposes. (JA21-22). See Silard, Carriage of the SDR by Sea: The Unit

of Account of the Hamburg Rules, \0 J. Mar. L. & Com. 13, 18

(1978).

and “serve as the cornerstone of the new international system

of finance.” P. Samuelson, Economics 612 (11th ed. 1980); see

Gold, Gold in International Monetary Law: Change, Uncer-

tainty, and Ambiguity, 15 J. Int’! L. & Econ. 323, 354 (1981).

As a result, “(t]he SDR has first claim to recognition as the

unit of account to replace gold in universal international

organizations.” J. Gold, SDRs, Currencies, and Gold, IMF

Pamphlet Series No. 33, at 96 (1980)."”

In sum, since the demise of the two-tier system, SDRs have

become the international unit of account and gold has become

a fluctuating commodity which varies in value in the same

manner as any other commodity, such as wheat, silver, soy-

beans or pork bellies. (JA19, 24-25; see graph at JA32).

The Montreal Protocols

Realizing that gold’s new status affected its viability as a

conversion factor for the Convention’s limitation of liability

provisions, the Warsaw signatories met at Montreal in 1975 to

attempt “to deal with the changes in the role of gold in

international monetary transactions.” Golden Memorandum,

supra p. 5, at JA39. Their solution, embodied in the Montreal

Protocols, was the substitution of SDRs for gold as the

conversion factor for the limitation of liability provisions of

Article 22.'* The decision in favor of SDRs was based on the

17 At least 17 international organizations and 14 multilateral agreements

have adopted the SDR as the unit of account for a variety of purposes,

including use as a factor for converting gold value clauses contained in

international agreements (drafted prior to the time gold became a

fluctuating commodity) into national currencies. See J. Gold, SDRs,

Currencies, and Gold, supra, at 37-39.

18 There have been three prior modifications of the Warsaw System: (i)

the Hague Protocol, done Sept. 28, 1955, 478 U.N.T.S. 371, reprinted

in A. Lowenfeld, Aviation Law 955 (2d ed. Doc. Supp. 1981); (ii) the

Montreal Agreement of 1966, a private agreement among most in-

ternational air carriers, reprinted in A. Lowenfeld, Aviation Lew 971

(24 ed. Doc. Supp. 1981); and (iii) the Guatemala City Protocol, done

Mar. 8, 1971, reprinted in A. Lowenfeld, Aviation Law 975 (2d ed.

Doc. Supp. 1981). Although neither the Hague Protocol nor the

Guatemala City Protocol has been ratified by the United States, both

(footnote continued on following page)

fact that SDRs are relatively stable, have replaced gold as the

international unit of account, and will effectuate the drafters’

goal of predictable and stable limits of liability. See Golden

Memorandum, supra p. 5, at JA39.

As one commentator has observed:

[T]he new Warsaw limit [using SDRs as the unit of

account] is intended to be as faithful a translation as

possible of . . . poincaré francs at the “old” official price

for gold. (McGilchrist, Four New Protocols to the War

saw Convention, 1976 Lloyd's Mar. & Com. L. Q. 186,

187),

During the meetings at Montreal, the United States “took

the lead” in suggesting SDRs as the standard of conversion””

and signed Protocols 3 and 4,” which adopt SDRs as the

Article 22 unit of account. On November 17, 1981, the Senate

Committee on Foreign Relations reported in favor of ratifica-

tion of those Protocols. Senate Comm. on Foreign Relations,

Montreal Aviation Protocols Nos. 3 and 4, S. Exec, Rep. No.

45, 97th Cong., Ist Sess. 5 (1981). However, on March 8, 1983,

the United States Senate, by a vote of 50 to 42 in favor of

ratification of Montreal Protocols 3 and 4, withheld its consent

to those Protocols. Thereafter, the majority leader moved for

reconsideration and the matter remains on the Senate calendar.

Senate Exec. Sess., Montreal Aviation Protocols Nos 3 and 4,

129 Cong. Rec. $2270, $2279 (daily ed. Mar. 8, 19®*) (state-

ment of Sen. Baker).

(footnote continued from previous page)

Protocols provide for definite and fixed limits of liability and have

been looked to as indicia of the signatories’ subsequent conduct for

purposes of construing provisions of the Convention. See, ¢.g., Day v.

Trans World Airlines, Inc., $28 F.2d 31, 36 0.15 (2d Cir, 1975), cert.

denied, 429 U.S, 890 (1976),

19 See A. Lowenfeld, Aviation Law § 6.51, at 7-171 (2d ed. 1981); see

also Fitzgerald, The Four Montreal Protocols to Amend the Warsaw

Convention Regime Governing International Carriage by Air, 42 3, Air

L. & Com. 273, 325, 329-30 (1976).

20 Protocols 3 and 4 are reprinted in A. Lowenfeld, Aviation Law 985 (2d

ed. Doc. Supp. 1981).

The Decisions of the Courts Below

TWA moved for partial summary judgment seeking to limit

its liability in accordance with Article 22 of the Warsaw

Convention. TWA argued that the Warsaw gold provisions

might be converted into United States currency by three al-

ternative methods: (i) the last official price of gold in the

United States; (ii) the SDR; and (iii) the exchange value of the

modern French franc. (JA188, 525 F. Supp. at 1289). Franklin

Mint responded that the appropriate basis for conversion is the

market price of gold. (JA188, 525 F. Supp. at 1289).”'

After briefing and oral argument, the district court con-

cluded that the appropriate conversion factor is “the last

official price of gold in the United States.” (JA189, 525 F.

Supp. at 1289). That holding was based upon the fact that the

last official price of gold “has—arguably, at least—been es-

poused by the Civil Aeronautics Board (‘CAB’), the govern-

ment agency most intimately concerned with the transaction at

hand” and has been “used by all domestic carriers—including

TWA—in calculating the dollar value of the Article 22 limita-

tion.” (JA188, 525 F. Supp. at 1289).

Although the court of appeals technically affirmed the

district court's decision, it also held, sua sponte, that 60 days

after the issuance of its mandate, the Warsaw limitation of

liability provisions would become “unenforceable in United

States Courts.” (JA209, 690 F.2d at 311-12). The Second

Circuit based its decision upon the determination that each of

the potential conversion units proffered by the parties “ap-

2! In both the district court and the court of appeals, TWA argued that

the modern French franc might be employed as a conversion factor for

the Warsaw gold provisions because it is infinitely more stable than the

market price of gold. Although there is some authority for this

position (see Kinney Shoe Corp. vy. Alitalia Airlines, 1§ Av. Cas.

(CCH) 18,509 (S.D.N.Y. 1980)), as will be demonstrated below, either

the last official price of gold or SDRs is the most appropriate

conversion factor. Therefore, TWA will not submit further argument

with respect to the modern French franc as a potential third choice.

pears to have a devastating argumen’ against it.” (JA195, 690

F.2d at 306). As a result, the Second Circuit concluded:

While the Convention has not been formally abrogated,

enforcement by national judicial tribunals is impossible

without their picking and choosing among alternative

units of conversion according to their view of which is

best as an initial policy matter. We have no power to select

a new unit of account. We thus hold the Convention's

limitation of liability unenforceabsc by United States

Courts. (JA195, 690 F.2d at 306).

As will be demonstrated below, neither the Second Circuit's

reasoning nor its conclusion can withstand scrutiny. It is not

only possible for the courts to select a unit of account without

engaging in a forbidden policy decision; under settled princi-

ples of law it is their duty to do so.

SUMMARY OF ARGUMENT

In declaring the Warsaw Convention's limitation of liability

provisions unenforceable, the Second Circuit noted that it had

no power to abrogate a treaty, but rather that the power to do

so resides in the coordinate branches of the government.

Having reached that conclusion, the Second Circuit found

Congress’ repeal of the Par Value Modification Act, which set

the official price for gold in the United States, to have

effectively abrogated the Warsaw Convention, inasmuch as

that repeal led the court to reject the only conversion factor

which it viewed as otherwise viable—the last official price of

gold. However, in so holding, the Second Circuit totally ig-

nored the well-settled rule that a treaty will not be deemed to

be abrogated or modified by a later statute unless such purpose

on the part of Congress has been affirmatively expressed. As

the statute repealing the Par Value Modification Act makes no

reference to the Warsaw Convention and the Second Circuit

pointed to no other congressional or executive act impinging

upon the Warsaw limits, those limits clearly must be enforced.

The foregoing conclusion is underscored by the fact that no

other signatory nation which has considered the issue has

found the Warsaw limits unenforceable, as well as by the fact

that the Executive, the governmental branch most intimately

concerned with the conduct of foreign policy, has specifically

stated that it views the Warsaw limits to be a binding treaty

obligation of the United States.

As the Warsaw limits have not been abrogated by the

coordinate branches of the government and cannot be abroga-

ted by the courts, the judiciary must, under settled canons of

construction, interpret the Convention in a manner which will

carry out the intent of its drafters. There is no doubt that the

drafters stated the limits in terms of a gold value clause in

order to ensure stable and predictable limits of liability. Since

use of the market price of gold as the conversion factor would

result in widely fluctuating and unpredictable limits, it is clear

that the last official price of gold, the use of which would lead

to the stable limits envisioned by the drafters, is the proper

conversion factor. The last official price of gold has consis-

tently been applied as the conversion factor in the United

States and is the medium of conversion employed by the

presently controlling CAB order In short, use of the last

official price of gold is consistent with Constitutional require-

ments, with the canons of treaty construction, and with long-

standing usage in the United States.

Although use of the last official price of gold as the Warsaw

conversion factor would fully comport with both Constitu-

tional requirements and the canons of treaty construction,

SDRs are an alternative conversion factor which would also

conform to the foregoing criteria. SDRs are a stable interna-

tional unit of account; they have taken the place of gold in the

world economy; and they are easily converted into gold value

by a formula which has been accepted by various segments of

the international community. As a result, the use of SDRs

would fully comply with the drafters’ intent. Therefore, SDRs

are an appropriate alternative to the last official price of gold

as the Warsaw conversion factor.

ARGUMENT

POINT I

THE COURT OF APPEALS EXCEEDED ITS CONSTITU-

TIONAL POWERS BY ABROGATING THE LIMITATION

OF LIABILITY PROVISIONS OF THE WARSAW CONVEN-

TION—THOSE PROVISIONS SHOULD CONTINUE TO

BE ENFORCED EMPLOYING THE LAST OFFICIAL

PRICE OF GOLD AS THE CONVERSION FACTOR

In declaring the limitation of liability provisions of the

Warsaw Convention unenforceable, the court of appeals was

clearly mindful that its decision touched upon delicate consti-

tutional questions relating to the separation of powers between

the judiciary and the other branches of the federal govern-

ment. Indeed, the Second Circuit itself observed that with

respect to treaties, “great difficulty may arise in ascertaining

where that line [between the judiciary and other branches] is

drawn and when it has been crossed.” (JA208, 690 F.2d at

311). While the Second Circuit is undoubtedly correct that

under certain circumstances the proper placement of the divid-

ing line between the branches may be extraordinarily difficult,

such circumstances are not present here. Had the Second

Circuit considered all of the well-settled principles concerning

treaty interpretation and construction, rather than several

isolated rules, it is submitted that it would have arrived at

precisely the conclusion reached by the district court: that the

Warsaw limitation of liability provisions must be enforced and

that the most appropriate conversion factor for those provi-

sions is the last official price of gold.

Instead, the Second Circuit considered only two const.tu-

tional principles: (i) that Article I], Section 2, Clause 2 of the

Constitution places treaty proposal in the Executive and ratifi-

cation in the United States Senate (JA207, 690 F.2d at 311);

and (ii) that “it is not the province of courts to declare treaties

abrogated” (JA208 n.26, 690 F.2d at 311 n.26). Having thus

correctly concluded that the power to abrogate a treaty resides

in the coordinate branches of the government, the court of

appeals proceeded to incorrectly conclude that Congress’ re-

peal of the Par Value Modification Act,” which set the official

price for gold, abrogated the limitation of liability provisions

of the Warsaw Convention.

In so holding, the Second Circuit totally ignored the well-

settled, and clearly controlling, principle that “[a] treaty will

not be deemed to have been abrogated or modified by a later

statute unless such purpose on the part of Congress has been

clearly expressed.” Cook v. United States, 288 U.S. 102, 120

(1933). See Washington v. Washington State Commercial Pas-

senger Fishing Vessel Ass'n, 443 U.S. 658, 690 (1979);

Menominee Tribe of Indians v. United States, 391 U.S. 404,

412-413 (1968); Pigeon River Improvement, Slide & Boom Co.

vy. Charles W. Cox, Ltd., 291 U.S. 138, 160 (1934); United

States v. Lee Yen Tai, 185 U.S. 213, 221-22 (1902). Had the

Second Circuit not ignored this primary and long-standing

principle, and its corollary that legislative silence is never

sufficient to abrogate a treaty (Weinberger v. Rossi, 456 U.S.

25, 32 (1982)), its very own findings would have precluded a

determination that the limitation of liability provisions had

been abrogated. As the Second Circuit itself observed, “Con-

gress may not have focused explicitly upon the Convention in

repealing [the Par Value Modification] Act.” (JA208, 690 F.2d

at 311).

In fact, far from reflecting a clear congressional intent to

either abandon the last official price of gold as the Warsaw

medium of conversion or to abrogate the treaty, the 1976

Repeal Act and its legislative history make no reference what-

soever to the Warsaw Convention. The repeal was completely

unrelated to the Convention and, as the Senate commented,

22 Par Value Modification Act of 1972, Pub. L. No. 92-268, 86 Stat. 116,

amended by Par Value Modification Act of 1973, Pub. L. No. 93-110,

87 Stat. 352, 31 U.S.C. § 449 (1976), repealed by Bretton Woods

Agreements Act of 1976, Pub. L. No. 94-564, § 6, 90 Stat. 2660, 2661

(the “1976 Repeal Act”). The 1976 Repeal Act did not become

effective until April 1, 1978.

nothing more than a “series of technical amendments” de-

signed to reflect changes in the international monetary system.

