Foreign Currency: Claims, Judgments and Damages

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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

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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 Miliangos 2 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 Melbourne 3 provides a striking example. In that case the claimant, C, brought a claim against defendant, D, for breach of contract arising from a non-delivery 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 Miliangos 4 the general rule was that a claimant could only frame his claim in sterling, and judgment could only be given in sterling. If the

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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 Kozara 8 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

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The decision in Miliangos

1.12 In Miliangos 11 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 complied with their obligations, so far as money permitted. For the majority, the rule had to be revised, and departure from Havana Railways was justified. 1.14 It is important to note that the majority confined their decision to the narrow question before them. They did not seek to change the general position with regard to debts governed by English law or claims for damages for breach of contract or commission of a tort. This was left to be worked out in future cases, an understandable position in light of the dramatic change which even their answer to the narrow question wrought in the law.

The current law: contract

1.15 As noted above, the decision in Miliangos 13 only permitted a judgment to be given in a foreign currency where a claim for a fixed sum debt was governed by a foreign law. This left many questions to be resolved in the later cases by the courts. 1.16 The effect of Miliangos was subsequently extended in The Folias to claims for damages for breach of contract even where the contract was governed by English law.14 Many issues remain unresolved. These are discussed in detail in .

The current law: tort

1.17 The key decision with regard to claims for damages for the commission of a tort is The Despina R.15 This appeal was heard in the House of Lords concurrently with The Folias 16 This case established a new rule for torts, namely that an English

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court should award damages in the currency in which the claimant most truly ‘felt the loss’. What this means is discussed in detail in .

The current law: unjust enrichment and restitution

1.18 The key question to ask with regard to restitutionary claims is in what currency can defendant D’s benefit most appropriately be measured. Robert Goff J made it clear in BP Exploration Co v Hunt (No 2) 17 that with regard to restitution the aim is to identify the defendant’s benefit and the currency that best measures that. There remain a number of issues to be resolved by the courts. These are discussed in .

The current law: insolvency

1.19 Insolvency presents particular problems. The interaction between the rules of insolvency and the rules on foreign currency claims have been the subject of a number of recent cases at High Court and Court of Appeal level.18 These particular issues have resulted in an approach distinct from that of asking in what currency we can most appropriately measure claimant C’s loss or defendant D’s gain. 1.20 These issues can be briefly summarised as follows:
  • Creditors are generally to share in a fixed fund, and do so in a fixed and predetermined ratio.
  • There is generally a fixed pool of assets to be distributed amongst a number of creditors, and there is rarely enough to go around.
  • Different creditors may have different currencies, but the insolvency process generally means that we have to be able to compare like with like on a given day.
  • Moreover, in the context of insolvency, the Insolvency Act 1986 and Insolvency Rules 1986 have a large role to play and for the most part govern the regime.
1.21 The law, therefore, has sought to achieve a regime where creditors’ claims share a common date for conversion into a common currency, in order to meet these requirements. In Miliangos 19 there was much discussion of whether the Havana Railways 20 regime produced unjust results. Yet if Havana Railways was heard today, the certificate holders in that case would have to prove in sterling and would convert to sterling at the date of the winding-up order. The certificate holders would still be exposed to exchange losses.21 This is discussed in more detail in .

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1.22 The main practical issue here is deciding what interest rate should be used when an award in a foreign currency is made. But other issues arise such as the relationship between the claim for interest and the currency of account and payment. This topic is discussed in .

Claiming damages for foreign exchange losses

1.23 The issue of whether a claimant can make a claim seeking compensatory damages for foreign exchange losses is so closely related to the topics covered by this book as to require discussion. The issues are quite complex, and we examine them in detail in .

Alternative currencies and the euro

1.24 In recent times increased attention has focused on alternative currencies, in particular the digital currency Bitcoin, and also on the euro. In fact, scarcely a day passes when these subjects are not in the news. We have devoted a chapter to each of these. We look at the euro, and some of the potential problems that would arise if any member of the euro zone were to leave, in . Alternative currencies, including some very unusual examples, are covered in some detail in , where we also discuss legal tender and fiat money.

1 [1976] AC 443 (HL). For reasons explained below, it is more accurate to say that the previous rule was qualified by Miliangos.

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