NOTES OF CASES
| Date | 01 March 1976 |
| DOI | http://doi.org/10.1111/j.1468-2230.1976.tb01454.x |
| Published date | 01 March 1976 |
NOTES
OF
CASES
JUDGMENTS
IN
FOREIGN
CURRENCIES:
AN
ECONOMIST’S
VIEW
THE
principle that contracts which specify a foreign currency as the
money of account may be enforced by English judgments in that
currency has recently been affirmed by the House of Lords
in
Miliangos
v.
George Frank (Textiles)
Ltd.l
This reversed the previous ruling.
laid down by the House in the
Havana Railways
case, that an English
judgment could be given only in sterling and that
a
debt due
in
a
foreign currency should be converted into sterling at the rate of
exchange prevailing at the date when payment was due (the
“
breach-
date’’ rule).
In
the
MiZiangos
case the majority of their Lordships
decided that the amount of
a
judgment
in
foreign currency need be
converted into sterling only when enforcement
was
authorised. and
that therefore the date for conversion was when leave was given to levy
execution for
a
sum which must necessarily be expressed
in
sterling.
Although the new ruling accepts the result reached below by the
Court
of
Appeal
*
(following the earlier Court of Appeal decision in
Schorsch Meier
v.
Hennin
3.
their Lordships were clear that the
Court of Appeal itself should not have ignored the
Havana Railways
ruling.6
Lord Wilberforce, in his judgment in the
Miliangos
case distinguished
two areas of debate. First, he argued that the feasibility of allowing
awards to be made in foreign currencies had been established by two
cases, in
Jugoslovenska
v.
Castle
Investment
Co.
Inc.*
where a London
arbitration award made in United States dollars was held to be valid.
and in
The Halcyon
the
Great
where it was held in Admiralty that
a
ship could be sold for United States dollars and the proceeds held
in
court in
a
separate dollar account.
In
the second place, he argued
that the volatility
of
foreign currencies-an inevitable consequence of
floating exchange rates-raises the important issue of the justicc
of
awards made in sterling at the conversion rate ruling at the date
of
the
failure to pay the debt. Although giving judgment in
a
foreign currency
may at first sight appear to be similar to using the sterling figure which
applies
on
the day of judgment, the practice of awarding a sum in
foreign currency rather than sterling avoids the losses from the
depreciation of sterling which the plaintiff might incur between the
1
Miliangos
v.
George Frank (Textfles) Ltd.
C19751
3
W.L.R.
758;
C19751
3
All
2
Re United Railways
of
Havana and Regla Warehouses Ltd.
119611
A.C.
1007.
8
[19751
Q.B.
487.
4
Schorsch Meler GmbH
v.
Hennfn
[1975]
Q.B.
416.
5
[I9751
3
W.L.R.
758,
763.
6
Ibid.
nt
pp.
766-768.
7
Jugoslavenska Oceanska Plovidba
V.
Castle Investment Co. Znc.
[1974]
Q.B.
292.
8
The Halcyon the Groat
C19751
1
W.L.R.
515
(discussed
infra).
0
[I9751
3
W.L.R.
758,
nt
p.
167.
E.R.
801.
196
Mar. 19761
NOTES
OF
CASES
197
date of the judgment and the date of actual payment. The effects of
the change could be far reaching: as this note will submit. it should
prevent the growth of certain undesirable (business practices which
favour individual businessmen, but may impede the expansion of
international trade; it also removes certain hindrances to trade by
making it easier to draw up mutually advantageous contracts across
international currency boundaries.
Lord Simon, in a dissenting speech in the
Miliangos
case, suggested
that such a substantial change in the law as the majority approved
could
possibly generate undesired and unforeseen side effects
:
“
A
penumbra can be apprehended, but not much beyond; so that when
the search-light
shifts
a quite unexpected scene may be disclosed.”
lo
One such problem. which was not mentioned in the speeches in the
House of Lords, is that under the new ruling the creditor may be
overcompensated as
a
result of the use of the United Kingdom Mini-
mum Lending Rate as the basis for awarding interest where payment
of
a
foreign debt has been delayed.The award of interest on a debt
or damages is made in recognition of the fact that over the period in
question the plaintiff could have earned interest on the money involved,
but the Minimum Lending Rate is an indicator only of short-term
United Kingdom rates, and may not reflect the short-term investment
opportunities open to the creditor in his domestic currency. The
following table gives the Minimum Lending Rate and the analogous
rates for Germany and Switzerland, the
two
foreign countries con-
cerned in the recent cases; the table illustrates. for the past two years.
the variations in the returns which could be earned on short-term
loans in the different countries.
