Court awards additional sum to compensate successful party for exchange rate loss on legal costs

In assessing the costs to which a German claimant was entitled on having succeeded in its patents claim in the English High Court, the court has awarded an additional sum of £20,000 to compensate for the claimant's exchange rate loss on payments to its solicitors, particularly in light of the significant fall in the value of sterling against the euro since the EU referendum result: Elkamet Kunststofftechnik GmbH v Saint-Gobain Glass France S.A. [2016] EWHC 3421 (Pat).

The judge commented that, where a foreign company has had to exchange its local currency into sterling in order to pay costs as the litigation has gone on, it is (in principle) entitled to be compensated for any additional expenditure incurred as a result of exchange rate losses in the same way as it is entitled to be compensated by the payment of interest for being kept out of its money.

This appears to be a novel point on which there was no previous authority. The decision suggests that, where a successful foreign party has suffered significant exchange rate losses in converting funds to sterling to pay legal costs, it may be entitled to compensation for those losses.

Background

The judge (Mr Justice Arnold) conducted a summary assessment of the successful claimant's costs in a patent case that had proceeded in the Shorter Trials pilot scheme. The claimant had been awarded 90% of its costs of the invalidity issues and 100% of the costs of infringement, to be assessed on the indemnity basis. It was common ground that an average figure of 93.5% was appropriate in terms of the percentage of the claimant's overall recovery. The judge awarded a figure of £458,000.

The judge then went on to consider the claimant's application for an order compensating it for the losses it had suffered as a result of drop in the value of sterling since it had paid the costs. On the evidence, the exchange rate had fallen from 1.39 euros to the pound when the first invoice had been paid to 1.14 euros to the pound when the last invoice was paid. That was a substantial move in the exchange rate which was adverse to the claimant which, as a German company, had to exchange euros into pounds to pay its solicitors’ bills.

Decision

The court made the order sought. The judge noted that the court has, and regularly exercises, the power to award interest on costs in order to compensate the successful party for being kept out of its money. He also noted that, since the decision of the House of Lords in Miliangos v George Frank (Textiles) Ltd [1976] AC 443, it has been possible for the English court to make orders for damages expressed in foreign currencies. He rejected the defendant's submission that a costs order should be expressed in sterling regardless of the source of the funds from which the costs are to be paid, as that would be contrary to the principle underlying the decision in Miliangos.

It followed as a matter of logic, the judge said, that where the court made an order in sterling it ought to have power to compensate the receiving party for any exchange rate loss. The basic principle was that an order for costs is designed to compensate the successful party for its expenditure. If a foreign company had to exchange its local currency into sterling in order to pay costs as the litigation went on, then in principle it was entitled to be compensated for any additional expenditure incurred as a result of exchange rate losses in the same way as it was entitled to be compensated by way of interest for being kept out of the money.

On the figures presented by the claimant, the exchange rate loss suffered as at the previous day's exchange rate was €29,602, or £25,193. Applying the percentage of 93.5%, that gave a figure of £23,555. The judge rounded down that figure, to recognise the possibility that the exchange rate could go up again by the time of payment, and awarded the sum of £20,000.