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Part II The Private Law of Monetary Obligations, 8 Legal Proceedings and their Effect upon Monetary Obligations

Charles Proctor, Dr Caroline Kleiner, Dr Florian Mohs

From: Mann on the Legal Aspect of Money (7th Edition)

Charles Proctor

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved. Subscriber: null; date: 07 June 2023

Legal proceedings and monetary obligations — Cross-claims — Bank resolution and insolvency

(p. 231) Legal Proceedings and their Effect upon Monetary Obligations

  1. A. Introduction 8.01

  2. B. The Position under English Law 8.03

  3. C. The Position in the United States 8.07

  4. D. Judgment Set-off 8.18

  5. E. Insolvency and Shares in a Fund 8.23

A. Introduction

8.01  Does the institution of legal proceedings have any impact upon the nature or quality of a monetary obligation? At first sight it is tempting to answer this question in the negative. The commencement of legal process is a procedural step which is designed to enforce a pre-existing obligation; such a step should therefore have no effect upon the substance of the obligation at issue. This view can only be reinforced when it is considered in a private international law context, where the substance of the obligation is governed by its applicable law whilst procedural questions are subject to the law of the country in which the proceedings have been instituted.

8.02  On the whole, English law now broadly reflects the principle just outlined, although inevitably that principle cannot always be applied uniformly; in particular, difficulties may arise where it is necessary to convert one currency into another, for the date of calculation and other matters may tend to distort the substance of the original obligation.1 The application of the principle will be illustrated by reference to a discussion of English and US law; exceptions to it will be examined in the context of procedural questions which come to the fore in the context of insolvency and the division of trust funds.

(p. 232) B. The Position under English Law

8.03  In 1898, Lord Lindley observed that:2

if the defendants were within the jurisdiction of any other civilised State and were sued there, as they might be, the courts of that State would have to deal with precisely the same problem, and to express in the currency of that State the amount payable by the defendants instead of expressing it in Mexican dollars.

The assumptions that the English courts could only give judgment in sterling, and that a foreign currency obligation therefore had to be converted into sterling for that purpose, became an accepted feature of English law.3 It is submitted that this attitude rested upon an unduly narrow view of the courts’ powers;4 there is no obvious reason why a court could not express its judgment in a foreign currency where appropriate.5 Even if that principle were acceptable, one would have thought that a court could give judgment for such sum of sterling as at the date of payment represented the equivalent of the required sum of foreign money; this would have ensured that the procedural requirement for a sterling judgment would not materially interfere with the substance of the obligation. Yet immediately after the First World War, the courts propounded the breach-date rule by insisting that judgment had to be given for a sum of sterling calculated by converting the foreign money at the rate of exchange on the date of the breach or wrong.6 Since the period between (p. 233) the date of the breach and the date of payment in respect of any eventual judgment could be a lengthy one, the breach-date rule meant that the eventual award would not necessarily reflect the actual loss suffered by the claimant. This is objectionable both on the ground that it is inconsistent with the restitutionary nature of a claim in damages and on the ground that a procedural rule may thereby diminish the substance of the claim. It is true that, in the early part of the twentieth century, the breach-date rule would tend to protect the creditor in such cases; indeed, it would often work to his positive benefit, because sterling remained strong and debts expressed in foreign currencies tended to depreciate in relation to it. The difficulty, of course, was that the breach-date rule would penalize the debtor, and the currency conversion process effectively allowed to the creditor liquidated damages in respect of the debtor's breach.7 Of course, once sterling began to decline, the breach-day rule had the opposite effect and became prejudicial to the creditor.8 As a matter of logic and legal reasoning, the breach-date rule was untenable but, despite various efforts, the Government declined to intervene with new legislation on the point.9 Nevertheless, the injustice which could be caused by the breach-date rule and the requirement for judgments to be expressed in sterling was becoming apparent to the courts. Lord Denning MR described the common law rules on the subject as ‘most unsatisfactory’10 and, eventually, the courts began to make inroads into the rule.

