Norwegian Loans Case Review PDF

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LAW510 INTERNATIONAL LAW I

ASSIGNMENT/TEST 1

CASE REVIEW: Norwegian Loans Case (France v Norway)

1 STUDENT NAME . 2 STUDENT ID . 3 GROUP .

BATRISHIA BALQIS SHAHARZAMAN 2019324493 B

BINTI

In the period of 1885 and 1909, a significant amount of the French citizens purchased public bonds that have been provided by the Norwegian government from two of their state banks; the Mortgage Bank of the Kingdom of Norway and the Norwegian Small Holding and Workers’ Housing Bank. The aftermath of the first world war and the Great Depression then brought the Norwegian government to come to the decision of suspending the convertibility to gold of their national currency that were issued to pay interest and redeem the bonds. Later in 1931, the gold standard was abandoned for an undecided period of time, followed by a Norwegian law established in the late 1923 which stated that if a debtor has lawfully agreed to pay in gold a pecuniary debt in kroner, but the creditor refuses to accept the payment in Norwegian bank notes, the debtor may request to postpone the payment. This is because the Bank has been exempted from its obligation to redeem the notes according to its nominal value.

This raised unsatisfactory reactions from the French government, and in 1925, France had insisted that it was obligatory for the Norwegian government to convert the bonds and interests in gold as they usually did. In its final submission, France also requested judgment that Norway pay foreign bondholders without discriminating their nationality and that Norway could not, by unilateral national legislation modify the rights of French bondholders under the loan contracts. However, the Norwegian government was unwavering in their decision, claiming that their laws forbade payment in gold. France had repeatedly suggested for Norway to submit the dispute to an international arbitration or judicial settlement, and these suggestions have been rejected by Norway on the grounds that the disputes was governed by its national laws rather than international law.

In 1955, when the convertibility of the banknotes to gold was still suspended, France had made an application to the International Court of Justice which obligated Norway to pay gold on the bonds and bond coupons. In its final submissions, France also requested judgment that Norway pay foreign bondholders without discrimination as to their nationality and that Norway could not, by unilateral national legislation modify the rights of French bond holders under the loan contracts. On its own behalf, Norway had raised certain preliminary objections on the grounds that the subject of dispute was under Norwegian national law rather than international law, and this preliminary objection that lead to the decision of the Court. Secondly, the relevant banks had

separate legal personalities from the Norwegian state, therefore could not be instituted against Norway as the jurisdiction of the court was limited to disputes between states. Also, French bondholders had failed to apply for available local remedies. With this, the Court held that it lacked jurisdiction to hear the dispute therefore dismissed the application on July 6, 1957 where the judges stood 12 to 3 votes.

From the brief summarization of facts above, it can be concluded that the Norwegian Loans case had raised issues concerning the validity of international law, and whether the dispute was a matter or national rather than international law. This particular case discusses issues regarding self-judging reservations, which had been referred to as the cause of a general devaluation of compulsory jurisdiction, and whether Norway could invoke a self-judging reservation of the applicant state which would make the Court unable to have jurisdiction over the case, when Norway in itself has made no selfjudging reservation when accepting the Court’s compulsory jurisdiction. The Court affirmed that Norway is entitled due to the condition of reciprocity to invoke the reservation contained in the French declaration, and that it does not give jurisdiction to the Court to entertain the application and handle the dispute between the two countries.

However, there had been clashing opinions regarding the Court’s conclusion of its jurisdiction. It was Vice President Badawi and Judges Lauterpacht and Basdevant that were of the opinion that Norway's invocation of the self-judging reservation was subsidiary to its primary objection. This is because the dispute was governed by national law rather than international law and it was concluded that the Court should first consider the primary objection before reaching a decision on the subsidiary objection. Although Norway was entitled to invoke the French reservation, it was not necessary for the Court to entertain the question as Norway had failed to maintain that position during the ongoing of the proceedings.

