An exchange (rate) of views: compensating for currency differentials

Practical Law Dispute Resolution blog

By Francis Kendall, Council member of the Association of Costs Lawyers and Partner at Masters Legal Costs Services at Association of Costs Lawyers, Masters Legal Costs Services LLP.

Kendall Francis

Back in 2009, my client, a multinational law firm, obtained an award for costs in a piece of litigation for the European Central Bank. Needless to say, its client was invoiced in euros, by reference to euro hourly rates, yet the assessment of costs proceeded by reference to figures converted into sterling. Shortly before the assessment hearing, and based on an hourly rate dispute raised by the paying party, an investigation was undertaken to support what had become high hourly rates (by virtue of exchange rate fluctuations). I recall a long since forgotten judgment that, in principle, the UK court can deal in currency for the purposes of a claim and seek to apply the same to the assessment.

Unfortunately, on that occasion, the now retired Master Rogers purposefully dodged the issues around currency exchange and fluctuation in rates, which were clearly troubling him.

Despite an apparent divergence of views in the courts, it is therefore positive to see decisions addressing currency and fluctuation of exchange rates in relation to damages generally, and costs awards specifically.

In Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass France SA, Arnold J accepted that, as the court has a power to make an order for damages or costs expressed in a foreign currency, it should also have the power (if it decided to make an order in sterling) to compensate for any exchange rate loss suffered.

Costs assessment is a difficult beast, as the underlying principle has been to reimburse the successful party for any costs that are deemed reasonable (or necessary and proportionate as appropriate). At the point where a costs claim is prepared, and to follow such a principle to the letter, the value arising as a result of exchange rate fluctuations simply cannot be known. It is not until the actual point of payment from the opponent, which necessarily follows both any bill of costs and assessment or agreement thereof, that a true exchange rate can be applied. For example:

  • The client pays €1 at a point in time as a reasonable legal expense.
  • That amount is assessed some months/years later.
  • Up to 21 days thereafter the sum is paid by the losing party.

However, in MacInnes v Gross, Coulson J refused an order that the claimant was entitled to an order that he recover any additional sums that may be assessed:

“… to reflect any currency loss caused by the decline in the exchange rate between the pound and the euro since any payments [of costs] were made”.

Coulson J was uncomfortable with the idea that an award of costs should be treated as an order for compensation, as if it were a claim for damages. He considered there to be inherent differences between the two regimes, and that orders for costs have never been regarded as compensating the payee for the actual costs that they have paid out.

On the contrary, unless the payee has an order in their favour for indemnity costs, they will never recover the actual costs that they have incurred. Elkamet was distinguished, as that was a summary assessment where the judge had particular figures to consider and evidence as to how those figures had arisen.

Clearly this position is at odds with the (arguably now historic) compensatory nature of costs assessment. It appears to be more in line with recent proportionality/budgeting arguments that costs recovery is more contributory. There is a plethora of recent decisions where a party’s proposed or incurred costs are reduced (by way of reasonableness, proportionality and so on) with the justification
for the reduction being that any costs award is merely contributory.

It would seem that the gloves remain off for the purposes of decisions made at trial; that is, for awards of damages or summary assessment in line with Elkamet, where a distinction is drawn for the position over a short period of time, or in circumstances where it appears to be the court’s choice to deal in sterling rather than another currency. MacInnes appears to shut that door and, as this is arguably a more appropriate authority for detailed assessment, covers costs awards that are assessed after a lengthy period of time.

With Brexit due to kick in, there could easily be some real hurt over such an issue, with the inevitability of a more volatile currency market over the mid to long term. With large sums at stake in significant detailed assessment, the timeframe can easily be over 18 months, or even over two years. And it is not just lawyers’ fees that can be a significant factor; foreign experts or consultants can similarly be big numbers on assessment.

This article was first published in the Practical Law Dispute Resolution blog on 13th April 2017.

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18 Apr 2017

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