8.04  First of all, the Court of Appeal held that an arbitration award could be both made and enforced in terms of a foreign currency.11 Subsequently, the Court of Appeal refused to apply the breach-date rule on grounds which in strict law were—at least (p. 234) at the time—far from convincing, but produced a result that in justice could only be described as compelling.12 Further in the same case, the Court of Appeal held that judgments could generally be given in foreign currency; again, the reasoning is not at all convincing but the result was commercially satisfactory and even necessary.13 The point was subsequently confirmed by the House of Lords, which held that the creditor of a foreign currency debt is both entitled and obliged to seek judgment in the currency concerned.14 If the debtor pays the judgment debt voluntarily, then he may either pay it in the currency in which the judgment is expressed (in which event no further issues should arise) or in sterling at the rate of exchange on the date of actual payment, so that the net effect in each case is the same.15 Only if enforcement proceedings against assets in England becomes necessary will (p. 235) conversion into sterling be required, and conversion will be effected at the rate of exchange prevailing at that time.16 These rules apply whether the claim is for payment of a specific sum contractually due17 or for damages for breach of contract18 or tort19 for just a sum in respect of undue enrichment20 or for restitution.21 It has further been decided that the English courts may give judgment in a foreign currency regardless of the law applicable to the obligation in question,22 and that an award of damages may be made in a foreign currency, where appropriate.23 That being the case, it must follow that the creditor's entitlement to judgment in a foreign currency (or to the sterling equivalent as at the date of payment/enforcement) must be regarded as a procedural question which will always be governed by the law of the forum.24 If it becomes necessary to take execution proceedings in order to enforce (p. 236) a judgment expressed in a foreign currency, then it is the established practice of the courts to specify a sterling exchange rate for that purpose, but failure to do so does not vitiate any order which the court may have made for that purpose.25

8.05  The rule established in the Miliangos case had already been extended into many other areas.26 An Admiralty Marshall who sells an arrested ship for a US dollar consideration is under no obligation to convert that sum into sterling prior to its distribution;27 a garnishee order could be made against a foreign currency bank account held with a financial institution in England;28 a statutory demand under the Insolvency Act 1986 was valid if expressed in a foreign currency and even though it omitted to state the sterling equivalent, the rate of exchange, or other matters;29 and a company incorporated in the United Kingdom may issue shares denominated in a number of different foreign currencies.30

(p. 237) 8.06  It is thus possible to conclude that, so far as English law is concerned, the institution of legal proceedings does not have the effect of altering the substance of the debt or the debtor's obligations; further, this observation applies equally to obligations expressed in sterling and in foreign currencies, and will apply regardless of the law applicable to the substance of the obligation in question. This conclusion displays a pleasing symmetry with the principle of nominalism, which occupies a central position in the field of monetary law.31 Any case law on the subject which pre-dates the Miliangos case must now be of very doubtful authority.32 Nevertheless, it remains necessary to emphasize a few final points:

  1. (a)  As noted earlier, it will be necessary to convert the foreign currency amount of the judgment into sterling as at the date on which the court authorizes enforcement of the judgment. It is necessary to ascertain an equivalent date for procedures which are effected without resort to the courts or which do not involve a judgment given in terms of a foreign currency. There may be cases in which a measure of discretion or flexibility has to be allowed. For example, where a court was asked to convene a meeting to sanction a scheme of arrangement, the court held that holder of US dollar and sterling bonds were effectively the same ‘class’, even though the balance between them would be affected by the need to strike an exchange rate.33

  2. (b)  It has been shown that the rule in the Miliangos case is of a procedural character—it effectively entitles the creditor to judgment in the currency by reference to which the contract was made. Miliangos thus does not affect questions of substance. In particular, it does not in any way affect the question whether compensation for currency depreciation should be allowable as part of a claim for damages flowing from the debtor's breach. That is an entirely separate question which is governed by the law applicable to the obligation at issue.34

  3. (c)  It should be appreciated that the justice of the ‘foreign currency’ rule cuts both ways. Once it is established that the debt was expressed and payable in a foreign currency, then the judgment or award should likewise be expressed in that currency. There is no discretion for the court to provide a sterling judgment instead.35

  4. (p. 238) (d)  Although the Miliangos decision in large measure eliminates the concern that the sterling value of foreign currency debts may fall over time, it does not entirely eliminate that exposure. A period of time may elapse between the date on which execution is authorized and the date on which funds are ultimately received by the creditor; currency fluctuations may continue to occur during that period. It was suggested in the Fifth Edition of this work36 that the judgment creditor should be entitled to damages if the relevant foreign currency depreciates in terms of sterling during this period, on the basis that a judgment debt should not be treated differently to any other debt in that respect. This does, however, seem to be doubtful, in that the judgment must bring some finality to the matter and late payment would normally be dealt with by means of an award for interest;37 in any event, the concept of a cause of action in damages for late payment of damages is unknown in English law.38 Nevertheless, once the foreign currency judgment has been given, it would seem that the debtor could then discharge the debt thereby created by payment in sterling.39

