12 N.Y.2d 371, 190
N.E.2d 235, 239 N.Y.S.2d 872 Banco Do Brasil, S.
A., Appellant, v. A. C. Israel Commodity Co., Inc., Respondent, et al.,
Defendants. Court of Appeals of
New York Argued February 18,
1963; Decided April 4, 1963. HEADNOTES: International lawcurrency exchange
controlstreatiesBrazilian law requiring Brazilian exporters
to sell to Brazilian Government all American dollars received, for 90 cruzeiros
per dollar instead of for free market price of 220 cruzeiros, is revenue law;
hence it is not enforcible in New York by means of action brought by Brazilian
Government instrumentality against New York importer for damages for conspiring
here with Brazilian exportertreaty provides, in part,
Exchange contracts
contrary to
exchange control
regulations
shall be unenforceable!48;; even if this applies
to purchase of coffee for uncontrolled American dollars, it does not impose
tort liability here tootherefore, complaint is insufficient and warrant
of attachment is vacated. (1) A warrant of attachment against assets in New York of a
Delaware corporation whose principal place of business is in New York was
properly vacated on the ground that the complaint of an instrumentality of the
Government of Brazil does not state a cause of action against this defendant.
The complaint alleges that the Government of Brazil by law requires Brazilian
exporters to sell to it every American dollar received, for 90 Brazilian
cruzeiros per dollar; that the available price on the free Brazilian market is
220 cruzeiros; and that this New York defendant bought coffee from a Brazilian
exporter, for American dollars, and conspired with said Brazilian exporter to
deprive the Brazilian Government of the American dollars. All of this New York
importers acts took place in New York, and New York law governs. This
Brazilian law is clearly a revenue law. The courts of one State or Nation do
not act as enforcers of the revenue laws of another. (2) Brazil and the United States are among the members of the
International Monetary Fund, the treaty for which provides in part that (60 U.
S. Stat. 1411) Exchange contracts which involve the currency of any
member and which are contrary to the exchange control regulations of that
member
shall be unenforceable in the territories of any
member.!48; It is doubtful that [*372] those words apply to a sale by
individuals of a commodity for a price payable in uncontrolled American
dollars. Even if those words do apply, they at most render such a contract
unenforcible; they do not also require our courts to impose a tort liability in
New York for the making of a contract in breach of a Brazilian revenue law. In
the treaty, those words are followed by a provision stating that member nations
may agree on measures to make each others exchange controls more
effective; but the United States has made no such agreement and has not even
enacted this latter provision into our law (U. S. Code, tit. 22, §
286h). Banco Do Brasil, S. A., v. Israel Commodity Co., 13 A D 2d 652,
affirmed. SUMMARY: Appeal, by permission of the Appellate Division of
the Supreme Court in the First Judicial Department, from an order of said
court, entered April 25, 1961, which affirmed an order of the Supreme Court at
Special Term (Edgar J. Nathan, Jr., J.; opinion 29 Misc 2d 229), entered March
28, 1961 in New York County, vacating and setting aside a warrant of attachment
and the levies thereunder. The following questions were certified: 1. Does the plaintiffs complaint state facts
sufficient to constitute a cause of action? 2. Was the order of this Court entered April 25, 1961,
which affirmed an order of the Supreme Court of the State of New York entered
on the 28th day of March, 1961, properly made? POINTS OF COUNSEL Richard L. Newman, Frank E. Nattier, Jr., and Irving E. Kanner for
appellant. I. The court below erred in holding that the complaint does not
state a cause of action and in holding that the exchange control laws and
regulations of Brazil are contrary to public policy when invoked affirmatively
rather than defensively. (Anderson v. N. V. Transandine Handelmaatschappij, 289 N. Y. 9; State
of Netherlands v. Federal Reserve Bank, 79 F.Supp. 966, 201 F.2d 455; Industrial
Export & Import Corp. v. Hongkong & Shanghai Banking Corp., 302 N. Y. 342; Solicitor
for Affairs of His Majestys Treasury v. Bankers Trust Co., 304 N. Y. 282.) II.