Senate Comm. on Foreign Relations, Bretton Woods Agree-

ments Act, S. Rep. No. 1148, 94th Cong., 2d Sess. 9 (1976),

reprinted in ‘976 U.S. Code Cong. & Ad. News 5935, 5943.

If anything, contrary to the Second Circuit’s conclusion, the

legislative history of the 1976 Repeal Act contemplates a

continued role for the last official price of gold, particularly in

the international arena. As the Senate Committee on Foreign

Relations noted:

While it is the expressed intent of the IMF to move gold

out of the internacional monetary system, there are vast

numbers of legal and psychological mechanisms still in

evidence in the system that will perpetuate some role for

gold. (Senate Comm. on Foreign Relations, Bretton

Woods Agreements Act, S. Rep. No. 1148, 94th Cong.,

2d Sess. 12-13 (1976), reprinted in 1976 U.S. Code Cong.

& Ad. News 5935, 5947).

Among the mechanisms employing the last official price of

gold which are still very much in place are the conversion

factors for the value of the Treasury Department’s gold re-

serves” and the value of the United States’ subscription obliga-

tions to the capital stock of the International Bank for

Reconstruction and Development (the “World Bank”), the

Inter-American Development Bank (the “IADB”), the Interna-

tional Development Association (the “IDA”) and the Asian

Development Bank (the “ADB”).™ Thus, the court of appeals

23 See Division of Government Accounts & Reports, U.S. Dep’t of the

Treasury, Status Report of U.S. Government-Owned Gold (Apr. 30,

1983), which is reprinted in the Appendix to this brief (hereinafter

referred to as “BA”) at BA41.

24 The World Bank, the [ADB and the ADB have, for internal purposes,

authorized the computation of the value of their capital stock in terms

of SDRs; however, their separate articles of Agreement provide for the

calculation of member nations’ contributions based upon the lest

official price of gold. Articles of Agreement of the International Bank

(footnote continued on following page)

was clearly incorrect in suggesting that “[t]he sole remaining

use of the last official price is in determining the value of gold

held in the form of gold certificates.” (JA204 n.20, 690 F.2d at

309 n.20).

Moreover, Congress’ silence with respect to the continued

viability of the Warsaw limitation provisions at the time it

repealed the Par Value Modification Act affirmatively supports

the conclusion that Congress intended to leave the Warsaw

limitation provisions unaffected. It mnust surely be assumed

that Congress was aware of the requirement, under Article

39(2) of the Convention, that a signatory desiring to withdraw

from the Convention must provide its treaty partners with six

(footnote continued from previous page)

for Reconstruction and Development, opened for signature Dec. 27,

1945, art. Il § 2(a), 60 Stat. 1440, 1441, T.I.A.S. No. 1502, 2 U.N.T.S.

134, 136, Agreement Establishing the Inter-American Development

Bank, done Apr. 8, 1959, art. II § 2(a), 10 U.S.T. 3029, 3073, T.I.A.S.

No. 4397, 389 U.N.T.S. 69, 76; Articles of Agreement of the Interna-

tional Development Association, done Jan. 26, 1960, art. II § 2(b), 11

U.S.T. 2284, 2286, T.1.A.S. No. 4607, 439 U.N.T.S. 249, 254; Agree-

ment Establishing the Asian Development Bank, done Dec. 4, 1965,

ch. Il, art. 4 § 1, 17 U.S.T. 1418, 1422, T.I.A.S. No. 6103, $71

U.N.T.S. 123, 138. Congress continues to appropriate funds for United

States payments to these institutions based upon the last official price

of gold. Omnibus Budget Reconciliation Act of 1981, Title XIII, Pub.

L. No. 97-35, §§ 1311 (World Bank), 1321 (IDA), 1351(a) (IADB),

1352(a) (ADB), 95 Stat. 739, 740-41, 744, codified at 22 U.S.C.

§§ 286e-Ih, 2840, 2832-2, 285w (Supp. V 1981).

As has been observed with respect to the World Bank:

Since April 1, 1978, . . . currencies no longer have par values in

terms of gold and the preexisting basis for translating the 1944

dollar into members’ currencies has ceased to exist. . . . Since

April 1, 1978, the Bank has expressed the value of its capital stock

on the basis of the SDR for purposes of its financial statements.

The Bank has continued and will continue to accepi capital sub-

scriptions at 1.20635 current U.S. dollars to one 1944 dollar, the

value of the 1944 dollar at the last par value of the U.S. dollar

. (National Advisory Council on International Monetary and

Financial Policies, Special Report to the President and to the

Congress on the General Capital Increase of the International Bank

for Reconstruction and Development, Attachment 1, at 2-3 (May

1981) (unpublished report) (emphasis added)).

months’ notice of its intended withdrawal and that Congress

would not knowingly ignore this express treaty obligation of

the United States. See The Federalist No. 64, at 424 (J. Jay)

(B. Wright ed. 1961). And, when the Article 39(2) requirement

is considered in conjunction with the rule that Congressional

silence in the face of an established practice, such as the use of

the last official price of gold as the Warsaw conversion factor,

may be treated as consent (Dames & Moore v. Regan, 453 U.S.

654, 686 (1981); United States v. Midwest Oil Co., 236 U.S.

459, 474 (1915)), that silence becomes conclusive.

In addition, since the Warsaw Convention is a self-e» ecuting

treaty which required no enabling legislation to effectuate it in

the United States (Jndemnity Ins. Co. of North America v. Pan

American Airways, Inc., 58 F. Supp. 3238, 340 (S.D.N.Y.

1944); Garcia v. Pan American Airways, Inc., 269 A.D. 287,

292, 55 N.Y.S.2d 317, 322 (2d Dep’t 1945), aff'd, 295 N.Y.

852, 67 N.E.2d 257, cert. denied, 329 U.S. 741 (1946), it is

submitted that Congress could not have abrogated the Warsaw

limitation provisions simply by repealing the Par Value Modi-

fication Act even had it desired to do so. The Par Value

Modification Act has always been totally unrelated to the

effectiveness of the Warsaw Convention and therefore its

repeal is necessarily irrelevant to that treaty’s continued viabil-

ity. Since only an unambiguous legislative act can repeal or

abrogate a treaty, the repeal of a statute unrelated to the

effectiveness of a treaty can hardly result in its abolition. If

this were not the case, treaties to which the United States has

adhered would be subject to inadvertent abolition, a circum-

stance which would obviously not be in the best interests of the

United States.

Yet further evidence of the Second Circuit’s error is the fact

that the Executive, the governmental branch directly charged

with the conduct of foreign affairs, has found the court of

appeals’ decision to be inimical to the conduct of United

States’ foreign policy. Thus, the United States has stated with

respect to the Second Circuit’s opinion:

This decision, if allowed to stand, will have significant

adverse consequences for the United States both in its

immediate application to the Warsaw Convention and in

its broader implications for the treaty obligations of this

country generally.” (United States Brief in support of

TWA’s Petition for Certiorari at 2).

In short, the absence of any legislative intent to abrogate the

limitation of liability provisions in either the legislation repeal-

ing the Par Value Modification Act or in any other act of

Congress, when coupled with the Executive’s position that

those provisions should continue to be interpreted as they have

been in the past, necessarily leads to the conclusion that the

Second Circuit’s decision declaring the treaty unenforceable

must be set aside. The correctness of this conclusion is con-

firmed by both the reality, noted by Benjamin Franklin long

ago, that ‘“‘[i]f we do not convince the world, that we are a

Nation to be depended on for fidelity in Treaties; . . . our

reputation, and all the strength it is capable of procuring, will

be lost’’** and the resulting rule of law that ‘‘ ‘(t]he interpreta-

tion, therefore, . . . which would render a treaty null and

inefficient cannot be admitted; . . . it ought to be interpreted

in such a manner as that it may have its effect, and not prove

vain and nugatory.’ ’’ Geofroy v. Riggs, 133 U.S. 258, 270

(1890) (quoting E. de Vattel, 2 Droit des Gens 265 (Pradier-Fo-

déré ed. Paris 1863)).

25 The United States brief also points out that the Second Circuit's

opinion has already served to irritate the international community. The

Government has noted that ‘‘several foreign governments have ex-

pressed their view that the court of appeals’ decision will seriously

affect United States relations in international aviation.’’ (United States

Brief in support of TWA's Petition for Certiorari at 2-3).

Such expressions of disapproval by foreign governments are not

surprising since no other signatory State has rejected the Convention's

limitation of liability provisions. In view of that fact, the Second

Circuit clearly overemphasized what it regarded as ‘‘international

disarray’’ with respect to the conversion issue. (JA203-"+, 690 F.2d at

309). The primary teaching of the various foreign cases and materials

is that unless the Warsaw limitation is enforced, the expectations of the

Convention's signatories will be totally defeated.

26 Letter from Benjamin Franklin to Charles Thomson (May 13, 1784), 9

The Writings of Benjamin Franklin 212, 213 (A. Smyth ed. 1907).

Since the Warsaw Convention has not been abrogated by

Congress and cannot be abrogated by the courts, the judiciary

is duty bound to interpret the Convention in a manner which

will lead to its enforcement and to ‘‘administer it according to

its terms.’’ Doe ex dem. Clark vy. Braden, 57 U.S, (16 How.)

635, 657 (1854).*” In carrying out that duty, the guiding

principle and primary goal is to give the treaty ‘‘a fair interpre-

tation, according to the intention of the contracting parties,

. SO as to carry out their manifest purpose.’’ Wright vy.

Henkel, 190 U.S, 40, 57 (1903). See, e.g., Bacardi Corp. of

America v. Domenech, 311 U.S. 150, 163 (1940); Valentine v.

United States ex rel. Neidecker, 299 U.S. 5, 10 (1936); Factor

v. Laubenheimer, 290 U.S. 276, 293-94 (1933); Nielsen vy.

Johnson, 279 U.S. 47, 51-52 (1929); Tucker v. Alexandroff,

183 U.S. 424, 437 (1902). Moreover, a change in circum-

stances, such as gold’s metamorphosis into a volatile commod-

ity, does not relieve the courts of their obligation to effectuate

the intentions of the treaty's framers as effectively as possible

in view of the unforeseen events. See Pigeon River Improve-

ment Slide & Boom Co. v. Charles W. Cox, Ltd., 291 U.S. 138

27 Of course, as Braden observes, a treaty need not be enforced if it

conflicts with the Constitution of the United States, §7 U.S. (16 How.)

at 657. Although there have been several constitutional challenges to

the Warsaw limitation provisions, none has ultimately succeeded. See,

e.g., in re Aircrash in Bali, Indonesia on April 22, 1974, 684 F.2d 1301

(Mh Cir. 1982); McCarthy v. East African Airways Corp., 13 Av. Cas.

(CCH) 17,385, 17,386 (S.D.N.Y. 1974); Pierre v. Eastern Air Lines

Inc., 152 F. Supp. 486, 489 (D.N.J, 1957); Indemnity Ins. Co. of

North America v. Pan American Airways, Inc., 58 F. Supp. at 340,

See also Burdell vy. Canadian Pacific Airlines, Lid., 10 Av, Cas, (CCH)

18,151 (Ill, Cir, Ct, 1968), opinion withdrawn, 11 Av. Cas. (CCH)

17,351 (Ill, Cir, Ct, 1969), in which an Illinois trial court initially

found the Convention unconstitutional, but subsequently withdrew its

opinion on the ground that it was unnecessary to reach the question of

constitutionality. Indeed, in considering the constitutionality of

another limitation statute—the Price-Anderson Act, relating to the

nuclear energy industry—this Court recently cited the Pan American

case with approval and noted that ‘‘statutes limiting liability are

relatively commonplace and have consistently been enforced by the

courts.’’ Duke Power Co. v. Carolina Environmental Study Group,

Inc., 438 U.S. $9, 88 n.32 (1978),

-“—-

(1934). As this Court has recently observed, the judiciary’s

constitutionally mandated role with respect to treaties ‘‘is

limited to giving effect to the intent of the Treaty parties.’’

Sumitomo Shoji America, Inc. v. Avagliano, 487 U.S. 176,

185 (1982).

When the foregoing principles of treaty interpretation are

applied to the facts at bar, the last official price of gold clearly

emerges as the appropriate Warsaw conversion factor.” Article

22 of the Warsaw Convention provides in relevant part as

follows:

(2) In the transportation of checked baggage and of

goods, the liability of the carrier shall be limited to a sum

of 250 francs per kilogram. . .

(4) The sums mentioned above shal! be deemed to refer

to the French france consisting of 65% milligrams of gold

at the standard of fineness of nine hundred thousandths.

These sums may be converted into any national currency

in round figures,

Thus, under Article 22, the maximum extent of a carrier's

liability is expressed for conversion purposes in terms of a

28 Significantly, numerous foreign decisions have reached precisely this

conclusion, finding the last official price of gold to be the appropriate

conversion factor, See, e.g., Costell v. Iberia, Lineas Aéreas de

Espana, S.A., No. 258 (Court of Appeal! of Valencia, Spain Oct. 16,

1981) (an English translation is set forth at BA6); Pakistan Interna-

tional Airlines v. Compagnie Air Inter §.A,, No, 79/2278 (Court of

Appeal of Aix-en-Provence, France Oct, 30, 1980) (an English transla-

tion is set forth at JA133); Horniinie A.G. v. Société Nationale Pétrole

Aquitaine, 1972 Nederlandse Jurisprudentie No. 269, at 728 (Supreme

Court of The Netherlands Apr. 14, 1972), reprinted in 7 Eur. Trans. L.

933 (1972) (an English translation is set forth at JA114). See also

Companhia de Seguros Maritimos v. Verig (Federal Court of Appeals,

Brazil June 3, 1975), and Association Aéronautique v, Thiérache (Trib.

gr. inst., Paris, France Feb. 10, 1973), original text reprinted in (1973)

27 Revue Francaise de Droit Aérien 212, which are discussed in C,

Shawcross & M, Beaumont, Air Law § 452A, at 142 (4th ed, 1977

“Noter-up” Issue 10 1982), Since the decisions of “our sister signato-

ries [are] entitled to considerable weight” (Benjamins v. British Euro-

pean Airways, $72 F.2d 913, 919 (2d Cir, 1978), cert, denied, 439 U.S.

