Contrasting High Court decisions on whether successful party should be compensated for exchange rate loss on legal costs

The High Court (Mr Justice Coulson) has declined to order that a successful defendant should recover additional sums to reflect any currency loss caused by the decline in the exchange rate between sterling and the euro since the defendant had made payments to his solicitors: MacInnes v Gross [2017] EWHC 127 (QB).

This is in contrast to the recent decision of Mr Justice Arnold in Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass France S.A., considered here. Pending any higher authority on the point, therefore, it is unclear whether a foreign party who is successful in the English courts will be compensated for exchange rate losses in converting funds to sterling to pay legal costs.

The present decision is also of interest in relation to the impact of an approved costs budget on the amount the successful party will be awarded in costs. In calculating the interim payment to be awarded to the defendant, Mr Justice Coulson started with the approved budget reduced by 10%, which he said he regarded as the maximum deduction that is appropriate in a case where there is an approved costs budget.

Background

The claimant brought a claim for €13.5 million based on an alleged oral contract with the defendant. The claim failed for a number of reasons and the defendant was awarded costs on the standard basis.

The defendant sought 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", based on the recent decision in Elkamet. This was disputed by the claimant.

The defendant also sought an interim payment on account of costs, pending detailed assessment. He put forward a figure calculated as 95% of his approved costs budget (which was in the sum of £570,000) plus interest.

Decision

Coulson J declined to order an additional payment to reflect exchange rate losses for a number of reasons including the following:

  • The issue in Elkamet arose as part of a summary assessment of costs, so that Arnold J had particular figures to consider and evidence as to how those figures had arisen. In the present case Coulson J was being asked to order simply that, to the extent the defendant had suffered such a loss, he was entitled to be compensated. He said he was "instinctively reluctant to make such an open-ended order".
  • He 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, saying he considered there to be inherent differences between the two regimes. Orders for costs, he pointed out, have never been regarded as compensating the payee for the actual costs that he has paid out.
  • He did not see a close analogy between ordering interest on costs and ordering exchange rate losses due to the particular time the costs were paid. He commented: "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."

In relation to the interim payment, the claimant argued that the payment on account should be just £375,000 because the defendant would not necessarily recover the amount of his costs budget at the detailed assessment stage, as that assessment would "start from scratch".

Coulson J rejected this submission on the materiality of the costs budget figure, saying the effect of CPR 3.18 is that, when costs are assessed, the costs judge will start with the figure in the approved costs budget; if there is no good reason to depart from that figure, he or she is likely to conclude the assessment at the same figure. One of the main benefits of costs budgeting is that it results in "a large amount of certainty as to what the likely costs recovery will be". Therefore, for the purposes of calculating the interim payment on account of costs, the starting point will "almost always be" the payee's approved costs budget.

Here Coulson J took as his starting point the approved budget figure of £570,000. He made a reduction of 10%, which he said he regarded as "the maximum deduction that is appropriate in a case where there is an approved costs budget", and added interest to produce a figure of £528,000.

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