Exchange control laws and regulations of countries, members of the International
Monetary Fund, are recognized and given effect by our courts, as consistent
with public policy under the Bretton Woods Agreement. (Perutz v. Bohemian
Discount Bank in Liquidation, 304 N. Y. 533; Kolovrat v. Oregon, 366
U. S. 187.) III. The court below erred in attempting to restrict the
recognition accorded to Brazilian exchange laws and regulations under modern
concepts of comity [*373] and public policy by confining such recognition to a narrow
interpretation of article VIII (§ 2, subd. [b]) of the Bretton Woods
Agreement. IV. There is no basis for Special Terms distinction which
recognized exchange controls as consistent with public policy if invoked as a
defense, but contrary to public policy if relied upon affirmatively. (de
Sayve v. de la Valdene, 283 App. Div. 918, 307 N. Y. 861; Southwestern
Shipping Corp. v. National City Bank of N. Y., 6 N Y 2d 454.) V. Invocation of the
shield of alleged public policy!48; in defense of a scheme to
defeat and circumvent these Brazilian exchange control regulations is in direct
contravention of comity, and of the moral and financial interests and the
declared policy of the United States. (United States v. Belmont, 301
U. S. 324; Russian Republic v. Cibrario, 235 N. Y. 255.) Jerome J. Londin, John P. Campbell and Michael A. Schwind for
respondent. I. The court below correctly held that no cause of action was
stated by the complaint which is predicated on the affirmative enforcement of
Brazils internal exchange laws and regulations, because such
enforcement in furtherance of foreign governmental interests is contrary to
public policy. (Anderson v. N. V. Transandine Handelmaatschappij, 289 N. Y. 9; State
of Netherlands v. Federal Reserve Bank, 201 F. 2d 455; State of Colorado v.
Harbeck,
232 N. Y. 71; Moore v. Mitchell, 30 F. 2d 600, 281
U. S. 18; Beadall v. Moore, 199 App. Div. 531; Matter of McNeel, 10 Misc 2d 359; Matter
of Liebl, 201 Misc. 1102; Industrial Export & Import Corp. v.
Hongkong & Shan ghai Banking Corp., 302 N. Y. 342; Perutz v. Bohemian Discount
Bank in Liquidation, 304 N. Y. 533.) II. The articles of agreement of the
International Monetary Fund (Bretton Woods) neither require nor justify a
change in the public policy of New York. (Matter of Sik, 205 Misc. 715; Matter
of Liebl, 201 Misc. 1092; de Sayve v. de la Valdene, 283 App. Div. 918,
307 N. Y. 861; Southwestern Shipping Corp. v. National City Bank of N. Y., 6 N Y 2d 454; Kolovrat
v. Oregon, 366 U. S. 187.) III.
Brazils foreign exchange controls may not regulate Israels
conduct in the making and performance of a contract, all of which took place in
New York and is subject to New York law. (Foley Bros. v. Filardo, 336
U. S. 281; Central Hanover Bank v. Siemens & Halske, 15 F. Supp. 927, 84
F. 2d 993, 299 U. S. 585.) IV. The attachment was properly vacated, because the
[*374] complaint and
affidavits in support thereof failed to state evidentiary facts sufficient to
make out a cause of action, as distinguished from conclusions, rumor and
suspicion. (Zenith Bathing Pavilion v. Fair Oaks S. S. Corp., 240 N. Y. 307; Grassi
v. La Sociedad Bancaria Del Chimborazo, 213 App. Div. 629; Friedman v. Prescetti, 199 App. Div. 385.) V.
Plaintiff-appellant is not the real party in interest and cannot maintain this
action. (Greiner v. Freund, 286 App. Div. 996; Industrial Export
& Import Corp. v. Hongkong & Shanghai Banking Corp., 302 N. Y. 342.) OPINION OF THE COURT JUDGE: Burke, J. The action upon which the attachment here challenged is based is
brought by appellant as an instrumentality of the Government of Brazil to
recover damages for a conspiracy to defraud the Government of Brazil of
American dollars by illegally circumventing the foreign exchange regulations of
Brazil. Defendant-respondent, Israel Commodity, a Delaware corporation
having its principal place of business in New York, is an importer of Brazilian
coffee. The gist of plaintiffs complaint is that Israel conspired
with a Brazilian exporter of coffee to pay the exporter American dollars which
the exporter could sell in the Brazilian free market for 220 Brazilian
cruzeiros each instead of complying with Brazils foreign exchange
regulations which in effect required a forced sale of the dollars paid to the
exporter to the Government of Brazil for only 90 cruzeiros. Through this
conspiracy, the Brazilian exporter profited by the difference between the
amount (in cruzeiros) it would have received for the dollars from the
Government of Brazil and the amount it received in the open market in violation
of Brazilian law, Israel profited by being able to pay less dollars for the
coffee (because the dollars were worth so much more to the seller), and the
plaintiff suffered a loss measured by the difference in amount it would have to
pay for the same number of dollars in the open market and what it could have
paid for them through the forced sale!48; had its foreign
exchange regulations been obeyed. The evasion was allegedly accomplished
through the exporters forgery of the documents evidencing receipt of
the dollars by plaintiff Banco Do Brasil, S. A., and without which the coffee
could not have left Brazil. [*375] Plaintiff argues that respondents participation in the
violation of Brazilian exchange control laws affords a ground of recovery
because of article VIII (§ 2, subd. [b]) of the Bretton Woods
Agreement, a multilateral treaty to which both this country and Brazil are
signatories. The section provides: Exchange contracts which involve
the currency of any member and which are contrary to the exchange control
regulations of that member maintained or imposed consistently with this
Agreement shall be unenforceable in the territories of any member.