  5. (e)  It should be noted that the Miliangos decision was soon applied in a number of other common law jurisdictions and has thus gained general acceptance in that sphere.40 Some civil law countries adopt a similar approach. In Germany, (p. 239) claims and judgments should be framed in the currency of the contract.41 The debtor generally has the right to pay a foreign currency obligation in euro at the rate of exchange prevailing on the date of payment.42

  6. (f)  The rule has been applied to a number of different types of claim. For example, where a claim is made against an agent in respect of a breach of his warranty of authority, damages may be awarded in the currency in which the claimant would have received his income, had the underlying contract provide to be valid.43

  7. (g)  It may be added that the now discredited breach-date rule has not been adopted as part of EU law. Where the Union is required to pay damages for breach of contract or in tort under the terms of Article 340, TFEU, any necessary conversion is to be effected as at the date of the judgment.44

C. The Position in the United States

8.07  In the United States, it was provided by statute that ‘all proceedings in the courts shall be kept and had’ in US dollars.45 This provision46 was repealed in 1982, but according to federal common law it remained settled practice ‘that a United States District Court can award judgment only in dollars’.47 In view of developments (p. 240) elsewhere, it is perhaps unsurprising that the courts started to move away from this strict view. They have, for example, enforced a provision in an insurance contract calling for payment in Jamaican currency,48 a foreign arbitration award expressed partly in US dollars and partly in sterling,49 and an arbitration award expressed in Japanese yen.50 The current position is that judgments involving foreign currency claims may be awarded in US dollars if the plaintiff so requests, but there is no positive requirement that judgments be rendered in the local currency.51 This position is in some respects encapsulated in section 823(1) of the Third Restatement of Foreign Relations Law, which provides that ‘courts in the United States ordinarily give judgment, on causes of action arising in another state, or denominated in foreign currency, in United States dollars, but they are not precluded from giving judgment in the currency in which the obligation was denominated or the loss was incurred’. This may perhaps be regarded as a lukewarm endorsement of the principle of foreign currency judgments.52

8.08  Given the continuing prevalence of dollar-based awards, there is an inevitable focus on the appropriate conversion date, which can significantly affect the ultimate quantum of the award,53 to which it is now necessary to turn.

(p. 241) 8.09  The modern federal law on this subject seems to draw a distinction based upon the place in which the breach or wrong occurred. If the wrong occurred within the United States, then the damages are measured in dollars and any necessary conversion is effected by reference to the rate of exchange as at the date of the breach. Where, however, the wrong occurred in a foreign country, the damages are measured in the currency of that country; the claimant can then recover the amount in US dollars which is equivalent to that foreign currency as at the date of judgment.54

8.10  The first part of this proposition is supported by the decision in Hicks v Guinness.55 In that case, a German debtor owed a sum in marks to an American creditor which was payable within the United States and was due on 31 December 1916. Following default, the plaintiff acquired an optional right to be paid in US dollars at the rate of exchange prevailing on 31 December 1916, ie the date of the breach.56 Similarly, where two ships collided in New York harbour and the resultant damages were to be measured in sterling, it was held that the rate of exchange as at the date of the collision was to be applied, since the wrong occurred within the United States.57

8.11  Authority for the second part of the proposition is provided by the decision in Deutsche Bank Filiale Nürnberg v Humphreys.58 The plaintiff, an American citizen (p. 242) had placed a deposit in German marks with the defendants in Germany; the contract was thus governed by German law and Germany was the place of performance. The defendants failed to repay the deposit following a demand made on 12 June 1915. The lower courts held that the marks were to be translated into US dollars as at the date of the breach; since the deposit was repayable on demand, the rate applicable on 12 June 1915 would be used. However, a sharply divided Supreme Court reversed the judgments. Speaking for the majority, Mr Justice Holmes said:59