1114 (1979)), these cases are of particular importance.

specified weight of gold. As demonstrated above (see supra

pp. 5-8), gold was selected in 1929 because it was the then

existing international unit of account which would provide

stable ad predictable limits of liability, and for many years

gold served its Warsaw purpose admirably. (JA24; see graph at

JA30). However, since 1978, gold has no longer been an

international unit of account but only

a volatile commodity, not related to a price index, or to

the rate of inflation, or indeed to any meaningful

economic measure, other than the views of whoever made

up the market about all of the terrible things going on in

the unpredictable world. (A. Lowenfeld, Aviation Law

§ 6.51, at 7-169 (2d. ed. 1981))

As a result of this change in the nature of the international

use of gold, basing the Warsaw limitation on the market price

of gold would lead to a widely fluctuating limit of liability

which would vary substantially from week to week or even day

to day.” For example, during the short interval between

January 5, 1981 and January 29, 1981, the market price of

gold fell from approximately $600 to $493.75 per ounce

(JA24), a Muctuation of 18 percent.’ Consequently, employing

the market price of gold as a conversion factor would totally

undermine the stable and foreseeable limits of liability which

the drafters of the Convention sought to achieve. See supra

pp. 5-8.

29 As a general rule, the conversion of foreign currency into a United

States judgment is calculated as of the date of judgment, See Deutsche

Bank Filiale Nurnberg v. Humphrey, 272 U.S. $17, $19 (1926).

However, it should be noted that, at least in New York, state courts

have also used the date on which the cause of action arose in making

such conversions, See Hoppe v. Russo-Asiatic Bank, 235 N.Y. 37, 39,

138 N.E. 497, 498 (1923),

30 Other illustrations of the volatile nature of the market price of gold

abound: the price of gold fell from approximately $850 per ounce in

January 1980 to approximately $490 per ounce in April of that year

and then rose again to approximately $700 per ounce in September

1980. (JA24). “he wide fluctuations of the market price of gold over a

one-year period are graphically depicted at JA29.

This conclusion has been concurred in by the district court in

the instant case and in recent decisions of various federal and

state courts. See, e.g., Maschinenfabrik Kern, A.G. v. North-

west Airlines, Inc., $62 F. Supp. 232 (N.D. Ill. 1983); Jn re Air

Crash Disaster at Warsaw, Poland on March 14, 1980, 535 F.

Supp. 833 (E.D.N.Y. 1982), aff'd on other grounds, 705 F.2d

8S (2d Cir. 1983), petition for cert. docketed, No. 83-5 (July

11, 1983) (the ‘Polish Case’’); Deere & Co. v. Deutsche

Lufthansa A.G., No. 81 C 4726 (N.D. Ill, Dec. 30, 1982);

Electronic Memories & Magnetics Corp. v. The Flying Tiger

Line, Inc., No. 784512 (Cal. Super. Ct., San Francisco Aug.

25, 1982).°' For example, in the Polish Case, the district court,

undoubtedly mindful of this Court's admonition that the

touchstone of treaty interpretation is to effectuate the treaty’s

purposes (Wright v. Henkel, 190 U.S, at 57; Bacardi Corp. v.

Domenech, 311 U.S. at 163), held:

The signatories of the treaties looked to gold to avoid

fluctuations in the limitations, since gold had a constant

value and the currencies of the various nations were

subject to unilateral alterations for reasons wholly unre-

lated to air carriers’ liability. This constancy and stability,

upon which the parties to the treaties relied, cannot be

achieved if the fair market value of gold is used for the

calculations. To substitute the fluctuating price of the

commodity gold for the relatively fixed and certain price

of an international monetary unit does, as defendant

suggests, directly contravene the intentions of all those

who adopted the treaties. For this reason, such a substitu-

tion is clearly inappropriate, and plaintiffs’ suggestion

that the fair market value of gold be the basis for the

conversion must be rejected. (Polish Case, 535 F. Supp.

at 842-43) (footnote omitted).

31 The opinions in Deere and Electronic Memories are set forth in the

Appendix to TWA's petition for certiorari at A-61 and A-60, respec-

tively,

32 Numerous experts in both aviation law and the international monetary

system, as well as the leading international aviation organization

(footnote continued on following page)

Since it is clear that deference to the intentions of the

framers of Article 22 requires the rejection of the widely

fluctuating market price of gold as a medium of conversion,

another medium, which will effectuate those intentions, must

necessarily be applied,

In light of the fundamental tenets of treaty construction, set

forth above, including the rule that treaties must be construed

“to give a sensible meaning to all their provisions” (Geofroy v.

Riggs, 133 U.S. at 270), it is respectfully submitted that the

district court was entirely correct in holding that conversion of

the Warsaw gold provisions “should be premised on the last

official price of gold in the United States.” (JA189, 525 F.

Supp. at 1289). Indeed, when all of the legal and factual

(footnote continued from previous page)

affiliated with the United Nations, are in complete agreement with the

Polish Case’s condemnation of the use uf the market price of gold,

See, e.g., G. Miller, Liability in International Air Transport 178-80

(1977); Legal Committee of the International Civil Aviation Organiza-

tion (the “ICAO"'), Resolution Concerning the Conversion of Poin-

caré Francs to National Currencies in the Warsaw and Rome

Conventions, 21st Sess., Minutes 84, ICAO Doc, 9131-LC/173-1, at 2

(1974) (the full text of the ICAO resolution is set forth at JAS8),

There is presently scant support in the international community for the

use of the market price. With one exception, all of the foreign cases

employing the market price of gold as the conversion factor, upon

which Franklin Mint relied in the court below, predate the dramatic

fluctuations in the market price of gold which began in 1979. See, ¢.8.,

Kuwait Airways Corp. v. Sanghi, No, $4/77 (Court of the Principal

Civil Judge, Civil Station Bangalore, India Aug. 11, 1978) (JA179);

Balkan Bulgarian Airlines v. Tammaro (Court of Milan, Italy Oct, 25,

1976) (JA176); Florencia, Cia. Argentina de Seguros S.A. v. Varig

S.A. (Federal Civil & Commercial Court, Buenos Aires, Argentina

Aug. 27, 1976), original text reprinted in 1977 Uniform L. Rev, 198

(JA169); Zakoupolos v. Olympic Airways Corp., No. 256/74 (Court

of Appeal, 3d Dep't, Athens, Greece Jan. 10, 1974) (JA165), The one

foreign case upon which Franklin Mint relied, which was decided after

that date, Cosida S.p.A. di Assicurazioni e Riassicurazioni v. B.E.A.,

No, 2796/77 (Milan Court of Appeal, Italy, Judgment No, 861 June 9,

1981), has been overruled by statute. See Law No. 84 of March 26,

1983, 90 Gazetta Ufficiale della Republica Italiana (Apr. 1, 1983)

(BA37), pursuant to which Italy adopted SDRs as the Warsaw conver-

sion factor.

aspects of the question are considered, it is undeniable that—in

the words of the Polish Case—the use of the last official price

of gold makes “the most sense.” (Polish Case, $35 F. Supp. at

842),

A conversion predicated on the last official price clearly

results in a stable and predictable limit of liability which

completely conforms to the purposes envisioned by the framers

of Article 22. As the district court obviously recognized and

the Polish Case court explicitly held:

The clear merit of using this price as the unit for conver-

sion is that the price constitutes a conversion factor

established by precisely the kind of mechanism that the

Convention's drafters contemplated when the applicable

clauses were drafted. (Polish Case, 535 F. Supp. at 843).

Significantly, at least two Federal district courts which have

considered the question subsequent to the Second Circuit's

decision herein, have rejected that decision and have employed

the last official price of gold as the conversion factor. See

Maschinenfabrik Kern, A.G. v. Northwest Airlines, Inc., 562

F. Supp. at 239; Deere & Co. v. Deutsche Lufthansa A.G., No.

81 C 4726 (N.D. Ill, Dec. 30, 1982).””

33° One United States District Court has adopted the Second Circuit's

Franklin Mint reasoning as well as its decision. However, that court did

not limit its ruling to prospective application. /n re Aircrash at Kimpo

International Airport, Korea on November 18, 1980, $$8 F. Supp. 72

(C.D. Cal. 1983), interlocutory review denied, No. 83-8051 (Mh Cir.

May 10, 1983). Kimpo appears to be the only court decision, in any

country, which follows Franklin Mint and abrogates the limitation of

liability provisions. The fact that no foreign court has taken this step is

of particular importance since, as Lord Denning, M.R., observed with

resect to the Warsaw Convention in Corocraft Lid. v. Pan American

Airways Inc., (1969) | Q.B. 616, 655 (1968): “The courts of all the

countries should interpret this Convention in the same way.”

In addition, one district court has found the market price of gold to be

the appropriate conversion factor. Boehringer Mannheim Diagnostics,

Inc. v. Pan American World Airways, Inc., $31 F. Supp. 344 (S.D.

(footnote continued on following page)

As the Maschinenfabrik court held:

To conclude as the Second Circuit did in Franklin Mint

that the action of Congress in eliminating an official price

of gold should operate to eliminate all limitations of

liability found in the Warsaw Convention reads too much

into an unrelated act of Congress. That act was intended

to deal with various monetary matters and only inciden-

tally affected the provisions of the Warsaw treaty. There is

no reason to believe that Congress intended to declare

Article 22 obsolete.

Rather, this Court believes it should enforce. . . the

last official price of gold in the United States as the basis

for conversion and liability limitation, ($62 F. Supp. at

239),™

(footnote continued from previous page)

Tex, 1981), appeal docketed, No, 81-2519 (Sth Cir, Dec, 30, 1981), Not

surprisingly, Boehringer has been severely criticized:

[Boehringer| concluded that the proper basis for determining the

liability limitation is with reference to the free market price of gold.

. . » It did so in spite of its findings that the drafters of the Warsaw

Convention used gold as the unit of reference because of its stability

and that “to the present day. . . the free-market price of gold has

risen to more than $400 an ounce... .” | must respectfully

disagree with the Texas court's conclusion. . . . (Polish Case, $35

F. Supp. at 843 n.8).

Boehringer is presently on appeal to the United States Court of

Appeals for the Fifth Circuit, and has been argued on the merits.

However, the Fifth Circuit has indicated that it will withhold its

decision pending this Court's determination herein, See Letter from

Chief Deputy Clerk, Fifth Circuit, to counsel (March 4, 1983),

34 Although not explicitly stated, it can be assumed that the district

courts which have rejected the Second Circuit's decision were con-

cerned with the possibility that if the United States were the only

Warsaw signatory imposing no limit of liability, substantial forum

shopping and additional overcrowding of the already overburdened

federal courts could result. Thus, those district courts apparently

hoped to avoid the extraordinary increase in litigation which has

already taken place in maritime cargo cases—e.g., thirty percent of the

present civil docket of the Southern District of New York (see A

(footnote continued on following page)

Additionally, as the district court observed, the use of the

last official price of gold is also mandated by CAB Order

74-1-16. That Order requires United States airlines to file

tariffs advising the public that the limit of liability of 250

francs per kilogram for checked baggage and goods is $20.00

or stated on a per pound basis is $9.07. (JA57). This limitation

is calculated on a gold value of $42.22 per ounce, the last

official price of gold in the United States.

Although the Second Circuit has suggested that “[t]he sole

criterion supporting the CAB’s position appears to be the law

of inertia” (JA205, 690 F.2d at 310), the fact remains that in

the absence of any countervailing official guidance, the entire

United States airline industry is required to conform its con-

duct to Order 74-1-16 and has consistently done so. The CAB

is aware of this industry-wide practice and has obviously not

objected to compliance with its own Order.”

Contrary to the Second Circuit’s assertion that CAB Order

74-1-16 continues to exist solely by virtue of “inertia,” affirma-

tive policy reasons have led to the continued existence of Order

74-1-16:

This approach produces the greatest degree of stability

possible... .

(footnote continued from previous page)

Proposal for a Pilot Program Concerning Cargo Dumage Cases, 37

Rec, A.B. City N.Y. 103, at 103 (1982))—which in large measure has

arisen from the fact that the Carriage of Goods by Sea Act of 1936,

§ 4(5), 46 U.S.C. § 1304(5) (1976), provides for a higher limit of

liability than the related Convention for the Unification of Certain

Rules Relating to Bills of Lading for the Carriage of Goods by Sea,

opened for signature Aug. 25, 1924, art. 4, § 5, $1 Stat. 233, 252, T.S.

No, 931, 120 L.N.T.S. 155, 167, as interpreted by the English Courts.

See Asser, supra note 11, at 648.

35 As a consequence of this CAB mandated industry-wide practice, of

which Franklin Mint as an experienced shipper was undoubtedly

aware, the district court found that the parties had intended “to adopt

the last official price of gold as the basis for converting the Article 22

limitation into dollars in the instant case.” (JA188-89, 525 F. Supp. at

1289),

We believe that the Board’s current course of action

{ermploying the last official price of gold] is superior to

any of the alternatives currently available. (Golden Mem-

orandum, supra p. 5, at JA40).”°

In view of the blackletter law that an agency regulation must

be affirmed unless it is arbitrary, capricious, or an abuse of

discretion (see Administrative Procedure Act § 10(e), 5 U.S.C.

§ 7062)(A) (1976)); that agency action is entitled to a pre-

sumption of validity (see, e.g., Permian Basin Area Rate

Cases, 390 U.S. 747, 767 (1968); Ethyl Corp. v. Environmental

Protection Agency, 541 F.2d 1, 34 (D.C. Cir.) (en banc), cert.

denied, 426 U.S. 941 (1976)); and that “a reviewing court. . .

‘is not empowered to substitute its judgment for that of the

agency’” (Federal Communications Commission v. WNCN

Listeners Guild, 450 U.S. 582, 594 n.30 (1981)), particularly

with respect to the enforcement of existing treaty provisions

(Sumitomo Shoji Americ., Inc. v. Avagliano, 457 U.S. at

184-85; Kolovrat v. Oregon, 366 U.S. 187, 194 (1961)), it is

submitted that the district court’s reliance upon CAB Order

74-1-16 was entirely justified. Even absent the other bases of its

holding, that Order alone would have been more than ad--

quate support for the district court’s decision.