(60 U. S. Stat. 1411.) It is far from clear whether this sale of coffee is
covered by subdivision (b) of section 2. The section deals with
exchange contracts which involve the
currency!48; of any member of the International Monetary Fund,
and
are contrary to the exchange control regulations of
that member maintained or imposed consistently with the agreement.
Subdivision (b) of section 2 has been construed as reaching only transactions
which have as their immediate object exchange, that is,
international media of payment!48; (Nussbaum, Exchange Control and the
International Monetary Fund, 59 Yale L. J. 421, 426), or a contract where the
consideration is payable in the currency of the country whose exchange controls
are violated (Mann, The Exchange Control Act, 1947, 10 Mod. L. Rev. 411, 418).
More recently, however, it has been suggested that it applies to
contracts which in any way affect a countrys exchange
resources Control Under the International Monetary Fund Agreement, 2
International and Comp. L. Q. 97, 102; Gold and Lachman, The Articles of
Agreement of the International Monetary Fund and the Exchange Control
Regulations of Member States, Journal du Droit International, Paris
(July-Sept., 1962). A similar view has been advanced to explain the further
textual difficulty existing with respect to whether a sale of coffee in New
York for American dollars involves the currency of Brazil,
the member whose exchange controls were allegedly violated. Again it is
suggested that adverse effect on the exchange resources of a member ipso facto
involves the currency of that member
(Gold and Lachman, op cit ). We are inclined to view an interpretation of
subdivision (b) of section 2 that sweeps in all contracts affecting any
members exchange resources as doing considerable violence to the text
of [*376] the section. It
says involve the currency!48; of the country whose exchange
controls are violated; not involve the exchange resources .
While noting these doubts, we nevertheless prefer to rest this decision on
other and clearer grounds. The sanction provided in subdivision (b) of section 2 is that contracts
covered thereby are to be unenforceable in the territory of
any member. The clear import of this provision is to insure the avoidance of
the affront inherent in any attempt by the courts of one member to render a
judgment that would put the losing party in the position of either complying
with the judgment and violating the exchange controls of another member or
complying with such controls and refusing obedience to the judgment. A further
reasonable inference to be drawn from the provision is that the courts of no
member should award any recovery for breach of an agreement in violation of the
exchange controls of another member. Indeed, the International Monetary Fund
itself, in an official interpretation of subdivision (b) of section 2 issued by
the Funds Executive Directors, construes the section as meaning that
the obligations of such contracts will not be implemented by the
judicial or administrative authorities of member countries, for example, by
decreeing performance of the contracts or by awarding damages for their
nonperformance!48;. (International Monetary Fund Ann. Rep. 82-83 [1949],
14 Fed. Reg. 5208, 5209 [1949].) An obligation to withhold judicial assistance
to secure the benefits of such contracts does not imply an obligation to impose
tort penalties on those who have fully executed them. From the viewpoint of the individuals involved, it must be
remembered that the Bretton Woods Agreement relates to international law. It
imposes obligations among and between States, not individuals. The fact that by
virtue of the agreement New York must not enforce a
contract between individuals which is contrary to the exchange controls of any
member, imposes no obligation (under the law of the transaction New
York law [FN*]) on such individuals not to enter into such contracts. While it
does mean that they so agree at their peril inasmuch as they may not look to
our courts for enforcement, this again is far from implying that one who so
agrees commits a tort in New [*377] York for which he must respond in
damages. It is significant that a proposal to make such an agreement an
offense was defeated at Bretton Woods. (1 Proceedings and
Documents of the United Nations Monetary and Financial Conference 334, 341,
502, 543, 546 referred to in Nussbaum, Exchange Control and the
International Monetary Fund, 59 Yale L. J. 421, 426, 429, supra.;.) FN* All of respondents acts
allegedly in furtherance of the conspiracy took place in New York where it
regularly did business. Lastly, and inseparable from the foregoing, there is a remedial