In this case, unlike Hicks v. Guinness, at the date of the demand the German bank owed no duty to the plaintiff under our law. It was not subject to our jurisdiction and the only liability it incurred by its failure to pay was that which the German law might impose. It has incurred no additional or other one since. A suit in this country is based upon an obligation existing under foreign law at the time when the suit is brought, and the obligation is not enlarged by the fact that the creditor happens to be able to catch his debtor here. We may assume that when the bank failed to pay on demand, its liability was fixed at a certain number of marks both by the terms of the contracts and by the German law—but we may also assume that it was fixed in marks only, not at the extrinsic value that those marks then had in commodities or in the currency of another country. On the contrary, we repeat, it was and continued to be a liability in marks alone and was open to satisfaction by payment of that number of marks, at any time, with whatsoever interest may have accrued, however much the mark might have fallen in value as compared with other things: see Société des Hôtels Le Touquet v. Cummings [1922] 1 KB 451. An obligation in terms of the currency of a country takes the risk of currency fluctuations and whether creditor or debtor profits by the change the law takes no account of it. Obviously in fact a dollar or a mark may have different values at different times, but to the law that establishes it, it is always the same. If the debt had been due here and the value of dollars had dropped before suit was brought, the plaintiff could recover no more dollars on that account. A foreign debtor should be no worse off.

8.12  Later he added:60 ‘Here we are lending our courts to enforce an obligation (as we should put it, to pay damages) arising from German law alone and ought to enforce no greater obligation than exists by that law at the moment when suit is brought.’

8.13  It is generally held that the concluding three words of Mr Justice Holmes are due to an obvious error and that he meant to and did apply the rate of exchange prevailing at the date of judgment.61 The distinction between Hicks v Guinness (where (p. 243) the debt was payable in New York and subject to local law) and the Deutsche Bank case (where the debt was governed by the laws of Germany and payable within that country) has been emphasized by the Supreme Court on subsequent occasions.62

8.14  Although the doctrine thus propounded by the Supreme Court has since been followed in the Federal courts,63 some details have not yet been established. In Hicks v (p. 244) Guinness the obligation was both subject to American law and payable in America; in Deutsche Bank Filiale Nürnberg v Humphreys it was both subject to German law and payable in Germany. The question of how the conversion is to be effected if the place of payment is in another country than that to whose law the contract is subject, which law governs the determination of the place of payment, and how the money of account is to be ascertained have not yet received a complete answer; in the last connection, it is apparently assumed that an obligation which ‘arises’ in a certain country is subject to the laws of that country and is payable within it.64 On the other hand, it seems to have been assumed in one case that an obligation ‘arose’ in the United States merely because the contract was subject to the laws of Minnesota.65 It appears that no distinction is made between a claim for damages and a claim for payment of a debt66 and the judgment-date rule applies in Admiralty and other cases of federal concern.67

8.15  In States other than New York,68 there were a number of cases in which the judgment-date rule was applied,69 but the breach-date rule was dominant.70 The practice (p. 245) is so obviously unjust that the judgment-date rule may ultimately be expected to prevail.71 Nevertheless, it must not be overlooked that the judgment-date rule can itself work harshly against the creditor where, for the purpose of giving judgment, the foreign currency claim would generally have to be converted into US dollars.72

8.16  In New York, section 27(b) of the Judiciary Law was enacted in 1988.73 It provides that where a cause of action ‘is based upon an obligation denominated in a currency other than the currency of the United States, a court shall render or enter a judgment or decree in a foreign currency of the underlying obligation’, the amount of the judgment is to be converted into US dollars ‘at the date of entry of the judgment or decree’. This goes a long way towards solving the problem, although in the light of the English experience it might have been better to provide for conversion on the actual date of payment, thus protecting the judgment creditor against a depreciation of the dollar between judgment and payment.74 The difficulty is resolved altogether if the court is prepared to enter judgment in the foreign currency concerned.

8.17  In this context, the US Court of Appeals for the Seventh Circuit in The Amoco Cadiz75 has rightly observed, in the context of an obligation governed by English law, that:

judgment in a foreign currency is especially attractive when the commercial activity took place in that currency. Parties that conduct their dealings [in a foreign currency] either accept the risk of changes in the value of that currency or have made provisions to hedge against that risk. Computing an award in [a foreign currency] and then converting to dollars creates a risk that the parties did not accept—the risk that the judge will select an inapt date or use a currency no one (p. 246) had included in hedging plans. Fights over conversion dates are inevitable whenever judges enter dollar awards to redress injuries denominated in other currencies … Thus the English rule [allowing for foreign currency judgments] should be used in the United States too—not only because the choice-of-law provision in this contract requires it, but because it is the right rule for commerce. The court should enter judgment in the currency the parties themselves selected for their dealings, the currency in which the loss is felt. All problems about conversion dates vanish, and the parties hedging strategies (or lack thereof) proceed unimpeded.