In sum, the use of the last official price of gold as a

conversion factor is totally consistent with the objectives and

purposes of Article 22; with the only presently effective CAB

regulation dealing with this issue; and with the overwhelming

weight of authority in both the United States and other

signatory jurisdictions. It should therefore be adopted as the

Warsaw conversion factor.

36 The CAB has effectively endorsed the Golden Memorandum and the

continued use of the last official price of gold as a conversion medium.

This is so because all United States air carriers are required to file their

international tariffs with the CAB (see Federal Aviation Act of 1958,

§ 403(a), 49 U.s.C. § 1373(a) (1976)), and they have continued to file

using the last official price of gold. “Moreover, the Board’s interpreta-

tion is consistent with the industry’s own understanding” of the

Convention, a fact which further supports the CAB’s position. British

Caledonian Airways, Ltd. vy. Civil Aeronautics Board, $84 F.2d 982,

996 (D.C. Cir. 1978).

POINT II

SPECIAL DRAWING RIGHTS ARE AN ALTERNATIVE

CONVERSION FACTOR

Although the district court found the last official price of

gold to be the most appropriate conversion factor for the

Article 22 gold provisions, it noted that were it “writing on a

clean slate,” it would have found the arguments in favor of

employing SDRs to be “most persuasive.” (JA188, 525 F.

Supp. at 1289).

As indicated above and amplified by the record, SDRs are a

stable international unit of account which were clearly in-

tended to replace gold as an international reference value in the

world economy. (JA21-22). In fact, SDRs are frequently re-

ferred to as “paper gold.” P. Samuelson, Economics, supra p.

10, at 612. Therefore, their use as a medium of conversion

under Article 22 would result in predictable and stable limits of

liability which would fully effectuate the Convertion’s pur-

poses.

SDRs were adopted in the Montreal Protocols at the sugges-

tion of the United States. See A. Lowenfeld, Aviation Law

§ 6.51, at 7-171 (2d ed. 1981). Consequently, it would clearly

be appropriate to implement their use via judicial determina-

tion, since “[t]he conduct of the parties subsequent to ratifica-

tion of a treaty may. . . be relevant in ascertaining the proper

construction to accord the treaty’s various provisions.” Day v.

Trans World Airlines, Inc., 528 F.2d at 35. See Pigeon River

Improvement, Slide & Boom Co. v. Charles W. Cox, Ltd., 291

U.S. 138, 158 (1934).””

37 Article 18 of the Vieuna Convention on the Law of Treaties, opened

for signature May 23, 1969, reprinted in 8 Int’| Legal Materials 679,

686 (1969), also supports the use of SDRs. Under that Article, by

signing the Montreal Protocols the United States placed itself under an

obligation to avoid undermining them during the ratification process.

See generally, United States v. D’Auterive, §1 U.S. 609, 623 (1850). As

discussed above, see supra p. 11, while the Protocols did not receive

(footnote continued on following page)

Moreover, although ignored by the Second Circuit, the very

statute which repealed the Par Value Modification Act ac-

cented SDRs as a unit of account tor determining the United

States’ obligations as a member of the IMF (Second Amend-

ment to the IMF Articles of Agreement, supra p. 9, art. IV,

§ 2(b), 29 U.S.T. at 2208-09, T.I.A.S. No. 8937) with the

objective of making the SDR “the principal reserve asset in the

international monetary system” (Second Amendment to the

IMF Articles of Agreement, supra p. 9, art. VIII, § 7,

29 U.S.T. at 2226, T.I.A.S. No. 8937). Thus, if, as the court of

appeals suggested, the 1976 Repeal Act is accepted as having

terminated the use of the last official price of gold as the

Warsaw conversion factor, it necessarily follows that Congress

must have intended to substitute SDRs in its place.

The propriety of selecting SDRs as the conversion factor is

supported by numerous reasons:

the ease with which the SDR can be adopted by interpre-

tation or administrative decision, the adoption of the

SDR under treaties that deal with a similar subject mattec,

the desirability of a unit of account that will ensure equal

(footnote continued from previous page)

the necessary two-thirds majority in the Senate in March 1983, they are

being reconsidered and are still supported by the Administration. 129

Cong. Rec. $2279 (daily ed. Mar. 8, 1983).

Although the Vienna Convention has not been ratified by the United

States, it is “generally recognized as the authoritative guide to current

treaty law and practice” (Letter of Submittal from Secretary of State

William P. Rogers to the President, S. Exec. Doc. L., 92d Cong., Ist

Sess. | (Oct. 18, 1971) (submitting the Vienna Convention)). As such,

it has been relied upon by United States courts. See, e.g., Weinberger

v. Rossi, 456 U.S. at 29 n.5; Greater Tampa Chamber of Commerce vy.

Goldschmidt, 627 F.2d 258, 263 n.4 (D.C. Cir. 1980); Ausser! v. Swiss

Ai [ransport Co., Ltd., 351 F. Supp. 702, 707 n.6 (S.D.N.Y. 1972),

aff'd per curiam, 485 F.2d 1240 (2d Cir. 1973).

Use of the last official price of gold as the Warsaw conversion factor

would be as fully consistent with the Vienna Convention as use of

SDRs, since the last official price achieves the predictable and stable

limits of liability sought by the Montreal Protocols.

value wherever a recovery of damages pursuant to the

trea'y is sought and whatever the currency in which

damages are awarded, [and] the publication by the [IMF]

of exchange rates in terms of the SDR and the difficulty

or cost of establishing a substitute procedure. (J. Gold,

Floating Currencies, SDRs, and Gold, IMF Pamphlet

Series No. 22, at 65 (1977)).”*

Thus, SDRs would fully comply with the intent of the

framers of Article 22 since they would result in a stable and

predictable limitation of liability. In fact, it was just such

reasoning which led the highest foreign court to directly con-

front the issue to select SDRs.

In State of The Netherlands vy. Giants Shipping Corp.,

Rechtspraak van de Week 321 (May 30, 1981) (Supreme Court

of The Netherlands May 1, 1981) (JA72) (hereinafter “Giants

Shipping”), the Supreme Court of The Netherlands, that

nation’s highest tribunal, was faced with precisely the issue

before this Court: how to convert the gold value provisions of

a multilateral treaty’s limitation of liability clause into national

currency, in view of gold’s changing role in the world

38 SDRs have been adopted as the basis for converting Warsaw gold

francs into national currencies by legislation or administrative acts in a

number of foreign countries, including Canada (Currency and Ex-

change Act: Carriage By Air Act Gold Franc Conversion Regulations,

Jan. 13, 1983, 117 Can. Gaz., pt. II, No. 2, at 431 (Jan. 26, 1983))

(BA36); Italy (Law No. 84 of March 26, 1983, 90 Gazetta Ufficiale

della Republica Italiana (Apr. 1, 1983)) (BA37); the Republic of South

Africa (Carriage by Air Act, No. 17 of 1946, § 3(7), as amended by

No. $ of 1964 and No. 81 of 1979, Stat. S. Afr. (Issue No. 13) 15,

implemented by Dep't of Transport Notice R2031 (Sept. 14, 1979))

(BA39); Sweden (Carrier by Air Act (1957: 297), ch. 9, § 22, (as

amended Mar. 30, 1978)) (JA67); and the United Kingdom (Stat. Inst.

1980 No. 281) (JA70).

It is noteworthy that the applicable Swedish legislation nullified an

earlier decision by a Swedish court in Saga v. Sagoland (Lower Court,

Goteborg, Sweden Oct. 2, 1973), discussed in [1975] 29 Revue

Francaise de Droit Aérien 138, which applied the market price of gold,

and that the applicable Italian legislation codified a ruling of the Rome

Civil Court in Linee Aeree Italiane vy. Riccioli, No. 609/79 (Nov. 14,

1978) (JA97).

economy.” In answering that question, the court noted that

“(t]he point of departure should be the preference—underlying

the Treaty. . .—for a standard which is current in the interna-

tional monetary field for determining the internationally uni-

form limits of liability intended by the Treaty.” (Giants

Shipping, svra p. 32, at JA92-93). Finding that the market

price of gold “would be contrary to this point of departure”

(JA93) because “gold has lost all monetary significance”

(JA92), the court instead chose SDRs, notwithstanding the fact

that an amendment to the treaty, substituting SDRs for French

gold francs, was not yet in force. The rationale for the court’s

decision was the fact that SDRs had replaced gold as the unit

of account in the international monetary system and that,

therefore, their use was in harmony with “the adjustment of

international treaties and national laws to the changed mone-

lary situation.” (Giants Shipping, supra p. 32, at JA93-94).

In making the actual conversion from gold francs to SDRs,

the Giants Shipping court performed a simple calculation.

Using the gold value of SDRs as of April 1, 1978, the date on

which the IMF method of valuing SDRs was severed from

gold, the court concluded that 15 French gold francs had the

same value as | SDR. Therefore, by dividing the number of

French gold francs called for by the limitation provisions of

the Convention by 15, it reached the proper number of SDRs.

Once the number of SDRs was obtained, the limit of liability

39 In Giants Shipping, the court construed a limitation of liability

provision set forth in the Convention Relating to the Limitation of the

Liability of Owners of Sea-Going Ships, done at Brussels Oct. 10, 1957

(the “Brussels Convention”), reprinted in 6 Benedict on Admiralty

5-11 (7th ed. 1983). The Brussels Convention is strikingly similar to the

Warsaw Convention in many respects: the limitation of liability provi-

sions of each Convention contain gold clauses expressed in French gold

francs; among the fundamental purposes of both Conventions was the

desire to create uniform rules governing the liability of carriers

engaged in international transportation; and the signatories of each

Convention had agreed to amendments adopting SDRs in place of

gold, although neither amendment was yet in force.

was converted into local currency on the date of payment

simply by referring to the Guilder/SDR exchange rate posted

by the IMF.

In addition to the Supreme Court of the Netherlands, the

courts of several other Warsaw signatory States have employed

SDRs.” See, e.g., Linee Aeree Italiane v. Riccioli, No. 609/79

(Rome Civil Court, Italy Nov. 14, 1978) (JA102);*' Kislinger v.

Austrian Airtransport, No. 1 R 145/83 (Commercial Court of

Appeals of Vienna, Austria June 21, 1983) (BA20); Rendez-

vous-Boutique-Parfumerie Friedrich und Albine Breitinger

GmbH vy. Austrian Airlines, No. 14 R 11/83 (Court of Appeals

of Linz, Austria June 17, 1983) (BA2S5, 30).

In short, the Warsaw gold provisions can easily be converted

into U.S. (or any other) currency via SDRs. On March 31,

1978, SDRs were valued in terms of gold and were therefore

easily convertible into gold francs. On April 1, 1978, the IMF

member nations severed the link between gold and the SDR, as

well as between gold and their national currencies, and SDRs

were valued according to a weighted basket of national curren-

cies. Although the value of the SDR has varied somewhat with

change in the value of the basket of currencies, on one day,

April 1, 1978, the basket value of the SDR was precisely the

40 The only other Supreme Court of a signatory State to consider the

Warsaw conversion issue, the Cour de Cassation of France, has held

that the limitation must be enforced and that the conversion factor to

be applied should be that which is considered correct by the executive

branch of the French government. In so holdi: ,, the Court remanded

the case to the Court of Appeals of Paris, which had applied the

modern French franc as the conversion factor, for further proceedings

not inconsistent with its opinion. Chamie v. Egyptair, No. 80-12.428

(Cass. civ. com., France Mar. 7, 1983) (BA2),

41 Prior to rendering its decision, the Riccioli court sought advice con-

cerning the proper basis for conversion from an officia! >f the Italian

Central Exchange Control Board with expertise in the field of interna-

tional monetary affairs. (An English translation of that official's

technical report is set forth at JA106). As noted above, see supra p. 32

n. 38, subsequent to the Riccioli decision, Italy adopted SDRs as the

conversion factor by legislation.

same as its gold value had been the day before, As a result, the

SDR, having both a gold value and a modern currency value,

may be employed as a Rosetta stone to translate the Warsaw

gold provisions into current U.S. dollars with an unbroken line

of value from gold to SDRs to national! currencies.”

Notwiths.anding the foregoing arguments, the Second Cir

cuit rejected SDRs as a conversion factor primarily because

they are “a creature of an international body, the IMF”

(JA207, 690 F.2d at 310), and because their value can change

“at the whim of an international body distinct from the parties

to the Convention,” (JA207, 690 F.2d at 311), It is submitted

that those reasons are parochial and entirely without merit.

The Second Circuit failed to pay due consideration to the

fact that the United States ratified the multilateral treaty

creating the IMF (see supra p. 8 n.15); took the lead in

suggesting the adoption of SDRs as the Montreal Protocols’

42 The mathematical computation converting French gold francs into

U.S. dollars would be as follows, The value of the SDR on March 23,

1979, the date the cargo was delivered to TWA, has been used for

illustrative purposes,

1 Poincaré franc (90% fine gold) = 0,0655 gram

of fine gold

1 Poincaré franc (100% fine gold) - 0.08895 gram

of fine gold

1 SDR (gold value on

March 31, 1978) - 0.888671 gram

of fine gold

The number of francs in

one SDR = &,888671 - 1$.075 rounded

0.05895 to 18

The Warsaw limit of 250

francs per kilogram _250 - 16.67 SDRs per

converted to SDRs i$ kilogram, rounded

to 17 SDRs

Dollar value of | SDR on

March 23, 1979 - 1.28626

17 SDRs per kilogram = |.28626 - $21.87 per

kilogram.

unit of conversion (see supra p, 11); and has accepted SDRs as

the international unit of account vis-a-vis the IMF Treaty as

amended (see supra p. 31), Moreover, a seventy percent major

ity of the total voting power of the 146 member nations is

necessary to make even a technical change to the valuation of

the SDR and an eighty-five percent majority is necessary to

make a fundamental! change in valuation, Second Amendment

to the IMF Articles of Agreement, supra p. 9, art, XV, § 2, 29

U.S.T, at 2238, T.1.A.S. No, 8937, Thus, while SDRs may be a

“creature of an international body,” they are also a “creature”

of the United States and can hardly be revalued upon a

“whim,”

The Second Circuit's additional reasons for rejecting SDRs

ure equally unavailing, (JA206-07, 690 F.2d at 310), While the

Second Circuit is correct that SDRs are not mentioned in the

Convention, that fact alone is insufficient to prevent their use

as a conversion factor since SDRs, as the m dern Gay interna-

tional unit of account, totally fulfill the intent of the treaty’s

drafters, In the words of Mr, Justice Holmes concerning

Constitutional construction, which are equally applicable to

treaty interpretation:

[W]hen we are dealing with words that @iso are a constitu-

ent act. . . we must realize that they have called into life

a being the development of which could not have been

foreseen completely by the most gifted of its begetters.