consideration which bars recovery in this case. Plaintiff is an instrumentality
of the Government of Brazil and is seeking, by use of an action for conspiracy
to defraud, to enforce what is clearly a revenue law. Whatever may be the
effect of the Bretton Woods Agreement in an action on A contract made
in a foreign country between citizens thereof and intended by them to be there
performed!48; (see Perutz v. Bohemian Discount Bank in Liquidation, 304
N. Y. 533, 537), it is well established since the day of Lord Mansfield (Holman
v. Johnson, 1 Cowp. 341, 98 E. R.1120 [1775]) that one State does not enforce the
revenue laws of another. (Government of India v. Taylor, 1 All E. R. 292 [1955]; City of Philadelphia v. Cohen, 11 N Y 2d 401; 1
Oppenheim, International Law, § 144b [Lauterpacht ed., 1947].) Nothing
in the Bretton Woods Agreement is to the contrary. In fact its use of the
unenforcibility device for effectuation of its purposes impliedly concedes the
unavailability of the more direct method of enforcement at the suit of the
aggrieved government. By the second sentence of subdivision (b) of section 2,
further measures to make exchange controls more effective may be agreed upon by
the member States. This is a matter for the Federal Government which not only
has not entered into such further accords but has not even enacted the enabling
provision into law (U. S. Code, tit. 22, § 286h). Therefore, the order should be affirmed and the certified
questions answered no and yes respectively. Chief Judge Desmond (Dissenting). The order should be reversed and the warrant of attachment
reinstated since the complaint alleges a cause of action within the
jurisdiction of the New York State courts. If there had never been a Bretton Woods Agreement and if this were
a suit to enforce in this State the revenue laws of Brazil it would have to be
dismissed under the ancient rule most [*378] recently restated in City of
Philadelphia v. Cohen (11 N Y 2d 401). But Cohen and its predecessor cases express a
public policy which lacks applicability here because of the adherence of the
United States to the Bretton Woods Agreement. As we noted in Perutz v.
Bohemian Discount Bank in Liquidation (304 N. Y. 533, 537), the membership of our
Federal Government in the International Monetary Fund and other Bretton Woods
enterprises makes it impossible to say that the currency control laws of other
member States are offensive to our public policy. Furthermore, the argument
from City of Philadelphia v. Cohen (supra.;) and similar decisions assumes
erroneously that this is a suit to collect internal taxes assessed by the
Brazilian Government. In truth, it is not even an effort to enforce
Brazils currency regulations. This complaint and other papers charge
a tortious fraud and conspiracy to deprive plaintiff, an instrumentality of the
Brazilian Government, of the dollar proceeds of coffee exports to which
proceeds the bank and its government were entitled. This fraud, it is alleged,
was accomplished by inserting in coffee shipping permits references to nonexistent
exchange contracts and to nonexistent assignments to plaintiff of the foreign
exchange proceeds of the coffee exports and by forging the signatures of
banking officials and Brazilian officials, all with the purpose of making it
appear that there had been compliance with the Brazilian statutes or
regulations. The alleged scheme and effect of the conspiracy as charged was to
obtain for defendant- respondent coffee in New York at a reduced price, to
enable the Brazilian defendants to get more cruzeiros per
dollar in violation of law and to deprive Brazil of the cruzeiros which it
would have received from these coffee sales had the fraud not been committed.
According to the complaint and affidavits defendant Israel not only knew of and
intended to benefit by the perpetration of this fraud but participated in it in
New York by making its purchase agreements here and by here receiving the
shipping documents and making payments. The Israel corporation is alleged to
have been one of the consignees of some 36,000 bags of coffee exported from
Brazil to New York in 1961 without compliance with the Brazilian law and thus
to have fraudulently and conspiratorially caused to Brazil damage of nearly
$2,000,000. Refusal to entertain this suit does violence to our national policy
of co-operation with [*379] other Bretton Woods signatories and is not required
by anything in our own State policy. Judges Van Voorhis, Foster and Scileppi concur with Judge Burke;
Chief Judge Desmond dissents in an opinion in which Judges Dye and Fuld concur. Order affirmed, with costs. First question certified answered in
the negative; second question certified answered in the affirmative. |