This clear statement of principle is unimpeachable and it is perhaps surprising that foreign currency judgments apparently still remain rare in the US courts.76

D. Judgment Set-off

8.18  A further set of problems may arise where cross-claims in different currencies have to be determined and settled by means of a single judgment.

8.19  The courts have always allowed cross-claims to be off-set against each other in a single set of proceedings.77 The practice is also embodied as a rule of English procedure, under which the court has a discretion to order the party who receives a lesser judgment to pay the excess balance to the other party.78 The set-off should normally be effected with reference to the date on which the quantum of both liabilities is determined by the court.79

8.20  The date with reference to which the set-off is effected can, of course, have a significant impact on the amount payable, because exchange rates between the relevant currencies may have fluctuated between the date on which the respective liabilities were incurred.

8.21  With the exception of the decision in Fearns, to be discussed at paragraph 8.22, most of the cases in which this problem has arisen have been ‘both to blame’ admiralty cases, where each party is liable for a proportion of the damage caused to the other vessel.80 In cases of this kind, the court should give a single judgment for the (p. 247) net balance which is the difference between the greater and the lesser liability.81 From there, the procedure is as follows:82

  1. (a)  the currency of the lesser liability is converted into the currency of the greater liability as at the date of the order or agreement on which the respective liabilities are established; and

  2. (b)  judgment should be given in the currency of the greater liability for the amount of the excess.83

8.22  These principles were brought into sharp relief in a recent case in which the court was confronted by cross-claims expressed in different currencies but where the respective liabilities arose at different times. In Fearns (t/a ‘Autopart International’) v Anglo Dutch Paint & Chemical Co Ltd and others,84 the court assessed damages for trade mark/passing off infringements occurring during the course of 2005 at £438,569. On the other hand, the defendant had supplied goods to the claimant during the same period and, after various adjustments, the amount payable in respect of them was assessed to be approximately EUR600,000. If the set-off was calculated with reference to 2005 exchange rates (£1.00 = EUR1.45), then the defendants would have owed Mr Fearns a net sum of EUR41,229.85 However, if the conversion was effected as at the date of the 2010 judgment (£1.00 = EUR1.20), then Mr Fearns would owe to the defendants a net sum of EUR68,413. Applying the principles discussed above, the balance was struck as at the date of the 2010 judgment, leaving Mr Fearns with a net liability on this basis. In fact, the ultimate result was a net balance of £36,832 in favour of Mr Fearns, largely because of the addition of the interest rate element from 2005. Sterling interest rates had been significantly higher than the corresponding euro rates during the period concerned, and evidence of Mr Fearns personal circumstances demonstrated that his own cost of borrowing was significantly higher than that which the defendants would have incurred.86

(p. 248) E. Insolvency and Shares in a Fund

8.23  The problems considered previously arise in a slightly different form when it becomes necessary to decide upon entitlement to shares in a specific and finite fund, for one is then concerned not merely with the mechanics of conversion but also with equity as between the various participants. Because the fund is finite, it is necessary to ensure equality and uniformity of treatment and to avoid the incidence of mere chance or speculative gain.

8.24  In order to achieve this objective, both the assets of the fund and liabilities which constitute claims upon it must be converted into one currency at a uniform rate. This is achieved by requiring such conversion to be effected by reference to the applicable exchange rate on the date when the fund is constituted.87 This formulation naturally gives rise to two questions, namely, (a) which currency is to be used as the reference point; and (b) for the purpose of ascertaining the appropriate rate, when is the relevant fund deemed to be constituted?