To further explain the decisions of the Court, it was of the majority opinion that the basis of the Court’s jurisdiction was laid down in Article 36(2) and (6) of the Statute of the Court, whereby Norway had declared to accept the compulsory jurisdiction of the Court for the sake of reciprocity, which means accepting a jurisdiction to similar extents of other states in a case where Norway was involved in. In the event of a

dispute concerning court’s jurisdiction, the Court itself shall have decide the matter, as in paragraph 6. Due to France’s reservation, the Court concluded that in this present case, the jurisdiction of this dispute was bounded by the limitations imposed by the French declaration of acceptance. The Court also ruled that because of the principles of reciprocity, Norway’s invocation of the French reservation had prevented the Court from assuming jurisdiction of the case.

Although this is so, Judge Guerrero was of the opinion that the self-judging reservation was unsuitable with Article 36(6) of the Statute, and this opinion was supported by Judge Lauterpacht. He had noted that even though the Court’s jurisdictions might be drastically limited, it is only for the Court to decide which remaining jurisdiction will the dispute be settled in. This is so because the Court shall not act inconsistently with the Statute. Since the French declaration of acceptance was deemed unsuitable or incompatible, it was concluded that the declaration was to be considered invalid. Judge Lauterpacht applied the general principles of national law when coming to the conclusion, that a condition of a contract or other legal instrument that goes against the fundamental principle of judicial organization will be rendered invalid. He believed that authors of self-judging reservations disregard the Statute and thus rejects the interpretations of the French declaration.

Besides that, although a declaration of acceptance is a unilateral instrument, it was still necessary for the declaration to exist with an intent to create respective rights and obligations in order for it to be deemed a legal text in which the Court shall base its jurisdictions. The Judge then applied Article 38 which contains that the general principles of law must be recognized by civilized nations. In application to the present case, to invoke the jurisdiction of a court, the element of legal obligation must be present and negligible. It was concluded by four of the judges that Norway’s invocation of the self-judging reservation was subsidiary to the primary ground of the first preliminary objection. It was pointed out by Vice President Badawi that it is normal for a subsidiary request for judgement to seek a greater degree of certainty than the main request. In this case, Norway had been consistent in its argument that the dispute was a matter of national law, which is a question for the Court. Following this, Norway invoked the French

self-judging reservation, which called for a determination of the jurisdictional question by Norway alone, and was, therefore, certain to produce a result favorable to Norway. However, it was assumed by Judge Lauterpacht that many had misinterpreted Norway’s intention in the first preliminary objection. Rather than Norway’s contention that the matter of dispute was a under national law as “subsidiary” and “formal”, the Judge felt that it was more “principal” and “subjective”. Vice President Badawi and Judge Lauterpacht along with Judges Basdevant and Read agreed that the invocation of the self-judging reservation was a subsidiary objection, thus concluding that the majority has misunderstood Norway’s objection. Judge Basdevant insisted that there’s no reason for Norway to invoke the French reservation as a categorical denial of the Court’s jurisdiction, since there is an existing international law between Norway and France. This existing law is under the Permanent Court of International Justice and Article 37 of the Statute.

Before the final judgement, Norway was entitled to rely on the French accession due to the principle of reciprocity. The disputes raised under this accession was exclusively reserved within the competence of the state, from the Court’s jurisdiction. In the present Court, the French self-judging reservation to its jurisdiction was broader in scope as compared to the former reservation, but since the present declaration was a unilateral one, it could be used to modify an existing law between France and Norway. Judge Basdevant declared that Norway is only able to invoke the French reservation since there is a law existing between the two states, therefore recognized by international law. Judge Read shared similar views with Judge Basdevant and believed that although Norway had invoked the self-judging reservation, it was only done to respect their international obligations and examine in good faith.

There had been various arguments concerning whether the disputes are within national or international law. As stated above, the French application to the Court had requested for it to be obligatory for Norway to discharge its debt on the loan contracts in gold rather than in the existing Norwegian currency. France also requested judgment for there to be no discrimination of nationality on behalf of Norway when paying foreign bondholders, and that Norway could not modify the rights of French bondholders under the loan contracts. With this, Norway contended throughout the

proceedings that the subject of the dispute was a matter of national law rather than international law. The government had requested in its first preliminary objection, for the Court refuse to hear the case for this particular reason.