(Missouri v, Holland, 252 U.S, 416, 433 (1920)).

Therefore, the language of a treaty should never be permit-

ted to become a “verbal prison” (Eck v, United Arab Airlines,

Inc., 360 F.2d 804, 812 (2d Cir, 1966)); nor should a change in

circumstances be permitted to defeat the treaty’s original

purposes “even if this requires departing in some measure from

the letter [of the treaty provision] and reading the language in a

practical rather than literal fashion” (Eck v, United Arab

Airlines, Inc,, 360 F.2d at 812). See Maugnie v. Compagnie

Nationale Air France, $49 F.2d 1256, 1261 n.10 (9th Cir,), cert,

denied, 431 U.S, 974 (1977); J, Sutherland, Statutes and

Statutory Construction § 32,09, at 383 (4th ed, 1972), As a

result, the mere fact that SDRs are not mentioned in the

Convention is insufficient to preclude their use as the conver-

sion factor,

The Second Circuit's suggestion that had it employed SDRs

it would have had to select, as a policy matter, the actual

limitation is simply wrong. Far from having to set the limit, a

United States court could employ SDRs as the conversion

factor following the Giants Shipping method, As discussed

above, that method relies upon the gold value of SDRs on

April 1, 1978 and, therefore, is directly tied to the Warsaw gold

provisions.

Finally, the Second Circuit's observation that the Senate has

thus far declined to ratify the Montreal Protocols (JA206, 690

F.2d at 310) is completely irrelevant, The fact remains that

SDRs have been accepted by the United States as the modern

international unit of account (see supra p. 31) and, as such, are

in no way undercut by the continued pendency of the Montreal

Protocols,

In sum, the Second Circuit's rejection of SDRs as the

Warsaw conversion unit is entirely without merit. SDRs have

taken the place of gold in the international economic system;

the Warsaw signatories have indicated in the Montreal Proto-

cols that SDRs should take the place of gold in Article 22 of

the Convention; and the recent trend among signatory states

has, in fact, been to adopt SDRs through administrative orders

(see supra note 38), legislation (/d.) or judicial interpretation

(see supra pp. 33-34).*° Therefore, if the last official price of

gold is not adopted as the conversion factor for the Warsaw

gold provisions, it is respectfully submitted that SDRs are the

proper alternative,

43° This recent worldwide trend toward the use of SDRs as the Warsaw

conversion factor is of particular importance since uniformity of

interpretation and result was a principal goal of the drafters, “A

multilateral treaty is rather like a ‘uniform law’ within the United

States, The Court has an obligation to keep interpretation as uniform

as possible.” Block v. Compagnie Nationale Air France, 386 F.2d at

337-38,

CONCLUSION

For all the foregoing reasons the Judgment of the United

States Court of Appeals for the Second Circuit should be

modified insofar as it holds the limitation of liability provi-

sions of the Warsaw Convention prospectively unenforceable;

the last official price of gold or, in the alternative, SDRs

should be designated as the conversion factor for the Warsaw

Convention's limitation of liability provisions,

Dated: New York, New York

August 29, 1983

Respectfully submitted,

JOHN N, ROMANS

Counsel of Record

ROBERT S, LIPTON

101 Park Avenue

New York, New York 10178-0061

(212) 696-6000

Attorneys for

Trans World Airlines, Inc,

Of Counsel:

CURTIS, MALLET-PREVOST,

Co._t & MOSLE

Scott J, MCKAY WOLAS

MICHAEL L. M, QUINTTUS

BA]

APPENDIX

TABLE OF CONTENTS

PAGE

Chamie y. Egyptair, No. 80-12.428. (Cass. civ. com

France Mar. CIM Sesh iesses\ciynasc BA2

Costell y, Iberia, Lineas Aéreas de Espana, S.A., No.

255 (Court of Appeal of Valencia Spain Oct. 16,

ics SA Racine Nana BA6

Kislinger y. Austrian Airtransport, No. 1 R 145/83

(Commercial! Court of Appeals of Vienna Austria

June 21, otic tak PL Oe BA12

Rendezvous-Boutique-Parfumerie Friedrich und Albine

Breitinger GmbH y. Austrian Airlines, No, 14 R

11/83 (Court Of Appeals of Linz, Austria June 17,

aes Sp eee er ae a BA22

Regulations, Jan. 13,

1983,

» No. 2, at 43] (Jan. 2

6, 1983), BA%6

Italy, Law No. 84 of March 26, 1983, 90 Gazetta Uffi.

Ciale della Republi

ca Italiana (Apr. 1, 1983)

979, Stat.

- 13) 15, implemented by Dep't of

Transport Notice R203} (Sept. 14, 1979)

Division of Government Accounts & Re

Dep't of the Treasury,

Ports, U.S.

Status Report of U.S. Govern.

ment-Owned Gold (Apr. 30, 1983)

BA2

CHAMIE V. EGYPTAIR,

No. 80-12.428, Cass. Civ. Com.,

France (Mar. 7, 1983)

TRANSLATION

COMM.

COUR DE CASSATION (Supreme Court of Appeals)

Public Trial of March 7, 1983 Highest Appeal

Justice SAUVAGEOT, Presiding Decree No. 231

Index No. 80-12.428

of April 29, 1980

FRENCH REPUBLIC

IN THE NAME OF THE FRENCH PEOPLE

THE SUPREME COURT OF APPEALS, COMMERCIAL DIVISION,

has handed down the following decree:

On the appeal filed by the Compagnie Nationale Egyptienne de

Transports Aériens—Egyptair—a corporation located in Hé-

liopolis, Cairo, Egypt, represented by its current President/

General Manager AIDAROS, with branch offices at 1 bis, rue

Auber, Paris 9, represented by its Chairman of the Board of

Directors, EL MELEHY,

appealing a decree issued on January 31, 1980, by the Court of

Appeals of Paris, in favor of Ms. Luica Jafalian Chamie,

residing at 30 allée Zamenoff, Valence, Dréme,

respondent in the appeal.

In support of its appeal the plaintiff cites three grounds for

appeal, the third of which reads as follows:

BA3

“The appeal objects to the decree being appealed in that said

decree orders an airline to pay 12,500 francs for the loss of $0

kilograms of checked baggage, with interest from the date of

the complaint at the statutory rate, on the grounds that the

judge may not refuse to rule on the grounds that the law is

silent, obscure, or inadequate; whereas since April 1, 1978, the

disappearance of the official franc-gold parity makes it impos-

sible to apply the rule of conversion of account units into

national currency; whereas the present French franc may only

be used to convert into the national currency the francs of the

Warsaw Convention, and must be recognized as having a value

equivalent to the 1926 French franc on the international level,

but without reference to gold; (1) Whereas the judge may not

substitute for the parties to an International Convention by

replacing a clause he dec!ares inapplicable with a new and

completely different provision; whereas in ruling as it did the

Appeals Court violated Article 4 of the Civil Code through

incorrect application; (2) Whereas assuming as inapplicable the

clause referring to the gold franc for the limitation of liability

of the air carrier, this inapplicable clause cannot render null

and void the agreed limitation of liability which thereupon can

be cited against the passenger; whereas in ruling as it did, the

Appeals Court violated Article 23 of the Warsaw Convention

through incorrect application.”

Whereupon, THE COURT, at public trial held on this date,

Considering the Report of Counsellor Jonquéres, the com-

ments of Boré, Capron, and Xavier, P.C., attorneys for the

Compagnie Nationale Egyptienne de Transport Aériens, the

observations of Mr. Boullez, attorney for Ms. Chamie, the

pleadings of Mr. Cochard, Attorney General, and due delibera-

tion having been had pursuant to law;

Concerning the third grounds of the appeal, part one thereof:

In consideration of Article 22 of the Warsaw Convention of

October 12, 1929;

BA4

Whereas, according to the decree being appealed, on August

26, 1976, Ms. Chamie travelled from Damascus to Paris, via

Cairo, on a flight provided by the Compagnie Nationale

Egyptienne de Transport Aériens (Egyptair); whereas during

this trip three suitcases belonging to said passenger, and having

a total weight of 50 kilograms, were lost; whereas said pas-

senger, who had not submitted a declaration of value upon

departure, cited the provisions of Articles 22-2 and 22-4 of the

Warsaw Convention of October 12, 1929, and filed a claim for

an indemnity computed in accordance with the price of gold on

the Paris free market; whereas Egyptair, upon being served

with the demand for payment of this indemnity, challenged

Ms. Chamie’s interpretation of this international convention

and, finding this demand unwarranted, offered her an indem-

nity of 4,900 francs;

Whereas, after finding that the method of computing the

loss-of-baggage indemnity specified in Article 22-4 of the

Warsaw Convention and referred to in the transportation

contract binding the parties was not applicable in this action,

the Court of Appeals, stating that the judge may not refuse to

render judgment on the pretext of silence, obscurity, or inade-

quacy of the law, ruled that the indemnity owed by Egyptair to

Ms. Chamie was .o be evaluated by taking into consideration

only the value of her baggage in French national currency on

the date of the judgment, and, because of the indemnity

ceiling, the court fixed said indemnity at 12,500 francs;

Whereas, in imposing upon the parties a method of computa-

tion different from the one provided for in the Warsaw

Convention, notwithstanding the fact that when the provisions

of a diplomatic treaty submitted to their interpretation involve

the public monetary order as per the international agreements

in effect, judges ruling on the merits must request the official

interpretation thereof given by the government agency and

shall conform to it, the Court of Appeals violated the provi-

sion hereinabove mentioned;

BAS

Now THEREFORE, and without any necessity to rule on the

other grounds of the appeal,

RESCINDS AND VACATES the decree handed down on January

31, 1980, by the Court of Appeals of Paris; consequently,

restores the action and the parties to the same and similar

condition in which they were prior to said decree, and in order

to render them justice returns them to the Court of Appeals of

Paris, composed of other judges appointed for that purpose by

special ruling in Counsel Chambers;

Orders defendant to pay to plaintiff the sum of twenty francs

eighty-five centimes by way of expenses, not including the cost

of serving this decree;

Orders the Public Prosecutor attached to the Supreme Court

of Appeals to have this decree printed and transmitted for

recording in the records of the Court of Appeals of Paris, in

the margin or at the end of the vacated decree;

So ordered, adjudged, and decreed by the Supreme Court of

Appeals, Commercial Division, at public trial on March

seventh one thousand nine cighty-three;

Present: Justice Sauvageot, Presiding; Justice Jonquéres, rap-

porteur; Justices Perdriau, Gigault de Crisenoy, Fautz, Bar-

gain, Delmas-Goyon, Bonnefous, Defontaine, Hatoux, Dupré

de Pomaréde, Le Tallec; Desgranges and Dupieux, referendary

Justices; Mr. Cochard, Attorney General; Ms. Sivigny, Divi-

sion Clerk.

CERTIFICATE OF ACCURACY

STATE OF NEW YORK )

COUNTY OF NEW YORK ) >!

Eileen B. Hennessy, being duly sworn, deposes and says that

(s) he is a translator associated with Translation Company of

New York, Inc., 124 East 40th Street, New York, New York,

and that (s) he is thoroughly familiar with the French and

BA6

English language and that (s) he translated the attached docu-

ment relating to:

Ruling on Appeal

from French language into the English language, and that the

English text is a true and correct translation of the original, to

the best of his/her knowledge and belief.

/s/ EILEEN B. HENNESSY

Eileen B. Hennessy

(Jurat dated Aug. 12, 1983 omitted in printing)

—

COSTELL V. IBERIA, LINEAS

AERFAS DE ESPANA, S.A.,

No. 255, Court of Appeal of Valencia, Spain

(Oct. 16, 1981)

TRANSLATION

Ist R. 498/80

Served Oct. 16, 1981 (stamped seal)

RULING NUMBER 255

Honorable Justices: In the City of Valencia, on

a October fourteenth, one

—Presiding ; :

Hon. José Bermudez Acoro thousand nine hundred

eight-one.

— Justices

The First Civil Division of

this Jurisdiction, acting in

matters involving less than

a specified sum, brought

before the Court of First

Instance

Hon. Julio Gallardo Lamas

Hon. Adolfo Fuertes Pintas

BA7

Number One of Valencia by Mr. Manuel-Luis de la Llave

Costell against Iberia, Lineas Aéreas de Espana, S.A., a

company, for payment of a sum of money, and pending before

said Division pursuant to an appeal filed by the plaintiff,

represented and defended by his attorney, Rodolfo Castro

Novella; the respondent, Iberia, Lineas Aéreas de Espana,

having appeared herein by its representative, Mr. Ignacio

Zaballos Ferrer, under the guidance of José Gonzalez Palen-

zuela, Esq.,

INCORPORATING the WHEREAS clauses of the decision being

appealed,

WHEREAS said decision, handed down by the Judge of First

Instance Number One of Valencia on September twelfth one

thousand nine hundred eighty, contains the following: “AD-

JUDGED: Ruling in favor of part of the demand made by

Rodolfo Castro Novella, Esq., on behalf of Mr. Manuel-Luis

de la Llave Costell, it should be found and adjudged that the

defendant, Iberia, Lineas Aéreas de Espana, S.A., is responsi-

ble for the loss of a suitcase weighing fourteen kilos and

belonging to tue plaintiff, as a result of its loss en route

between Milan and Valencia on June 3, 1979, ordering the

defendant to pay to the plaintiff damages in a peseta amount

equivalent to $240 at the official rate of exchange on said date,

rejecting the other demands of the plaintiff with release to the

defendant, ali without express ruling ordering payment of the

costs of the action. . .”