8.25  As to the first point, it would seem possible to select either the currency of the place in which the proceedings are taking place or the currency identified by the law which governs the trust. It seems appropriate to discard the first option; it could only be justified on grounds of convenience, and would mean that the substantive rights of the beneficiaries may be affected by the happenstance that proceedings take place in one jurisdiction rather than another. The second choice is rather more appealing in the sense that it should lead to a uniformity of treatment and, consistently with principle, allows that substantive rights are exclusively determined by the law which governs them. Thus, when the point falls for decision in relation to a trust fund, the appropriate currency is to be selected in accordance with the law applicable to the trust.88 It should be emphasized that the governing law of the trust is applied in order to ascertain the appropriate currency; it does not state nor does it invariably follow that sterling should be the reference currency for all trusts governed by English law. The court should perhaps select the currency of the country in which the major trust assets are determined.

8.26  The identification of the date with reference to which the conversion rate should be ascertained is likewise apt to affect the substantive entitlements of the beneficiaries. (p. 249) In principle, therefore, the second question should likewise be submitted to the law which governs the trust.89

8.27  In insolvency proceedings in England, the relevant fund is deemed to be constituted when the winding-up order is made or the necessary resolution for a creditors’ voluntary winding up is passed, and the necessary rate of exchange is thus to be ascertained by reference to that date. This rule is established in England,90 in Australia91 and in some other jurisdictions,92 but in the United States the courts have applied the rate of exchange prevailing on the date on which the particular creditor's claim was admitted or allowed.93

8.28  Where an order is made for the administration of a deceased person, conversion is effected as at the date of the order.94 A striking illustration of the same basic principle is provided by the decision in Re Chesterman's Trust.95 A fund in court represented the sterling proceeds of sale of a property. One of the beneficiaries had mortgaged his interest in the fund to secure an obligation expressed in German marks. The question was, how much of the sterling trust fund should be paid to the mortgagee? It was made clear at first instance and in the Court of Appeal that the court was not dealing with an action to enforce the repayment obligation in the (p. 250) mortgage; rather it was ‘dividing the funds’ and for this purpose had to ascertain what sums were payable to the mortgagees.96 For that purpose, it was held that the proper date for the conversion was the date of the Master's certificate in the inquiry. This decision was followed in Canada, in a case in which a trustee for bondholders claimed an account for the purpose of ascertaining the principal and interest due to the bondholders out of the proceeds of sale of the mortgaged property. The date of the Master's report was ordered to be the date of conversion, even though the bonds and coupons had fallen due for payment many years earlier.97

8.29  It is of some interest compare to a case arising from the collapse of the Icelandic-based Kaupthing Group in 2008.98 A UK member of the Group had been required to place cash deposits with the Bank of England in a sterling amount equal to the deposits received by it in the period up to the date of its administration order. The deposits were placed with the Bank of England in sterling, but some of the corresponding customer deposits had been placed with the UK entity in a foreign currency. The account was found to be a trust account for the benefit of certain depositors, and it was accordingly necessary to ascertain the extent of the beneficial interest of foreign currency depositors in a sterling denominated fund. The court decided that the rate of exchange to be applied in making that determination should be the rate of exchange between sterling and the relevant foreign currency on the date of the deposit. Since this served to ‘crystallise’ the extent of the foreign currency depositor's interest in the fund, it followed that the same rate of exchange should be used in relation to the subsequent withdrawals from the account, regardless of any exchange rate fluctuations that had occurred in the meantime.


1  As will be apparent from this remark, the present chapter is primarily concerned with liquidated obligations which are expressed or payable in a foreign currency.

2  Manners v Pearson [1898] 1 Ch 581, 587.

3  Following Manners v Pearson, the rule was taken for granted or repeated on a number of occasions: Di Ferdinando v Simon Smits & Co [1920] 3 KB 409, 415; The Volturno [1921] 2 AC 544, 560; Re Chesterman's Trust [1923] 2 CH 466, 490; and Re United Railways of Havana and Regala Warehouses Ltd [1961] AC 1007, 1052, and 1069. These cases also established the now outdated rule that the date of conversion into sterling should be the date of the relevant breach of contract or of the commission of the tort (as the case may be), with the rate of exchange ascertained by reference to that date. For further discussion, see McGregor, paras 16–019–16-023.

4  It also rested, no doubt, upon the role of sterling as the world's main reserve currency. Lord Denning reflected on the point when deciding that a change of practice was required. In Schorsch Meier GmbH v Hennin [1975] 1 All ER 152, he said of sterling: ‘It was a stable currency which had no equal. Things are different now. Sterling floats in the wind. It changes like a weathercock with every gust that blows. So do other currencies.’