Vice President Badawi adopted the opinion that the dispute was governed by national law, along with Judge Moreno Quintana. The former declared that the general rule of private international law is that the construction of loan contracts is governed by the law of the debtor state. It was insisted by the French government that the dispute was within Article 36(2)(b) of the Statute due to the operation of the Pacific Settlement of International Disputes 1907, which relates to the arbitration of specified disputes, including international loans. Although this is so, the Vice President maintained that the convention does not necessarily allow mandatory arbitration of disputes for every circumstances. It simply means that even under those circumstances, that fact could not transform the character of the national dispute to an international dispute.

Furthermore, even under the assumption that the convention made it necessary for there to be arbitration in all cases, rather than the case concerning interpretation of loans, it would more likely concern the breach done by Norway of its presumed obligation to submit the arbitration. Vice President Badawi also rejected the notion that the French contention deals with the dispute falls under article 36, paragraph 2(c). This article concerns around the existence of any fact that would constitute a breach of international obligation, if it were established. There would have been a breach because the parties agreed on the international obligation, but disagreed on the facts which constituted a breach. In this case, if the application of Norwegian law was treated as a question of fact, as in accordance with international law, the Court would have to assume that Norway and France had both agreed that under international law, and agreed that a state should not have to cancel a gold clause applicable to international payments. This was also supported by Judge Lauterpacht.

Moving on, although Judge Read had agreed with the conclusion made by Vice President Badawi about whether or not Norway is obligated to pay the bonds in gold being a matter of national law, nonetheless, he had rejected Norway’s preliminary objection. Judge Basdevant had also voted to reject Norway's first preliminary objection. This is because the issue on this has brought problems of international law,

since it brought mistreatment by a state of property rights of aliens. There was also inequality of treatment of aliens and nationals, and of resident aliens and aliens resident abroad, and more relevant to this case, discrimination between French bondholders and other non-Norwegian bondholders.

Due to this mistreatment, Judge Read requested that firstly, for Norway to not behave discriminatively when providing payments by giving preferential treatment to some non-Norwegian bondholders, but then denying it to the French bondholders. It was unclear in the report as to what exactly was the discriminatory practice was, but it seems that Norway had paid the Danish and Swedish bondholders in Swedish crowns while ignoring a compromise request by France stating that the French bondholders be paid in Swedish crowns on their capital payments and in Norwegian crowns on the coupons.

As established by Judge Read, it was clear that under international law there exists rules that forbade discriminatory treatment towards foreign creditors and

had

included all of the justifications which Norway had advanced. Next, France had requested judgment that in accordance with international law, Norway could not by unilateral legislation modify the rights of French bondholders. It was argued by the French government that marketing bonds on foreign markets had created obligations from international as well as national law, and that there was a broad principle of international law forbidding a state to enact extraterritorial legislation that would impair the contractual rights of nonresident aliens. However, with that being said, he also was of the opinion that the resort by the French bondholders to the Norwegian courts would have been futile because the Norwegian government had repeatedly declared since 1925 that the Norwegian law of 1923 precluded payment in gold.

International activities have been commonly used to promote the welfare of the international community with a restriction of the sovereign power of individual states. Where there is a common effort to promote a great humanitarian objective, it is to be expected that the states involved would not seek to gain individual advantage at the expense of other states, but instead help resolve matters on a common accord. Therefore, the parties involved be aware of their rights as a state under international law. It must be known that all like-minded states should share a common goal or

objective for the benefit of humanity as a whole and apply the international law in ways that would help achieve those objectives.

Based on the above reasoning, the Court decided that it lacked the jurisdiction to adjudicate the dispute that was brought by the French application. It was also held by the Court that Norway, which had no self-judging reservation, could invoke the French reservation and thereby preclude the Court from taking jurisdiction of the suit brought by France against Norway. Judge Read had also concluded that the French claim and Norwegian justification on the issue of discriminatory treatment was indeed based upon the considerations of international law.

References 1. Kaczorowska, A., 2002. Leading Cases On Public International Law. Butterworth Publication. 2. Pacific Settlement of International Disputes 1907 (Hague Conventions of 1899 and 1907) 3. Sohn, 1960. International Tribunals: Past, Present and Future, 46 4. Statute of International Court of Justice...