In deciding what was a novel point, the High Court has
compensated a German company for exchange rate loss on payment in
pounds sterling of its solicitors' costs incurred in English
patent proceedings, particularly following the significant fall in
the value of the pound after the 23 June 2016
In Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass
France S.A, the successful German claimant was awarded 93
percent of its costs of the proceedings. While summarily assessing
those costs on the indemnity basis, the issue arose as to whether
the claimant should be compensated for the decline in the exchange
rate between the pound and the euro since the proceedings were
launched, and particularly since the decision in the EU
The exchange rate had fallen from £1 to €1.39 to
£1 to €1.14 during the period over which the claimant
had had to pay its solicitors' invoices, so the cost in euros
of paying the solicitors at the time was much more than the euro
value now of the pounds sterling sums sought.
The claimant had calculated that the substantial adverse move in
the exchange rate would cause it to suffer €29,602 or
£25,193 in exchange rate losses, if it was simply awarded the
pounds sterling value of what it had paid its solicitors (and then
had to repatriate that back to Germany). The question was whether
the claimant should be compensated for that loss?
Costs are awarded to a successful party to litigation to put it
back, in principle, more or less to the same position it would have
been in if it had not had to expend those costs. The courts have
regularly exercised the power to award interest on such costs to
compensate the successful party for being kept out of its money.
There was no authority on the point in relation to exchange rate
losses, but the claimant argued that this reasoning should apply
equally to additional costs incurred by reason of the adverse
movement in exchange rate.
The defendant declined the invitation to accept that the payment
of costs be made in euros, despite the fact that it was a French
company. It argued that as the litigation was progressing in this
jurisdiction, a costs order should be expressed in sterling
regardless of the source of funds from which payment was made, and
that as exchange rates can go up and down, satellite litigation
over levels of exchange rates should be discouraged.
The High Court determined that the claimant should be
compensated: the court considered that as it had the power to make
an order for damages expressed in a foreign currency, it also, in
principle, had the power to order that costs be expressed in a
foreign currency. It should therefore follow as a matter of logic
that the court also had the power, if it made an award in pounds
sterling, to compensate for any exchange rate loss.
There was a powerful analogy between an award of interest on
costs and an award of exchange rate losses on costs. If the court
could award interest on costs to compensate a party for being kept
out of its money, there seemed no reason why, if it had to exchange
its local currency into pounds sterling to pay its legal costs as
the litigation went along, it should not be similarly compensated
for any additional losses by reason of exchange rate movements.
The court should, however, be cautious in quantifying the
exchange rate loss as it did not know what the exchange rate would
be at the date of final payment - it could have gone up again. It
awarded the claimant an additional payment of £20,000.
Parties on the paying end of orders for costs in favour of
non-UK based parties may, on the basis of this judgment, see
applications for compensation for recent exchange rate loss and
should make appropriate provision for it.
The more interesting issue is: courts award interest on the
principal sums claimed, again to compensate the successful party
for being kept out of its money. Will we soon be seeing exchange
rate losses claimed as a standard head of loss (i.e. just like
interest) in any proceedings with a non-UK based claimant? That
might sound a big step, but the principle is just the same ...
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On 26 October 2016, the Court of Appeal delivered its judgment in Kazakhstan Kagazy Plc & 6 others v (1) Baglan Abdullayevich Zhunus (2) Maksat Askaruly Arip (3) Shynar Dikhanbayeva  EWCA Civ 1036.
With high cost and inefficiency top of the list of party concerns about the arbitral process, institutions, arbitrators, practitioners and indeed legislators are keen to find ways to address those concerns.
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