WHEREAS an appeal was filed against said judgment by the

plaintiff, within due time and form, and admitted on both

accounts, and the file of the case was received by this Court,

before which the parties appeared on the date set; the appeal

was heard at a trial held on the second day of this month, at

which Counsel! for the parties presented their pleadings and

moved for a ruling in accordance with the demands of their

respective clients;

WHEREAS the provisions of law were complied with, except as

stated in the first report;

BA8

The Hon. ADOLFO FUERTES SINTAS, Justice, having prepared

the opinion of the Court,

The WHEREAS clauses of the decision appealed being accepted

except insofar as they conflict with the findings hereinafter set

forth;

WHEREAS this action began with a demand by plaintiff for

payment of damages occasioned by the loss of a suitcase

checked by plaintiff during his return trip to Valencia, Spain,

from Milan, Italy, with a stop in Barcelona, which said voyage

was made on an aircraft of Lineas Aéreas Iberia, the questions

raised being the following: (a) The nature of the carrier’s

liability; (b) Whether said liability is limited by valuation

criteria previously established, o; whether it must be adjusted

to the actual value of the items lost; (c) In either case, which

method is applicable; (d) The question of the conversion into

the national currency, especially as regards the date; (e) Possi-

ble error in computation; and (f) The subject of the damages,

also demanded;

WHEREAS the carrier’s liability as regards air transport of

merchandise in cases like this one must be understood as legal

in nature, since, aside from considerations of any other type

and -onsiderations of culpability for which the laws hereinafter

cited do not establish a dispensation, it is certain that for

non-international transport Article 120 of the Air Navigation

Law of July 21, 1960, states, “The objective basis for indemni-

fication is the accident or damage, and it will apply up to the

liability limits established in this chapter (Chapter XIII), in all

cases, including that of fortuitous accident, even when the

transporter, carrier, or its employees can prove that they acted

with due diligence,” and that the Warsaw Convention of

October 12, 1929, signed by Spain, and The Hague Protocol

that amended it on September 28, 1955 (published, respec-

tively, in the Madrid Gazette of August 21, 1931, and the

Official Government Journal of June 4, 1973), provide in .

Article 18 that the carrier is liable for damage caused in cases

of destruction of, loss of, and damage to checked baggage and

to merchandise when the damage thereby caused occurs during

BAY

air transport, which includes the period during which the

objects are in the carrier’s custody. It should be noted that The

Hague Protocol, which merely modified the Convention, took

effect in Spain on March 6, 1966;

WHEREAS in view of the nature of the legal obligation, with an

objective basis demonstrating the liability alleged, and which

undoubtedly for that reason was never in dispute, only the

amount demanded being disputed, there is also no doubt that

in determining the amount of indemnity that should be paid in

each case the methods established by domestic legislation or

international agreements for the respective cases should be

used; but it is not feasible, as the appellant plaintiff maintains,

to verify the actual value of the items transported and (in this

particular case) lost, first, because the texts cited so provide,

and second, because the limitation-of-liability clause, which

has become the norm in this type of traffic, constitutes part of

the passenger ticket and baggage check ticket (page 155,

reverse), and it ultimately liberates the injured party from the

burden of proof as regards the contents of the lost baggage,

giving the party the opportunity to declare a higher value upon

payment of a higher amount, which said declaration was not

made in this case;

WHEREAS it may be enough to refer to the relevant text

included in the passenger ticket and baggage-check ticket in

order to prove that the method to be applied in computing the

proper indemnity in this case is that of US$ 20 per kilogram of

weight for the lost be «ge; but it should be pointed out that

this dollar indemnity specified by Iberia in the “general condi-

tions” of its transportation contracts is merely a transcription

and an adaptation of the provisions of the “General Transpor-

tation Conditions (Passengers)” applicable unless otherwise

provided by international conventions in effect, or supplemen-

tary to said provisions; it must also be kept in mind (since we

are speaking of supplementation) that Article 125 of the Air

Navigation Law of Spain, hereinabove cited, provides that in

the absence of an international agreement binding upon Spain

international air transport liability will be governed by said

Law applied reciprocally, with a maximum of 50 Pesetas per

BA10

kilogram of weight; but this is not the case, since Spain signed

the Warsaw Convention as amended by The Hague Protocol,

which requires compliance with the limit of two hundred fifty

Francs per kilogram unless the sender makes a special declara-

tion of value; because the gold standard is not in effect in the

international monetary system, IATA, and Iberia as a member

of IATA, specify in their general conditions the dollar equiva-

lent of the 250 Poincaré franc limit, the approximate equiva-

lent whereof is at the present time US$ 20; whereas the

accuracy of this determination is proven by the fact that

Additional Protocol Number 1, annexed to the final document

of the International Air Law Conference held in Montréal in

September 1975, proposes an amendment to Article 22 of the

Warsaw Convention limiting the carrier’s per-kilogram liability

to 17 Special Drawing Rights, a conventional monetary unit of

the Drawing Rights defined by the International Monetary

Fund and representing the average value of a series of strong

national currencies of countries that are members of the Fund;

this points toward the abandonment of the classic patterns of

monetary systems which are already outmoded, and the ap-

pearance of a new value indicator that at this time (October 1,

1981) is quoted at US$ 1.1446 per Special Drawing Right; when

this amount is multiplied by 17, pursuant to the said Addi-

tional Protocol (which has not yet become effective), the result

is US$ 19.4582, which said amount is approximately equal to

the amount recognized by the defendant and approved in the

decision under appeal as a quantitative indemnification

method for each kilogram of weight, which said method

should be used;

WHEREAS the question of which date must be used in convert-

ing into pesetas the U.S. dollar indemnity has not been dis-

cussed, but the date of June 3, 1979, the date of the loss of the

Suitcase, is specified in the [word illegible]; since this affects

the applicable amount, which amount is clearly and specifically

determined in the international conventions cited, should be

reviewed; said international conventions refer to the value of

the national currency “on the date of the judgment“ (Article 22

of the Warsaw Convention, in the new wording contained in

BAI1

The Hague Protocol of September 28, 1955), a criterion that

moreover coincides with the one used by our Highest Court in

its judgment of November 9, 1957, for the amount of a

dollar-denominated travellers check presented for collection;

WHEREAS the judgment appealed was based on an error in the

answer to the complaint, the indemnity amount being incor-

rectly computed as regards the peseta equivalent of US$ 240;

the lost suitcase weighed fourteen kilogrems, which multiplied

by twenty gives a total of $280, which said amount is the

indemnity to be paid;

WHEREAS with regard to the compensation for moral damage

or professional prejudice also alleged in the complaint, the

grounds set forth by the Judge a quo, and deemed reiterated

herein in order to avoid repetitions, warrant confirmation of

the judgment that rejected same;

WHEREAS the correction needed in the judgment appealed

because of the incorrect computation, and the legal complexity

of the case, justify waiver of express order regarding the costs

of this action;

WE RULE:

That considering only what is necessary in the appeal filed by

the attorney for Mr. Manuel Luis de la Llave Costell against

the ruling issued in the first instance of this action, Iberia,

Lineas Aéreas de Espana, S.A., being the defendant, we

confirm said ruling except as regards the amount payable by

the defendant to the plaintiff, which said amount is US$ 280,

at the official rate in effect on the date of said ruling, and we

make no express provision as regards the costs of this action. A

textual certification of this ruling and the appropriate order

from this higher court to the lower Court should be issued at

the proper time, and the original file should be returned to the

lower Court.

So adjudged, ordered, and signed, with calendar certification.

A TRUE COPY

Ignacio Zaballos

BA12

CERTIFICATE OF ACCURACY

STATE OF NEW YORK ) y

COUNTY OF NEW YORK) SS.:

Eileen B. Hennessy, being duly sworn, deposes and says that

(s) he is a translator associated with Translation Company of

New York, Inc., 124 East 40th Street, New York, New York,

and that (s) he is thoroughly familiar with the Spanish and

English language and that (s) he translated the attached docu-

ment relating to:

Ruling on Appeal

from the Spanish 'anguage into the English language, and that

the English text is a true and correct translation of the original,

to the best of his/her knowledge and beiief.

/$/ EILEEN B. HENNESSY

Eileen B. Hennessy

(Jurat dated Aug. 12, 1983 omitted in printing)

KISLINGER V. AUSTRIAN AIRTRANSPORT

No. 1 R 145/83,

Commercial Court of Appeals of Vienna, Austria

(June 21, 1983)

TRANSLATION

(stamp) (stamp)

Received on: District Commercial Court

13 July 1983 Vienna

Law Offices Received on 27 June 1983

Dr. J. Lenz

BAI3

IN THE NAME OF THE REPUBLIC

145/83

The Commercial Court of Vienna, as the Court of Appeals

HR Dr. Alfred Obermayer—Marnach as Presiding Judge, as

well as the additional Judges, Dr. Ernst Kreimel and KR Dr.

Otto Strobl, in the matter of the plaintiff, Dkfm. Marietta

Kislinger, professor, Hafnerstrasse 29, 4020 Linz, represented

by Dr. Alfred Haslinger, Esq., Kroatengasse 7, 4020 Linz, v.

the defendant company, Austrian Airtransport Osterreichische

Flugbetriebgeselischaft, 1010 Vienna, Schwarzenbergplatz 2,

represented by Dr. Josef Lenz, Esq., 1060 Vienna, Gumpen-

dorferstrasse 11, for S. 6,588.32, concerning the appeal by the

plaintiff against the ruling of the Commercial District Court of

Vienna of 21 February 1983, SZ 11 C 140/82-13, after public

oral appeal proceedings, has ruled:

The appeal is nor granted.

The plaintiff is obligated to

compensate the defendant for

the costs of the appeals pro-

ceeding, set at S. 2,708 (includ-

ing S. 190.98 Turnover Tax and

S. 130,00 out-of-pocket ex-

penses) within 14 days, effec-

tive immediately.

Bases for the Decision:

According to the undisputed findings of the disputed ruling,

the plaintiff, on her flight OB 4,238 from Madrid to Vienna on

20 April 1981 with the defendant as air freighter, lost her

photographic equipment from one of her two pieces of luggage

checked in at the airport, and this, from an approximately 10

kg travelcase; the purchase price of said photographic equip-

ment was S. 13,360.40. The plaintiff had not expressly de-

clared, at the counter when checking in her luggage, that there

was photographic equipment in her luggage. Concerning this,

it was established beyond dispute that the plaintiff had not

BAI4

expressly been made aware of the notes contained in the ticket

about transportation conditions and that the items lost had a

weight of 3 kg.

The plaintiff now desires from the defendant, which had

compensated her S. 4,100.00 on the occasion of the above

event, the additional amount of S. 6,588.32 plus 4% interest

from | May 1981, as the difference between the present value

of her photographic equipment and the compensation sum

paid her by the defendant. The maximum liability amount of

250 francs, established in Article 22, Paragraph 2, Letter a) of

the Warsaw Agreement (WA) is to be converted into Austrian

Schillings according to the value standards contained in Article

22, Paragraph § /eg. cit., based on the market price for an

amount of gold corresponding to the metal content of the

fictive franc, because since April 1978, no fixed ratio has

existed between the individual currencies gold. The liabil-

ity amount estimated by the defendant @S. 410.00 per kg of

luggage is thus to be estimated approximately 10 times as high.

The defendant has disputed and essentially objected that the

price of gold on the free market is today a result of interna-

tional speculation with extraordinarily large variations and no

longer a means of stabilizing parities and purchasing power. It

is therefore also no longer suitable as a determinable value

scale. Even before the departure from the gold parity, there

had been a market price in addition to the official parity, so

that even at that time, the calculation of the International

Liability Limits was not to be made based on the “free market

gold price” but on the currency gold parity. The WA does not

therefore indicate the price for fine gold, but the gold franc, as

the value comparison scale. If the plaintiff's opinion is correct,

the market price should have been used even before the gold

standard was given up, which certainly cannot be maintained

based on the text of the agreement.

With the dropping of the currency parity on the gold basis,

therefore, a conversion of this type is possible only with a

value scale that is also substituted internationally therefor and

to which, finally, the currency gold parity is referred. These are

the Special Drawing Rights (SDRs), whereby a conversion

BAIS

amount of 1/15 of a Special Drawing Right results for one

franc. This could not be replaced by gold price notations in the

free market, because otherwise a value scale would be em-

ployed which is different from that contained in the treaty,

contrary to the goals of the signatory nations at the time the

treaty was concluded.

Based on Article 2 of the German Law of 15 December 1933,

RGBI.I/S 1079, valid in Austria, 100 francs are equivalent to

16 Reichsmarks. This provision is supported, pursuant to

Article 151 of the Aviation Law of 1957 with the measure that

in place of the above-cited Reichsmark amounts, six times the

Schilling amount is to be used. From this, a kilo is calculated

at the Schilling amount of S 240.00; since the defendant has

used the rates for domestic liability of S. 410.00, more than the

compensation rate has been used and paid. Moreover, the

defendant is completely free of liability according to its trans-

portation conditions for such types of luggage.

With the disputed ruling, the lower court rejected the claim,

wherein the starting point was the above state of affairs. In

essence, it ruled that the WA, in the version of the Additional

Protocol of The Hague, is to be applied thereto. According to

this, the nonliability claimed by the defendant is void, for

which reason it must compensate the plaintiff for the damages

according to Article 22 of the WA at the maximum liability

amount stated in this agreement for luggage. The value scale

for francs, stated in Paragraph 5, (2g. cit., of 65.5 mg gold

with a fine gold content of 900/1000 is to be converted into

Austrian Schillings, based on the German Provisions of RGB}.

1933/1, S. 1079, introduced with the Gesetzblatt fir das Land

Osterreich [Legal Gazette for the Country of Austria] No.

