Foreign Currency

Claims, Judgments and Damages

Michael Howard, John Knott, John A. Kimbell

• Publisher: Taylor & Francis
• Year: 2016
• Print ISBN: 9781843118138
• eBook ISBN: 9781317659280
• Edition: 1
• Topic: Law
• Subtopic: Commercial Law
• Index: Law

Currency fluctuation, currency wars and even potential currency collapse (the Euro, the Bitcoin) are all risks that commercial parties must consider and guard against.

This book gathers together in one volume all the information and advice practitioners are likely to need when advising on, advancing or defending claims involving a foreign currency element.

The determination of the proper currency (or currencies) of a claim often has a dramatic effect on the level of a court judgment or arbitration award that is ultimately obtained. It is, therefore, vital for practitioners to accurately assess claims which involve a foreign currency element.

The authors guide the reader through the legal principles governing how foreign currency claims are treated in English law. The book covers both the treatment of foreign currency in substantive law as well as such procedural matters as how to claim interest correctly on a foreign currency claim and how to plead, prove or disprove the applicability of a particular currency.

This book is an invaluable and essential resource for all lawyers involved in international commerce, but will be of particular interest to those engaged in international finance, commodity transactions, international shipping and transport, and the insurance of assets and liabilities abroad.

"Those who practise in this country need guidance in navigating the tricky waters that The Despina R unleashed. This excellent book provides that guidance."

The authors " have been uniquely well placed to meet the challenge of analysing what is a perplexing body of jurisprudence, and to suggest principled answers to currency issues that have not yet been the subject of judicial decision. They consider not merely claims in contract and tort, but every type of claim that might raise an issue in relation to a foreign currency."

The Rt Hon. The Lord Phillips of Worth Matravers, KG, PC,

President of the Supreme Court of the United Kingdom, 2009-2012

Chapter 1
Introduction

Overview

1.1 The principles of English law and practice relating to foreign currency obligations have developed in a rather sporadic fashion. There is no statute or section of the Rules of Civil Procedure which contains the rules for when claims may be expressed in a foreign currency.

1.2 Most litigators concerned with international commercial claims will know that there was once a rule that claims in English courts could only be expressed in sterling but that this rule was abolished by the House of Lords in Miliangos v George Frank (Textiles) Ltd.¹ That there is no longer a blanket prohibition on expressing claims in a foreign currency does not take matters very far. Rather, it gives rise to a raft of important practical questions, such as:

• In what circumstances and, subject to what conditions, does an English court permit a claim to be advanced in a foreign currency?
• Does the claimant have a free choice as to the currency in which to express his claim?
• If the defendant objects to the choice of a foreign currency by the claimant, how should the court decide?
• Does a defendant to a foreign currency claim have the right to tender payment in sterling, and, if so, how is the date and rate of exchange to be determined?
• Is the choice of currency always a matter for the lex fori or does the law applicable to the obligation in question have a role?
• What happens if a claim is advanced in one currency and the defendant counterclaims in another currency?
• Is it possible to make a claim, say, in tort in one currency and a claim in contract (or restitution) arising out of the same facts in a different currency?
• What is the appropriate interest rate for a claim expressed in one or more foreign currencies?

1.3 The practitioner seeking answers to these types of questions has hitherto had no obvious place to turn for answers. Such guidance as has to date existed is scattered over case notes, articles, commentaries on those sections of the Senior Courts Act 1981 dealing with judgments generally, and small sections or footnotes in textbooks dealing with damages and private international law. The aim of this book is to provide the busy practitioner (and anyone else who may be interested) with a 'one stop shop' comprehensive guide to the principles of English law and procedure relating to foreign currency claims.

1.4 This chapter offers a broad historical overview of English law prior to the decision in Miliangos² and an account of Miliangos and some of the cases that have followed it. There then follows a brief overview of the current law with regard to contract, tort, restitution, insolvency, interest and recovery for foreign exchange losses. The subsequent chapters of the book follow the same structure but develop the points in greater detail.

When the principles relating to claims in foreign currency really matter

1.5 The vast majority of claims issued in England are expressed in sterling. Neither the claimant nor his lawyer will usually have given the question of expressing the claim in a foreign currency a second thought. However, where a claim arises from an international transaction, a great deal of money can turn on the currency in which the claimant may claim. This is most obviously so when one currency relating to the transaction in dispute has significantly appreciated or depreciated against the currency of the forum. The value and purchasing power of the judgment sought may change drastically during the course of the litigation. In these circumstances, a controversy is almost unavoidable. A change of exchange rate to the benefit of a claimant will always be to the detriment of the defendant – the extent of the respective gain and loss depending on the date on which any rate of exchange falls to be applied.