5  Although the point cannot be stated with any confidence, it may be that the narrowness of the English approach was influenced by two factors. First of all, the debtor may at times have encountered difficulty in satisfying a foreign currency obligation in the light of the restrictions imposed by the Exchange Control Act 1947. Secondly, the English courts tended to regard a foreign money obligation as an obligation to deliver a commodity, the breach of which gave rise to a claim for damages (as opposed to a claim in debt). The latter notion has been exploded by the decision in Camdex International Ltd v Bank of Zambia (No 3) [1997] CLC 714—see the discussion at para 1.61.

6  In relation to debts expressed in a foreign currency, the rule was stated in Re British American Continental Bank Ltd [1922] 2 Ch 575, 587 and was followed in Australia: McDonald & Co Pty Ltd v Wells (1932) 45 CLR 506. For full discussion, see in particular in Re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007 and authorities there cited. In relation to damages for breach of contract, see, eg, Ottoman Bank v Chakarian (No 1) [1930] AC 277 and, in relation to damages in tort, see The Volturno [1921] 2 AC 544.

7  In Libraire Hachette SA v Paris Book Centre Inc (1970) 309 NY Supp 2d 701, 705, the New York Supreme Court openly admitted the point, noting that ‘in this case, the equities favor application of the “breach day rule”. If it were not applied, the defendant would be rewarded for defaulting in his obligation to pay for the merchandise’. For a valuable discussion of the subject, and the events leading up to the decision in Miliangos v George Frank (Textiles) Ltd [1976] AC 443 and for further case law, see Black, ch 1.

8  See, eg, Madeleine Vionnet & Cie v Wills [1940] 1 KB 72.

9  The subject was taken up by the Monetary Law Committee of the International Law Association, which in 1956 produced its ‘Dubrovnik Rules’, the adoption of which would have led to conversion as at the date of payment. In the UK, the rules were referred to the Private International Law Committee which, however, declined to recommend any change in the law—Cmnd 1648. Subsequently, the European Convention on Foreign Money Liabilities was opened for signature, but events were then overtaken by the decisions about to be described.

10  The Teh Hu [1970] P 106, 124. Yet it may be noted that Lord Denning had been a party to the confirmation of those rules in Re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007.

11  Jugoslavenska Oceanska Plovidba v Castle Investment Co Inc [1974] QB 292. The Court of Appeal rightly made the obvious point that the claimants ‘want an award which will enable them to recover the same amount as that which they ought in the first instance to have received. They do not want that recovery to be exposed, if that can be avoided, to exchange fluctuations between the currency in which they ought to have received the amount initially and the pound sterling, especially since the latter was allowed to float’. The final observation makes it plain that it was the collapse of the Bretton Woods system of exchange rates which had compelled the courts to reconsider the sterling judgments rule. The power of an arbitrator to express his award in any currency was subsequently confirmed by statute: see Arbitration Act 1996, s 48(4) considered in Lesotho Highlands Development Authority v Impregilo SpA [2005] UKHL 43.

12  Schorsch Meier Gmbh v Hennin [1975] QB 416. This decision involved a departure from the position adopted by the House of Lords in the Havana Railways case. However, the court now has much greater flexibility in determining the date with reference to which the damages are to be assessed: see the discussion of the decision in The Golden Victory at paras 10.12.

13  Lord Denning invoked Art 106 of the EC Treaty which then required each Member State ‘to authorise, in the currency of the Member State in which the creditor or the beneficiary resides, any payments connected with the movement of goods, services or capital … to the extent that the movement of goods, services, capital or persons between Member States has been liberalised pursuant to this treaty’. From this, Lord Denning argued that a debtor was obliged to pay the creditor in the currency specified in the contract, and that the English courts would be acting contrary to the spirit of the Treaty if they compelled the creditor to accept a depreciated payment in sterling following the debtor's breach. Whilst these conclusions are entirely acceptable from a commercial perspective, they cannot be justified by reference to Art 106. The point was made by Lord Wilberforce in the Miliangos case (n 14); for further criticism, see White, ‘Judgments in Foreign Currency and the EEC Treaty’ (1976, January) Journal of Business Law 7.

