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Fluctuating view on compensation for exchange rate losses

15 February 2017

At the end of January 2017, we reported on a novel point in Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass France S.A, in which the High Court compensated a German company for exchange rate loss suffered when paying in sterling its solicitors' costs incurred in English proceedings.

Now, the same point has again come before the High Court in MacInnes v Gross (MacInnes), but this time compensation was refused.

In MacInnes, Mr MacInnes' claim against Mr Gross was dismissed and Mr MacInnes was ordered to pay Mr Gross' costs on a standard basis. Mr Gross (a non-UK party) sought not only interest on the legal costs he had paid, but also an order that he recover any currency loss caused by the decline in the exchange rate between the pound and the euro on those legal costs. This loss was estimated at about £35,000 on costs of about £540,000.

Coulson J awarded interest on costs paid by the defendant pre-judgment at four percent above base rate (being the rate determined by earlier Court of Appeal authority to be the appropriate level of pre-judgment interest).

The claim for exchange rate loss failed. That claim was based upon the Elkamet decision, but Coulson J declined to follow it on the basis that:

  • In Elkamet, the judge was summarily assessing costs in which a specific amount was claimed for the consequence of currency fluctuations. The judge in that case had particular figures to consider and evidence as to how those figures had arisen. In the present case, Coulson J had neither: simply a claim that, to the extent that Mr Gross had suffered such a loss, he was entitled to be compensated. Coulson J held he was instinctively reluctant to make such an open-ended order.

    This, of course, somewhat misses the point as to the principle involved - it really should not matter whether the court is considering an order for the award of costs, or the award and assessment of costs, in determining if, in principle, exchange rate losses are recoverable.
  • He was also uncomfortable with the idea, as was held in Elkamet, that an award of costs should be treated as an order for compensation, as if it were a claim for damages. He considered there were inherent differences between the two regimes and that an order for costs has never been regarded as compensating the payee for the actual costs incurred. On the contrary, he held, unless the receiving party has an order for indemnity costs, he will never recover the actual costs that he has incurred.
  • Unlike the judge in Elkamet, Coulson J did not see a close analogy between ordering interest on costs, which is commonplace, and ordering exchange rate losses due to the particular time that costs were paid, which is not. He considered that a party can work out in advance its additional risk created by the potential liability to pay interest on costs, but any potential liability to pay currency fluctuations was uncertain and outside the party's control.

Coulson J also held that it might be argued that the generous rate of interest awarded on the costs paid up to the date of judgment, at four percent above base rate, was designed to provide at least some protection to the defendant against such exchange rate losses. Let us not consider or comment on how that, by definition, must require UK and EU nationals to consider that they are being treated differently as to how they are to be regarded as spending their pre-judgment interest on costs ...

On the basis of the above and given that the circumstances before him were (as he saw it) different to those in Elkamet - where indemnity costs had been awarded, there was a summary assessment of costs with detailed figures to consider and evidence of how those figures were calculated - and the lack of any other authority on the topic, Coulson J declined to make the order sought.

Comment

It will be interesting to see how future claims to exchange rate loss recovery by non-UK litigants following payment of their legal fees here are approached, given these two first instance judgments which are in direct conflict on the principle involved. However, given the significant fall in the pound following the EU referendum of last year, and the potential for significant fluctuation again once article 50 is finally triggered, such claims can be expected.

Not that it should make a difference, but one could say that, on the basis of this MacInnes decision, a non-UK party seeking exchange rate loss recovery that is armed with figures and evidence to back up its particularised claim, may stand a better chance of recovery than a party with a general, unspecified, open-ended claim to any such losses that might have been suffered. This would perhaps be particularly so if the costs award is on the indemnity basis. The court may be more willing to see such an award as compensatory and payment of the exchange rate loss as just part of that compensation package.

As a matter of logic, Elkamet seems the better decision; but the unpredictability of, and frequent fluctuations in, the exchange rate, may mean that the better pragmatic decision is not to allow such awards. Some non-UK litigants will win; some will lose; but that could be better than the courts trying to guess which is which, and flex costs orders accordingly - especially given how much the courts do, and the parties should, dislike peripheral disputes on costs matters.


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