1.6 The Texaco Melbourne³ provides a striking example. In that case the claimant, C, brought a claim against defendant, D, for breach of contract arising from a nondelivery of a cargo of oil. C sought compensatory damages, and D was held liable. The question was what currency was it appropriate to award damages in. The court was presented by the parties with a choice between US dollars and Ghanaian cedis. A judgment expressed in US dollars would amount to $2,886,187 at the time issue was joined on the currency question. By contrast, a judgment expressed in Ghanaian cedis would be worth $21,165 only. In other words, a judgment in one currency would be worth well over 100 times a judgment in the other.

The old law (pre-Miliangos)

1.7 Before the decision in Miliangos⁴ the general rule was that a claimant could only frame his claim in sterling, and judgment could only be given in sterling. If the obligation sued upon was a foreign currency obligation, such as a debt payable in US dollars, the court required the claimant to convert the claim into sterling. What is more, the claimant could not even start the claim in the foreign currency, because the date of conversion was held to be the date of breach (which could be months or even years before proceedings are started).⁵ This became known as the 'breach-date rule'.

1.8 The case relied upon as establishing the breach-date rule for claims in tort is The Volturno.⁶ That case concerned damage to an Italian ship suffered in a collision. The actual date that was used for the conversion into sterling was not in fact the date of the tort – that is, the negligently caused collision – but the later date at which repairs were effected.⁷ The House of Lords did not, however, advert to this point when it laid down the breach-date rule.

Exceptions to the ‘breach-date’ rule prior to Miliangos

1.9 Even before the change brought by the decision in Miliangos, exceptions to the rule that judgment must be sought in sterling, and the claim converted into sterling at the date of breach, had begun to emerge.

1.10 In The Kozara⁸ the Court of Appeal allowed an application by the successful claimants in an arbitration to convert the US dollar award into a judgment under section 26 of the Arbitration Act 1950. It is important to note that the initial application was not on notice. Consequently, an appeal to the House of Lords was going to be unlikely.

1.11 Further inroads were made into the 'breach-date' rule in Schorsch Meier GmbH v Hennin.⁹ This was an appeal by a West German seller who had issued a claim in the West London County Court expressed in Deutschmarks, The seller had made a claim for the price of goods which had been sold and delivered. Because of the effect of inflation and devaluation of sterling, if forced to convert their claim into sterling at the date of the breach, the sellers would lose a third of the value of the claim. The Court of Appeal, led by Lord Denning MR, held that the Treaty of Rome permitted the claim to be expressed in Deutschmarks.¹⁰

The decision in Miliangos

1.12 In Miliangos¹¹ it was held that in respect of a debt governed by a foreign law, an English court could give judgment in a foreign currency or the equivalent in sterling at the date of payment (or when the court authorised enforcement of the judgment). The House of Lords, by a 4:1 majority, held that the claimant seller could be granted judgment in Swiss francs, or in the equivalent in sterling at the date of payment or when the court authorised enforcement of the judgment. The rule in Havana Railways,¹² requiring conversion into sterling, was categorised as a merely procedural bar, which could, and should, be overturned.

1.13 Giving the leading speech for the majority, Lord Wilberforce held that in the 15 years since Havana Railways, matters had changed sufficiently for the principles to be considered afresh with regard to foreign currency debts. In particular, it was said that currency fluctuations were now the norm rather than the exception. For Lord Wilberforce, the fundamental goal was to put the claimant in the same position as had the defendants complie...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• Foreword
• Preface
• Table of cases
• Table of legislation
• Table of orders, regulations and rule
• Chapter 1 Introduction
• Chapter 2 Basic concepts
• Chapter 3 Sterling: its historical role, and the decline that led to a change in the law
• Chapter 4 The euro zone
• Chapter 5 The change in English law introduced by Miliangos and its forebears
• Chapter 6 Contract
• Chapter 7 Tort
• Chapter 8 Restitution and unjust enrichment
• Chapter 9 The law of trusts and fiduciaries
• Chapter 10 Claims against limited or common funds
• Chapter 11 Set-off
• Chapter 12 Interest
• Chapter 13 Are currency exchange losses recoverable as damages?
• Chapter 14 Procedure and evidence
• Chapter 15 Fiat money, legal tender and alternative money
• Index