Brexit & currency flip-flops in court

Francis Kendall considers the impact of the falling pound on costs awards to European litigants

  • Successful overseas parties may well try their arm in UK courts as Brexit uncertainty continues.

Here’s something that voters somehow overlooked when casting their ballots in the EU referendum last year: the impact the subsequently falling pound would have on costs awards to European litigants.

It’s impossible to say whether this could have tipped the balance in favour of remain, and it is equally difficult to predict what the courts are going to do about it.

This novel issue has come up twice in the High Court in the last couple of months, and unhelpfully the judges have gone in different directions.

Elkamet

In Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass France S.A. [2016] EWHC 3421 (Pat)—involving a successful German claimant—the court was asked to make an additional costs order due to the decline in the exchange rate between the pound and the euro since the proceedings were launched and, in particular, since the referendum.

The claimant won and was entitled to 93.5% of its costs, which the judge—on summary assessment as part of the shorter trials scheme—said meant an award of £458,000. Arnold J said there appeared to be no authority on the exchange rate point: when Elkamet paid the first invoice from its lawyers, the exchange rate was 1.39; the most recent invoice was paid at 1.14.

Mr Justice Arnold said: “In principle the successful party is entitled to be compensated for any additional expenditure it has had to incur as a result of exchange rate losses in the same way as it is entitled to be compensated by way of interest for being kept out of the money.”

He continued: “If one accepts, as I do, that in principle the court has power to make an order for damages or costs expressed in a foreign currency, then it seems to me to follow as matter of logic that the court ought to have power, if it decides to make an order in sterling, to compensate for any exchange rate loss.

“Moreover, it seems to me that there is, as counsel for Elkamet submits, a powerful analogy between an award of interest on costs and an award of exchange rate losses on costs.” The judge acknowledged the practical issues raised by the defendant—exchange rates go up and down, and that satellite litigation over issues like exchange rates should be discouraged—and said they supported “a cautious approach” to the quantification of the loss.

Elkamet calculated that the exchange rate loss as at the previous day’s exchange rate was €29,602, which equated to £25,193. Applying the percentage of 93.5%, that gave a figure of £23,555. Awarding £20,000, Arnold J said: “It seems to me that I should round that down to recognise the possibility that by the date of payment the exchange rate will have appreciated again.”

MacInnes

It is a ruling that others will no doubt jump on, and that has already been seen in MacInnes v Gross [2017] EWHC 127 (QB), where the successful defendant cited in in making a similar request. However, Mr Justice Coulson said the circumstances here were different: Arnold J was dealing with a summary assessment where he had particular figures to consider, and evidence as to how those figures had arisen.

“I have neither: there is simply a claim that, to the extent that the first defendant has suffered such a loss, he is entitled to be compensated. I am instinctively reluctant to make such an open-ended order.”

He said he was also “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.

Coulson J continued: “I consider that there are inherent differences between the two regimes, and that orders for costs have never been regarded as compensating the payee for the actual costs that he has paid out. On the contrary, unless the payee has an order in his favour for indemnity costs, he will never recover the actual costs that he has incurred.”

Finally, he did not see the close analogy between ordering interest on costs, which was commonplace, and ordering exchange rate losses due to the particular time that the costs were paid, which was not.

“The paying party can work out in advance the additional risk created by the potential liability to pay interest on costs, but any potential liability to pay currency fluctuations is uncertain and wholly outside his control.

“Furthermore, it might be argued that the generous rate of interest on costs at 4% over base is designed to provide at least some protection to the payee against such events.” He therefore refused the application to recover any further sums by way of currency fluctuations on costs.

Comment

Nonetheless, successful overseas parties (there’s no reason why it should just be restricted to Europeans) may well try their arm by citing Elkamet. With sterling, hopefully or not depending on your persuasion, at its weakest, there is also real scope for the position to be flipped with argument against windfalls should sterling rally in the future.

This has always been an issue on detailed assessment with foreign experts and overseas lawyers commonplace in significant multijurisdictional litigation. The court has, previously, refused to engage in such debate but significant fluctuations can lead to significant swings in costs. The position has been akin to the 8% judgment debt rate argument that has generally fallen on deaf ears (being low in the 1980s and 1990s and, arguably, a windfall since.

In short, the Brexit process is likely to either make the UK courts a more attractive or unattractive proposition for multinational disputes at various times. Let us not discount the timeframes in litigation and the lead times for contracts citing UK law coming into disrepute. It is likely to be a very long time indeed before the UK court system and practitioners feel any impact arising from this issue.

Francis Kendall is a council member of the Association of Costs Lawyers and a partner at Masters Legal Costs Services

This article first appeared in the New Law Journal on 16 February 2017.

Exclusive Access

Members only article

This article is exclusively for ACL members. Please log in to proceed, or click the button below to fill out an application from and become a part of our professional community.

Post details

Post type
Press Articles
Published date
16 Feb 2017

Fill this form out to be notified when booking goes live.

Your Full Name
Hidden
This field is for validation purposes and should be left unchanged.