732/1939, which was validated by the 1957 Aviation Law in

such manner that Schilling amounts six times the Reichsmarks

amounts are to be used in place of the stated Reichsmarks

amount. According to this, however, a compensation amount

of only S. 240.00 per kg is obtained, so that, taking the

payments by the defendant into account, the plaintiff has

received more than she is entitled to demand.

The plaintiff's appeal is directed against this ruling for

reasons of incomplete determination of the state of affairs and

BAI6

incorrect legal evaluation with the petition that the disputed

ruling be amended in such manner that the claim be approved;

secondarily, a motion of arrest in judgment is made.

The defendant has asked that the appeal not be approved.

The appeal is not justified.

However, we must agree with it that the conversion made by

the lower court does not correspond to the applicable jurispru-

dence. But there is nothing to be won from it for the plaintiff,

as will be shown below. The jurisprudence represented in the

disputed ruling concerning the conversion to be made of the

hypothetical key currency was valid only until 30 September

1963. Article 29 A of the Aviation Law, first validated by

Article 151, Paragraph | of the Aviation Law in the version of

BGB1. No. 253/1957, according to which the damage, in the

case of an international air transportation, was to be treated

pursuant to RGB). 1933/II, S. 1039, according to same and to

the implementing decree RGB1. 1933/1, S. 1079, was pro-

foundly amended by BGB1. No. 200/1963, in effect since 1

October 1963. Only the Warsaw Agreement of 12 October 1929

in the version of BGB1. 286/196] replaces the above-cited

German provisions. The former last version valid since 1

January 1972 received Article 29 A of the Aviation Law

through BGB1. 236/1971 (Halbmayer—Wiesenwasser, Das Os-

terreichische Luftfahrtrecht ‘Austrian Aviation Law] II/1/1,

Appendix II, Page 14). The standards cited at the beginning,

arising from German jurisprudence, were thus formally dero-

gated. Pursuant to the last-cited version of Article 29 A of the

Aviation Law, the Warsaw Agreement in the version of The

Hague, BGB1. No. 161/1971 is to be applied to the damage to

be judged here, which arose on the occasion of a flight from

Madrid to Vienna. This international agreement was trans-

ferred through the above-cited point in the Aviation Law into

domestic law, and became directly applicable for the courts.

The Warsaw Agreement, however, in view of its Article 23,

Paragraph |, is relatively coercive for air freighters in its

uniform version, so that the lower court is to be concurred

with in that the defendant, absent the applicability of Article

23, Paragraph 2 of the WA to the luggage lost here, cannot

BAI?

successfully call on the contradictory provisions of Article 15,

Section 3, Letter i) of the “General Conditions for the Trans-

portation of Air Passengers and Luggage” of the AUA (Guldi-

mann, Internationales Luftransportrecht [International Air

Transport Law] 11, 136; Koziol, Osterreichisches Haftpflich-

trecht (Austrian Liability Law] Il, 415). The defendant is thus

liable in principle for the loss of the plaintiff's luggage. The

defendant's liability, however, is limited to 250.00 francs per

kilogram of luggage according to Article 22, Paragraph | of

the WA. Pursuant to Paragraph §, /eg. cit., the calculation unit

“franc” corresponds to a weight of 65.5 mg gold of 90.0%

purity, i.e., the French gold franc of 1924—1936. This hy-

pothetical currency unit must be converted for practical appli-

cations into a national currency. The Agreement leaves it to the

applicable national law to provide the office competent there-

for. In many cases, the conversion is made in implementation

laws. In Sentence 3, the case is settled in which the conversion

must be made by the judge in the absence of a long-term fixed

ratio between the national currency and the value of gold,

whereby the day of the ruling is to be used as the basis. The

conversion here is to be made to rounded-off amounts, with

approximately + 5% tolerance according to the “gold value”

of the relevant national currency (Guldimann, op. cit., 132).

Since, according to Austrian procedural law, the decision

bases are to refer, in principle, to the time at which the hearings

are closed in the lower-court case, and since it therefore

involves, in the case of lost consigned goods, their value at the

time the ruling is handed down (ZB1. 1924, 62), the Court of

Appeals also holds that for the conversion in the case of a

confirmatory ruling, only the time at which the ruling is

handed down in the lower court case is the determining factor

(Guldimann, op. cit., p. 132).

Since the US ended the gold convertibility of the US dollar

in 1971, the problem arose for the multilateral transport

conventions, that used a fictive gold currency as the standard

for liability limitation, of converting into the relevant national

currencies, like the Austrian Schilling, that were not oriented

towards a gold value, to the extent that domestic conversion

standards had not existed or been created.

BA18

The Hamburg Higher Regional Court, in its precedent-set-

ting decision of 2 July 1974, ETR 1974, 701, took the point of

view that, after the last official gold counter-value had largely

lost its economic importance as a reference point, the purpose

of the above-mentioned regulations could best be fulfilled by

using the key rate of the national currencies with respect to the

SDRs, last set with the member states of the IMF, to determine

the liability sum (Georg Groth, Ubersicht die internationale

Rechtssprechung zu CMR [Overview of International Jurispru-

dence on the CMR], p. 76 FN 107).

A conversion of the “gold franc” into the relevant national

currency via the Special Drawing Rights, however, was possible

pursuant to the above decision until 31 March 1978. A method

generally recognized as binding for converting the gold francs

had not been established until then (Braun in transpR 1979, p.

9). Since 1 April 1978, however, there has been no connection.

between the SDR of the IMF and gold, because with the

second supplementation of the so-called Article Agreement,

any connection of the currencies to gold as a valuation stan-

dard was eliminated. Thus, in all international liability conven-

tions, that used gold francs as a value scale, a lacuna arose

(Braun, op. cit., Richter-Hannes, Die UN-Konvention uber die

Internationale multimodale Guterbefordering [The UN Con-

vention on the International Multimodal Transportation of

Goods], 154). The last-cited author, who also denies the possi-

bility of converting the gold francs into the national currencies,

based on the situation indicated, and who refers to the risk that

could arise therefrom if jurisprudence generally followed the

representatives of the real-value theory, that orient on the

current market price of an amount of gold corresponding to

the metal content of the fictive key currency, in this connection

acknowledges that the convention involved would thus violate

the intention and purpose of the liability limitations. The

actual viewpoint of the member states consists in providing a

liability limitation that, however, upon connection to the

market value of the gold, would no longer be effective, and

rather, in many cases would lead to an unlimited liability. This

liability limitation is, however, an essential part of the risk

BAI9

distribution and therefore is undertaken with a given concept

of an amount for the extreme cause of maximum liability,

weighing the various interests—even the insurability—and is

therefore a compromise decision. The liability limitation

should therefore be uniform and as independent as possible of

accidental variations in the currency systems. This finally led

to the introduction of a fictive gold currency. In theory, it

should remain nominally constant until the member states

decide on a change in the nominal sum, over longer periods of

time, because they intend to introduce a greater liability or

because the real value has changed quite decisively.

A reasonable solution, therefore, can be found only with a

regulation that avoids sudden variations, to maintain the

purpose of the liability limit, with which the majority of the

specialist press agrees (Richter-Hannes, op. cit., p. 155, 157,

and the citations further indicated in Footnote 205).

Since the Warsaw Agreement is directly applicable to the

domestic area for the above reasons, its Article 22 is to be

interpreted, or a solution to be sought by analogy, not indeed

based on Article 31, Paragraph 1, BGB1. No. 40/180, but

rather according to Sections 6 ff of the General Civil Code. It

is therefore appropriate to seek a way that corresponds to the

extent possible to the liability limitation system standardized in

the WA, the basic tendency of which has been stated above, if

one does not wish to assume the point of view that a spurious

gap has arisen in the law due to the dropping of the goiu parity

and the maximum liability limits have become completely

inapplicable. The way proposed by Braun, op. cit., is offered

on the basis of the above decision of the Higher Regional

Court of Hamburg. As of 31 March 1978, the following ratios

resulted: | SDR = 0.888671 g fine gold 1000/1000; 1 gold

franc (according to CMR, CIM, CIV) = 10/31 g fine gold

900/1000; three gold francs = 1 SDR.

Converted to the gold francs of the WA with 0.0655 g fine

gold 900/1000, this results in 15 gold francs to one SDR.

Apparently, starting from the same ratios, the Gold Franc

Conversion Law of the Federal Republic of Germany, BGB1.

1980/II, 721, among others, in its Article 2, Paragraph 1, has

BA20

converted the value unit 65.5 mg gold 900/1000 pure content

via the SDR of the IMF in such manner that 15 value units

equals one SDR. Austria, as well, has gone the same way in the

Gold France Conversion Law, BGB1. 319/1979, but only for

the areas of the CIM and the CIV, whereby one SDR equals

three gold francs (10/31 g fine gold 900/1000), as the Federal

Republic of Germany has also done in Article 4 of its Gold

Franc Conversion Law.

For the further considerations, we can use as a Starting point

that as of 31 March 1983, 15 gold francs in the Warsaw

Agreement corresponded to one SDR. In this version, the

Court of Appeals is also reinforced by the fact that IATA in its

“Passenger Services Conference Resolutions Manual”, 3rd

Edition, Effective 1 January 1983, in Article 1: Definitions,

starts from the same ratio.

The essence of the type of liability limitation selected by the

WA, however, prohibits secing a hard and fast value even in

this. Rather, even here, it requires on-going adjustment to the

changing value ratios. However, this cannot take place, for the

above-mentioned reasons, via the market value of the gold, but

rather via the rate for the SDR, as Article 2 of the Austrian

Gold France Conversion Law for the areas of the CIM and the

CIV provide, and this, because it appears applicable by anal-

ogy here, to the extent that it pursues the same goals. Accord-

ing to it, for the conversion of the abstract maximum liability

limit of the WA for luggage, the value of the SDR in Austrian

Schillings at the time the ruling is handed down is decisive.

Since the lower court, starting from the existence of the

domestic conversion provision applied by it, but already dero-

gated, did not increase the rate of the SDR at the time the

ruling was handed down, the proceedings were in need of

supplementation to that extent, for which reason the Court of

Appeals itself obtained the necessary information from the

National Bank, pursuant to Article 496, Paragraph 3, Civil

Procedural Code. According to this, the value of the Special

Drawing Rights as of 21 February 1983 was 18.43569 Austrian

Schillings. This results in a maximum liability limitation of

250.00 gold francs, with a countervalue in Schillings of ap-

proximately 308.00.

BA21

From all this it becomes clear that the only determination

desired by the plaintiff on the appeals ground of “incomplete

determination of the state of affairs”, concerning the market

value of a quantity of gold of 0.0655 g with a fine content of

900/1000 is irrelevant here.

The plaintiff has suffered the loss of only 3 kg of luggage,

which can be valued per se, and which had no influence on the

value of the rest of the luggage. She has received as compensa-

tion, even before the lawsuit, from the defendant S. 4,100.00,

i.e., more than was legally owed her, so that her request for yet

more is unjustified. She would have had a claim to a greater

value for the lost items only if a corresponding declaration had

been made.

The appeal therefore must be rejected for all the above

reasons.

The decision concerning costs was based on Articles 41 and

50 of the Civil Procedural Code.

Commercial Court of Vienna

1011 Vienna, Riemergasse 7

Part 1, on 21 June 1983

/seal of the Court/ /stamp/

Dr. Alfred Obermayer - Marnach

For the accuracy of the copy,

the Head of the Business

Division:

/illegible signature/

CERTIFICATE OF ACCURACY

STATE OF NEW YORK )

COUNTY OF NEW YORK ) %*!

Susan E. Geddes, being duly sworn, deposes and says that

(s)he is a translator associated with Translation Company of

New York, Inc., 124 East 40th Street, New York, New York,

and that (s)he is thoroughly familiar with the German and

BA22

English language and that (s)he translated the attached docu-

ment relating to:

Two court rulings on appeals concerning Austrian Airlines

monetary liability in freight losses.

from German language into the English language, and that the

English text is a true and correct translation of the original, to

the best of his/her knowledge and belief.

/s/ Susan E. Geddes

(Jurat dated Aug. 12, 1983 omitted in printing)

RENDEZVOUS-BOUTIQUE-PARFUMERIE

FRIEDRICH UND ALBINE

BREITINGER GMBH V. AUSTRIAN AIRLINES,

No. 14 R 11/83,

Court of Appeals of Linz, Austria

(June 17, 1983)

TRANSLATION

(stamp) (stamp)

General Reception Office Received

of the District Court for on: 12 July 1983

Linz State and Surroundings Law Offices

and of the Linz Labor Court Dr. J. LENZ

(stamp)

Received on 30 June 1983

14 R 11/83

BA23

IN THE NAME OF THE REPUBLIC!

The LINZ District Court, as the Court of Appeals, through

LGV Presiding Judge Dr. Krichmayr, as the Presiding Judge,

as well as Dr. Wanko and Dr. Nagele as assisting Judges, in the

matter of the plaintiff company Rendezvous-Boutique-

Perfumerie Friedrich und Albine Breitinger Gesellschaft mbH,

4020 Linz, Landstrasse 57, represented by Dr. Alfred

Haslinger, Attorney in Linz, v. the defendant party AUSTRIAN

AIRL'NES Osterreichische Luftverkehrs-Aktiengesellschaft,

1107 Vienna, Fontanastrasse 1, represented by Dr. Josef Lenz,

Attorney in Vienna, cencerning S. 5,433.00 Austrian Schill-

ings, concerning the appeal of the defendant against the ruling

of the Linz State District Court of 18 October 1982, 2 C

982/81-15, after oral appeal proceedings, has ruled:

The appeal is granted and the disputed ruling is amended, so

that it must read as follows:

“The claim petition, that the defendant should pay the

plaintiff S. 5,433.00 plus 5% interest within 14 days, is re-

jected.

The plaintiff must compensate the defendant the suit costs

for the lower-court case of S. 10,399.12 (including S. 745.12

Turnover Tax and S. 340.00 out-of-pocket expenses), within 14

days, effective immediately.

The plaintiff must compensate the defendant for the costs of

the appeal, set at S. 3,240.37 (including s. 226.77 Turnover Tax

and S. 180.00 out-of-pocket expenses) within 14 days, effective

immediately.

