UK: English Law Principles Relating To Foreign Currency Judgments

Last Updated: 2 December 1998

What is the position under English Law where a plaintiff is seeking to obtain judgment in a currency other than sterling? English Law is fairly flexible and does permit judgments to be expressed in a currency other than sterling. However, the position is not without its complications and injustices and in order to understand the English position it is necessary to look back at the history.

The traditional rule

England has always been a trading nation and has always been used to dealing in a wide variety of currencies and not just its own.

In the 1580s it was an established principle of English Law that the plaintiff could elect whether to demand a debt in a denominated foreign currency or in sterling by way of an action known as "debt in the detinet".

However, over the centuries, the action for debt in the detinet became defunct. In the early 20th century, in Di Ferdinando v Simon Smits & Co. Ltd [1920] 3 KB 409, it was held that a claim for damages for breach of contract in a foreign currency had to be converted into sterling at the rate of exchange prevailing at the date of the breach.

This position was confirmed in Re United Railways of Havana and Regla Warehouses Ltd [1961] A.C.1007. In that case US creditors were required to accept a payment of a US dollars contract in sterling converted at the rate of exchange at the date of the breach which was nearly twenty years before judgment was given! A truly fortress Britain approach was taken with the House of Lords saying:

"a pound in England is a pound whatever its international purchasing power".

Behind the decision lay a certain amount of judicial policy. Up until the 1960s sterling was strong and the foreign currencies had tended to depreciate against sterling. Accordingly, awarding judgments only in sterling and calculating the conversion from the foreign currency into sterling at the date that the breach occurred, rather than the date that judgment was given or payment was ultimately made, protected the innocent party from the effects of the depreciation of other currencies against sterling.

That was fine so long as the pound remained strong. However, in the early 1970s the effect of these rules was, clearly, leading to injustice.

The Modern Rule

London was, and still is, a major centre for international arbitrations and, once arbitrators could see the injustices caused by the depreciation of sterling against other currencies which occurred in the 1960s and 1970s, they began to make awards in arbitrations in foreign currencies. Their entitlement to do so was ultimately challenged in the case of Jugoslavaenska Oceanska Plovidba v Castle Investment Co. Inc. [1973] 2 Lloyds Rep 1 but the practice adopted by arbitrators was upheld by the English Court of Appeal. Once it had been held that arbitrators could make awards in foreign currencies, then it was only a matter of time before the courts in England could do so as well.

Indeed, this came only three years later in 1976 in Miliangos v George Frank (Textiles) Ltd [1976] 1 Lloyds Rep 201. The House of Lords departed from the traditional rule and held that, where a debt is denominated in a foreign currency in which the money of account, the money of payment, and the governing law of the contract are all foreign, then judgment could be given in the foreign currency rather than having to convert the currency into sterling at the rate of exchange applicable at the date of breach.

The House of Lords considered that creditors should not suffer from fluctuations in the value of sterling. So if the currency of the transaction was, as in this case, Swiss francs, then the plaintiff should be entitled to recover Swiss francs. If the sterling equivalent was to be involved at all, it was not the sterling equivalent at the date of the breach but the sterling equivalent at the time of payment. The driving force behind this decision was, again, the relative strength of sterling compared with other currencies.

Multiple Currencies

However, once it has become an accepted principle that a judgment can be awarded in a currency other than sterling, a cornucopia of opportunities opens for the imaginative plaintiff, seeking to justify a judgment being given to him in one currency rather than another, because of the benefit that will come from having his judgment paid, say, in United States dollars instead of Swiss francs or German Marks instead of Japanese Yen.

Where the transaction involves only one currency, it is easy for the court to decide what should be the currency of the award. But the more complex the transaction and the more currencies involved, the more difficult it becomes to decide whether the judgment should be given in sterling or in one of any number of foreign currencies.

Not surprisingly, therefore, three years later the House of Lords had to wrestle with this particular question and in order to do so heard two cases together where the same question arose. These were the "The Despina R"and "The Folias" [1979] 1 Lloyds Rep 1.

In these cases a loss was sustained in one currency; however, the plaintiff generally operated with or had a close connection with a different currency. So the court had to consider whether the judgment had to be given in the currency in which the loss was immediately sustained or in the currency in which the loss was effectively suffered by the plaintiff (because it normally dealt in another currency) or, indeed, whether to take the sterling equivalent at the time the losses occurred or at some other date.