Discount Rates in Germany, Switzerland, and
United Kingdom Minimum Lending Rate,
1973-7.5
Quarter
34
1234
123
Germany
7.0
7-0
7.0
7.0
7-0
6.0
5.0
4.5
3.5
Switzerland
45
45
5.5
5.5
5.5
5.5
5.0
4.5
3.5
U.K.
11.5
13.0
12.5
11.8
11.5 11.5
10.0
10.0
11.0
Year
1973 1974 1975
(Source:
The
Economist.)
It can be seen that over the period illustrated, when sterling has
been depreciating against both the Deutschmark and the Swiss franc,
United Kingdom Minimum Lending Rate has been- approximately
double the German and Swiss interest rates.
This
is to be expected
since the central banks of countries with depreciating currencies
generally use increases in interest rates to attract foreign investment
by offsetting. to some extent, the expected devaluation on the capital.
If
devaluation were
fully
offset by the change in interest rates, the
application of the old rules would amount to full compensation, since
the effect of sterling’s depreciation on the value
of
the debt in a
10
Ibid.
at
p.
184.
198
THE MODERN LAW REVIEW
[Vol. 39
foreign creditor's own currency would then be associated with
a
(higher) rate of interest payable on it; but in practice the relationship
between exchange rates and interest rates is not
so
straightforward.
The size of the award for interest in the
Miliangos
case depends
crucially on the choice
of
rate. The Court of Appeal (apparently
without any argument
being
addressed to it on the point) followed the
usual practice and awarded interest at Minimum Lending Rate plus
1
per cent." Application of the appropriate
Swiss
rate to the debt of
SF.
416.144*2O-which corresponded to about €60,000 at the time of
the hearing at first instance-between the date from which interest
was to be calculated (October 31, 1971) and the judgment date
(December 4. 1974) would lead to an award of interest of the order
of
;E15.000.'2 On the other hand, applying Minimum Lending Rate
plus
1
per cent. would lead to
an
award for interest of around €30,000
-so
that
Mr.
Miliangos is entitled to receive his debt paid in Swiss
francs with interest of around €30,000. about double the amount which
he could have obtained by investing the
SF.
416,14420 over the same
period id Switzerland.l8 By statute.14 the court has
a
discretion to
award interest upon any debt or damages, and since the discretion
includes
fixing
the rate of interest, any court is free to adopt the
submission made by this note as to the appropriate rate of interest.
Their Lordships' decision does not remove the possibility of one
of the traders gaining from a change in exchange rates between the
date of the contract and the date when leave
is
given to enforce the
judgment; but
it
can prevent losses to either party. For example. under
the ruling in the
Miliangos
case, Frank would have gained from the
delay in payment
if
sterling were appreciating against the Swiss franc,
but could have paid at once
in
Swiss
francs
as
soon as he thought
there was a risk of sterling depreciating; Miliangos, however, stood to
be paid in full in
his
own currency, irrespective of any changes in
exchange rates, since the currency of the contract was Swiss francs.
However, since the debtor under such a contract might delay payment
so
as to pay a smaller amount in his own currency to purchase the
appropriate amount of foreign currency, the seller may suffer con-
siderable inconvenience and this may have a detrimental effect
on
trade, even if interest is payable for the period of the delay.
11
r.19751
Q.B.
481,
507.
12
For
judgment debts the rate
of
interest is
7+
per
cent.
(s.
17
of the Judgments
Act
1838
(ns
nmended by
s.
44
of the Administration of Justice Act
1970,
which
empowers the making
of
an
order nmendmg the rate of interest under
s.
17);
the
current rate
was
fixed by the Judgment Debts (Rate of Interest) Order
1971
(S.I.
1971
No.
491)).
If
the argument in this note is nccepted, this stntutory rate of
interest should be nltereti
for
judgments awnrded
in
n
foreign currency
(if
not
for
nll judgments).
13
The difference would be greater for more recent cnses since the difference
between
U.K.
and
Swiss
rates hns been widening.
14
The Law Reform (Miscellnneous Provisions) Act
1934,
s.
3 (1).
By
s.
3
(IB)
of
the Act (added by
s.
22
of the Administrntion of Justice Act
1%9)
any order mny
provide for interest to be cnlculnted at diIIerent rates in respect
of
different parts
of
the period
for
which interest is given.
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