BASES OF THE DECISION:

The plaintiff requests an amount of S. 5,433.00 plus 5%

interest from 1 October 198C as compensation for the loss of 4

blouses during the air freighting from Rome to Linz-Hors-

ching, performed by the defendant.

The defendant acknowledged the complaint as far as con-

cerns the amount, but disputes the basis therefor, petitions for

rejection of the complaint involving costs, and objects that it is

liable only for those damages that were ascertained before the

BA24

customs dispatch of the goods, as long as the freighted goods

were therefore still in the custody of the air freighter; in the

declaration of goods for customs purposes, only 7 blouses were

missing, for which the plaintiff has already been held harmless

with an amount of S. 11,355.72 for the whole. In addition to

this, the maximum liability limit has already been exceeded by

far, according to Article 22 of the Warsaw Agreement, with

this payment.

With the ruling of the Linz State District Court of 18

October 1982, 2 C 982/81-15, the defendant was held to owe

the plaintiff the sum of S. 5,433.00 plus 5% interest from |

October 1980, and the costs of the suit, payable within 14 days.

The lower court made the determinations contained in its

decision on pages 3 through 6.

From a legal point of view, the lower court stated that the

property damage was subject to the provisions of the Warsaw

Agreement in the version of the 1955 Amendment as well as

the 1961 Additional Agreement ratified by Austria without

reservations. The custody of the defendant and thus the period

for air freighting that is a decisive factor in the iiability, ended

with the transfer of the goods to the plaintiff’s shipped (sic) on

2 September 1980. Furthermore, the air freighter was responsi-

ble for all damages that occurred during air freighting and not

merely for those that were determined during air freighting,

and therefore until loss of the custody by the air freighter.

Article 22 of the Warsaw Agreement in the applicable version

limits liability of the air freighter during transport to 250

francs per kilogram. In the event of loss of only individual

items, only the (original) total weight of the freicht items

involved is taken into consideration in determining the max-

imum liability amount. Since, of the loss, only 3 or 4 cartons

were involved, there are no indications that the cartons dif-

fered signficantly in size from one another, a weight of approx-

imately 13.5 kg results for the 3 freight items involved. A

{illegible word] pursuant to Article 22 of the Warsaw Agree-

ment refers, pursuant to Article 5 of this provision to a

currency unit with a value of 65.5 mg gold with a fine content

of 900/1000. 250 francs correspond, therefore, to a gold value

BA2S

of 16.375 g. At the time of the lower court's decision, the price

of gold per gram, with a fine content of 900/1000 came to

exactly S 242.639; the maximum liability amount per kg of

freight therefore came to S. 3,973.21, and for the freight items

involved, therefore, to S. $3,638.33. From this results the fact

that the maximum liability limit was in no way exceeded by the

defendant’s payment of S. 11,355.72.

The defendant did not produce relief evidence according to

Articles 20 and 21 of the Warsaw Agreement.

The on-time appeal of the defendant is directed against this

decision on the appeals ground of incorrect legal evaluation,

with the petition that the disputed ruling be altered in such

manner that the complaint is rejected.

The plaintiff prepared a written communication of appeal

and raised therein the petition repeated in the oral appeal

proceedings, that the appeal not be granted and that the first

ruling be upheld.

The appeal is founded.

The appellee essentially states that the maximum liability

amounts in the Warsaw Agreement referred sensibly to French

francs (Poincare Francs) as long as the official gold parities

were determined and the International Monetary Fund bound

the settlement unit (Special Drawing Rights) to the gold stan-

dard. Since the elimination of the link between Special Draw-

ing Rights and gold, and since the dropping of gold parities for

currencies and the raging increase over time in gold prices, due

to speculation on the free market, the maximum liability

amount under the Warsaw Agreement is to be replaced by a

corresponding number of Special Drawing Rights from the

International Monetary Fund, whereby the conversion key of

1/15 Special Drawing Right to one Poincare Franc is to be

used. From this it results that the compensation amount

calculated by the defendant and paid for the entire shipment

exceeds .he actual liability limit of the defendant in the con-

crete case.

__/ Here it should be stated that the Agreement of 12 October

1929 on the Unification of Regulations for Transportation in

International Air Traffic (Warsaw Agreement) was signed on

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12 October 1929 by the representatives of a series of States,

one of which was Austria. Still in 1929, the official German

translation of the Agreement, the authentic text of which is in

French, was agreed upon between Austria, Germany and

Switzerland. The Agreement was ratified by almost all air-traf-

ficking countries in the world. The Warsaw Agreement was not

ratified by Austria until Austria was occupied by Germany in

1938. The German Reich had already ratified it in 1933. With

respect to this, it issued the law for implementation of the

initial Agreement on Unification of Civil Air Law of 15

December 1933, (BGB!. I, 1079). After Germany's occupation

of Austria, the Agreement also applied as a domestic standard

for Austria (see also Article 1 of the Second Ordinance on the

Introduction of German Air Law into the Ostmark, Legal

Gazette for the Country of Austria No. 732/1939). The War-

saw Agreement was ratified by Austria first on 29 July 1961

and then went into effect on 27 December 1961 (BGBI.

1961/286). (Hammerle-Wunsch: Handelsrecht II] (Commercial

Law III), p. 367 f.; Note in Heinl-Loebenstein-Verosta: Das

osterreichische Recht [Austrian Law], II f. $5).

The original Warsaw Agreement already limited the max-

imum liability amounts in Article 22. Article 22, Paragraph 4,

read: “The above indicated amounts are expressed in French

francs with a value of 65.5 mg gold of 900/1000 fineness. They

may be converted, in rounded-off amounts, into the currency

of any country.”

The Warsaw Agreement does not define who the actual air

freighter is. From this results a legal uncertainty. Therefore, on

18 September 1961, the Additional Agreement to the Warsaw

Convention for the Unification of Regulat‘ons resulted from

the ICAO Conference in Guadalajara (Mexico), concerning

transportation performed by an entity other than the contrac-

tual air freighter in international air traffic, which was ratified

by Austria on 29 September 1965 and went into effect here on

21 March 1966 (BGBI. 1966/46). The Addition Agreement

does not state who the air freighter is, but places both the air

freighter that concluded the transportation contract as well as

the entity that executes the transportation contract, in a joint

BA27

liability community under the Warsaw Agreement (Note in

Heinl-Loebenstein-Verosta, Das osterreichische Recht [(Aus-

trian Law] IIf ., §§/1).

The first change in liability provisions of the Warsaw Agree-

ment occurred with the Hague Protocol of 28 September 1955,

by which the Warsaw Agreement was amended; Austria en-

tered into this Agreement, first effective 24 June 1971 (BGBI.

1971/161).

Pursuant to Article XI of this Hague Protocol, it was now

provided in new Paragraph § of Article 22 of the Warsaw

Agreement:

“The franc amounts indicated in this Article refer to a

currency unit with a value of 65.5 mg gold of 900/1000 fine

content. They can be corverted, in rounded-off amounts, into

the currency of any country. The conversion of these amounts

into national currencies other than gold currencies shall take

place, in the case of a court proceeding, in accordance with the

gold value of these currencies at the time of the ruling.”

Since, pursuant to the final sentence of the Hague Protocol,

in case of doubt as well, the text in French governs, the last

sentence of Paragraph 5 of Article 22 of the Warsaw Agree-

ment in the version of the Hague Protocol follows in French

(see BGB1. 1971/161):

“La conversion de ces sommes en monnaies nationales

autres que la monnaie-or s'effectuera en case d’instance judi-

ciarie suivant la valeur-or ces monnaies a la date du jugement.”

(“The conversion of these sums into national currencies

ot!ier than gold currencies shall take place, in case of a court

proceeding, pursuant to the gold value of these currencies as of

the date of the ruling.”]

The Hague Protocol now, is no longer based on the French

franc, with respect to the Warsaw Protocol, rather only on the

abstract gold francs defined in a certain manner. The newly

added third sentence of Paragraph $ of Article 22 of the

Warsaw Agreement in the version of the Hague Protocol is

based on the existence of gold currencies and states that the

gold value of the national currencies governs for the other

member countries. In the French text, a much clearer distinc-

BA28

tion is drawn between “monnaie-or” (“gold currency”] and

“valeur-or” (“gold value”).

In 1948, Austria entered into the Agreement of July 1944

concerning the International Monetary Fund (BGB1. 149/105,

effective for Austria on 27 August 1948). Article IV, Paragraph

1, Letter a) of that Agreement states the obligation that the

parity of the currency of any member is to be expressed in gold

as a general denomination or in US dollars of weight and

fineness, as effective 1 July 1974. The original IMF Agreement

therefore obligated the members to indicate an official parity

for their currencies with respect tc the US dollar or gold.

After giving up a multiple rate system maintained for a

transitional period, Austria indicated to the IMF for the first

time an official Schilling parity of S. 26.00 to US $1.00 that

resulted, considering the then parity of the US dollar to gold

($35 = 1 ounce fine gold), in a parity of the Schilling to gold

of 0.0341706 g fine gold to S. 1.00. This gold parity was

clarified by Article 3, Paragraph | of the Customs Tariff Law

of 12 March 1958, BGB1. No. 74, as a basis for the amount of

customs rates and customs values.

On | August 1962, Austria assumed the obligations set forth

in Article VIII of the Agreement on the IMF, whereby the

Schilling became a convertible currency in the sense of Article

XIX, Letter d) of the Agreement on the IMF.

Effective 10 May 1971, the Schilling was valued at:

S. 24.75 = $1.00

S. 1.00 = 0.0359059 g fine gold.

This change in gold parity became effective via the Amend-

ment to Article 3, Paragraph 1 of the Customs Tariff Law,

BGB!. 454/197].

After elimination of the gold convertibility of the US dollar

on 15 August 1971, Austria went to forming the exchange rate

according to an indicator system, taking into consideration the

rate trend in the stable currencies of its most important

European trading partners. When the IMF, to facilitate re-ar-

rangement of the parity ratios, tolerated the announcement of

the so-called “key rates” and extended deviation ranges for

BA29

exchange rates on 18 December 1971 for a transitional period,

Austria established the “key rate” effective 22 December 1971

of S. 23.30 to $1.00. The gold parity of 10 May 1971 was

unaltered.

The international trend led, consequently, to two devalua-

tions of the US dollar (new parity de jure effective on 8 May

1972, $38.00 and as of 18 October 1973, $42.22 per ounce of

fine gold). Effective 13 February 1973, Austria, in anticipation

of the later announced second devaluation of the dollar,

changed the key rate to S. 20. 97 to $1.00. On 29 March 1973,

a rate of S. 24.7405 was announced to the IMF for a value unit

of the Special Drawing Rights introduced according to the IMF

Agreement; one Special Drawing Right corresponded to

0.888671 g fine gold and thus to the gold parity of the US

dollar existing as of 8 May 1972. (On 26 November 1969, the

Federal Law concerning Austria’s participation in the Special

Drawing Rights system of the IMF, BGB1. No. 440/1969, had

already been passed.)

With the IMF Convention going into effect in the version of

the second agreement for all members on | April 1978 (BGBI1.

No. 189/1978), the gold parity of the Schilling last announced

to the IMF lapsed; in connection therewith, Austria notified

the IMF that its exchange rate regulation according to Article

IV, Section 2 of the IMF Convention, was based on the

intention of maintaining the rate of the Austrian Schilling near

the rates of the states participating in the European Monetary

Agreement (“currency snake”) (Schwarzer-Csoklich-List,

Wahrungs- und Devisen-Recht (Currency and Foreign Ex-

change Law), pp. 7 f.).

Article IV, Section 2, Letter b) of the now valid IMF

Agreement states that within the framework of an interna-

tional currency system of the type existing as of 1 January

1976, the following currency rate regulations, among others,

were permissible:

“(i) Maintenance of the value of a currency by the con-

cerned member in Special Drawing Rights, or in a standard

selected by the member, other than gold.”

BA30

In Appendix C, Point 1) of the Agreement, the Fund

informed the members that for the purposes of this Agree-

ment, parities, expressed in Special Drawing Rights or in

another common denomination permitted by the Fund, could

be established. The common denomination could not be gold

or another currency.

In Article IV, Section 12, in Appendix B, Points 3) and 7), as

well as in Appendix K, Point 2), a Special Drawing Right was

set equal to a quantity of 0.888671 g fine gold.

Based on this historical trend, it results that the Warsaw

Agreement of 12 October 1929 started from the basis of the

French gold franc as a gold currency.

Since the IMF Agreement of July 1944 also provided a gold

parity for the currencies of the member countries (neither

directly nor indirectly via the gold-convertible US dollar), the

last sentence of current Paragraph $ of Article 22 of the

Warsaw Agreement in the version of the Hague Protocol (also

taking the French text into consideration) must be seen from

this point of view. According to it, a distinction is made only

between actual gold currencies and national currencies with

gold parities. This means that the gold franc in the sense of the

Warsaw Agreement is to be connected with the then official

currency gold rate.

Through the cropping of gold currencies and through the

ban on gold parities in the sense of the now valid IMF

Agreement, Article 22 of the Warsaw Agreement in the version

of the Hague Protocol has been materially derogated in con-

nection herewith. This means that the gold quantities resulting

from Article 22 of the Warsaw Agreement in the version of the

Hague Protccol, are to be replaced, as a maximum liability

limit, by a number of Special Drawing Rights within the

framework of the International Monetary Fund.

On 1 January 1970, for the first time, Special Drawing

Rights were allocated by the International Monetary Fund to

the participants in this system. Pursuant to Federal Law of 26

November 1969, BGB1. No. 440, the Special Drawing Rights

of the Republic of Austria were transferred to the Austrian

BA3]1

National Bank. Same is entitled to use the Special Drawing

Rights as coverage for total circulation pursuant to Article 62,

Paragraph | of the National Bank Law of 1955 in the applica-

ble version, in their statements, they are to be seen as currency

reserves. The value units of the Special Drawing Rights were

set, at the time the system was founded, at 0.888671 g fine gold

each, which corresponds to the then parity value of the US

dollar. Th

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