In order to solve the problem the House of Lords went back to basic principles. The first proposition they formulated was to look at the contract, to see if there was an expressed or implied intention as to which currency should be used for payment in the event that there was a breach of contract. If it was clear from the wording of the contract that, in the event of a breach, payment was to be made in a particular currency, then that is the currency in which the judgment would be awarded.

If, however, there is no such intention expressed in the contract then the principle adopted by the House of Lords is that damages should be calculated in the currency in which the loss was actually felt by the plaintiff or which most truly expresses his loss.

The easiest way of understanding the application of this principle is to look at the facts of one of these cases, namely "The Folias", which involved the shipment of a cargo of onions from Spain to Brazil by the French charterers of a Swiss vessel. When the onions arrived in Brazil, they were damaged and the French charterers had to pay compensation to the Brazilian consignees in Brazilian cruzeiros. In a breach of contract claim against the Swedish ship owners, the charterers claimed their loss in French francs, which was the currency in which they carried on their business. At first instance, because they had made their payments to the Brazilian consignees in cruzeiros, the judge held that cruzeiros was the currency of their loss.

However, this was overturned by the Court of Appeal (and the House of Lords confirmed that the Court of Appeal was correct), which held that the loss had been incurred by the French charterers in French francs. This was because they had had to use their French francs in order to buy Brazilian cruzeiros to satisfy the claim made by the Brazilian consignees.

To what extent did judicial policy, in relation to the relevant strengths of the cruzeiro and the French franc, come in to play in making that decision? Certainly, if the ship owners had had, subsequently, to compensate the French charterers in cruzeiros instead of French francs, the relative level of compensation, given the drastic depreciation of the cruzeiro, would have been paltry. However, the application of such judicial principles, which were formulated to allow justice to be done, can rebound with drastic effects.

A salutary example is the recent House of Lords judgment in "The Texaco Melbourne" [1994] 1 Lloyds Rep 473. The "Texaco Melbourne" was loaded with fuel oil owned by a Ghanaian company, which was supposed to be delivered to Takoradi in Ghana where it was to be sold to various Ghanaian oil companies.

The owners of the "Texaco Melbourne" failed to deliver the cargo and the Ghanaian company which owned the fuel oil, not surprisingly, claimed damages.

The issue was whether damages should be expressed in US dollars or Ghanaian cedis. The underlying reason for the US dollar claim was that rampant inflation had reduced 7.9 million cedis from US$ 2.8 million at the time of breach to US$ 21,000 at the date of the hearing!

In reaching its decision the House of Lords applied the principles that had been developed in the "The Despina R" and "The Folias". Since the contract did not provide for damages to be paid in any particular currency, their Lordships had to consider in what currency the Ghanaian plaintiffs had suffered their loss.

Had the Ghanaian plaintiffs operated a US dollar account in which US dollars were kept, and had they used those US dollars actually to purchase a replacement cargo in Italy, then the answer might have been different.

However, the plaintiff carried on its business in Ghanaian cedis, and bank accounts, books and accounts were maintained in cedis; in Ghana only the bank of Ghana was permitted to receive or own foreign currency; and finally, in order to buy a replacement cargo, the plaintiff would have had to buy US dollars from the bank of Ghana using its own cedis to do so.

The House of Lords accordingly gave judgment in Ghanaian cedis, even though inflation had reduced the cedi to a fraction of its former worth, because this was the currency in which the cargo owner had "felt its loss". The case causes much discomfort: both for the plight of the plaintiff and for the windfall benefit obtained by a large multinational corporation. The loss in this case was caused by the catastrophic failure of the cedi and if anyone was to blame for this state of affairs it was the managers of the Ghanaian economy.

No explanation was given by the cargo owner for its failure to obtain a substitute cargo before the catastrophic depreciation of the cedi.


In conclusion, therefore, there is no doubt that you can get a foreign currency judgment in England. Whether that is a good or a bad thing will depend upon the relative value of the foreign currency, either against sterling or, indeed, against any other currency which is arguably related to the contract.

If the parties want to avoid getting into a wrangle about which currencies should be applied, then the best way is to specify in the contract the currency in which damages for breach will be paid.

This note is intended to provide general information about some recent and anticipated developments which may be of interest. It is not intended to be comprehensive nor to provide any specific legal advice and should not be acted or relied upon as doing so. Professional advice appropriate to the specific situation should always be obtained.



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