14  Miliangos v George Frank (Textiles) Ltd [1976] AC 443. See also Veflings A/S v President of India [1979] 1 All ER 380. In Ozalid Group (Export) Ltd v African Continental Bank Ltd [1979] 2 Lloyd's Rep 231, the court held that the claimant retained the option to claim payment either in sterling or in the relevant foreign currency. For the reasons just stated, this view is not acceptable in so far as it relates to the debt claim itself. As Lord Denning observed in the Federal Commerce decision (n 22 at 342), ‘once it is recognized that judgment can be given in a foreign currency, justice requires that it should be given in every case where the currency of the contract is a foreign currency; otherwise, one side or the other will suffer unfairly by the fluctuation of the exchange’. The point is, however, not beyond dispute, for Australian courts have allowed the creditor the option of claiming the local currency equivalent: see Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co (1989) 15 NSWLR 448 at p 463 and Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd (No 2) [1998] VSC 135. It is, however, true that a claim for special damages flowing from the breach of contract can be made in a different currency in which the claimant actually ‘felt’ the consequent loss. On this point, see para 5.33. For a slightly different view of the effect of the decision in Miliangos, see Vehicle Wash Systems Pty Ltd v Mark VII Equipment Inc [1997] FCA 1473 (Federal Court of Australia), where the court noted that ‘all that was decided, and all that needed to be decided, was that the court had a procedure available under which orders could be made for payment of foreign currency claims in the foreign currency. A finding that there exists a procedure for the entry of judgment in a foreign sum does not alter the character of the claim made. More particularly, it does not convert the claim into one of debt’. In other words, and notwithstanding Miliangos, a claim for non-payment of a foreign currency obligation should continue to be regarded as a claim in damages for breach of contract, rather than a claim in debt. This is an interesting observation but it is contrary to the now prevailing practice of the courts.

15  See the discussion of the Miliangos decision in Trinidad Home Developers Ltd v IMH Investments Ltd [2003] UKPC 85, interpreting a court order in a manner that gave effect to the principle stated in the text.

16  Miliangos v George Frank (Textiles) Ltd [1976] AC 443—see in particular the remarks of Lord Wilberforce (at 463, 468, 469), Lord Cross (at 497–8), and Lord Edmund-Davies (at 501). The requirement for conversion as at the date of payment, rather than any earlier date, ensures that the debtor—as the party in default—bears the risk of currency fluctuations up to the point of actual payment. The rule now seems to be applied as a matter of course: see, eg, Diary Containers Ltd v Tasman Orient Line CV (Privy Council Appeal No 34 of 2003, 20 May 2004), where the Board held that the liability of a carrier was limited to £5,500 and that the claimant was ‘entitled to an amount in New Zealand dollars which it can exchange for that amount at the date of payment’.

17  As in the Miliangos case itself.

18  The Folias [1979] AC 699, approving Jean Kraut AG v Albany Fabrics Ltd [1977] QB 182. See also Monrovia Tramp Shipping Co v President of India (The Pearl Merchant) and Marperfecta Compania Naviera SA v President of India. The cases are reported together at [1979] 1 WLR 59.

19  The Despina R [1979] AC 685, on which see Knott, ‘Foreign Currency Judgments in Tort: An Illustration of the Wealth–Time Continuum’ (1980) 43 MLR 18.

20  BP Exploration Co (Libya) Ltd v Hunt [1979] 1 WLR 783, 840–1 affirmed [1981] 1 WLR 232, 245.

21  Thus in Re Dawson [1966] 2 NSWR 211, a trustee who in 1939 wrongfully took £4,700 New Zealand currency was in 1966 liable to restore the then value of that amount in terms of Australian currency. The decision was approved by the House of Lords in the Miliangos case, at 468.

22  The contract in the Miliangos case was governed by Swiss law, but the principle was extended to English law contracts in Federal Commerce and Navigation Co Ltd v Tradax Export SA [1997] QB 324, reversed on other grounds by the House of Lords [1978] AC 1. The Federal Commerce decision also applied the Miliangos decision to claims for liquidated damages, which differ in their character from ordinary debt claims: see the observations on this subject by Lord Brandon in The Despina R [1979] AC 685 and the discussion at para 5.35. See also Barclays Bank International Ltd v Levin Brothers (Bradford) Ltd [1977] QB 270; The Despina R [1979] AC 685; The Texaco Melbourne [1994] 1 Lloyd's Rep 973 (HL).

23  See the Federal Commerce decision at n 22. For cases in which such an award will be made, see para 5.35. The Federal Commerce decision suggests that an award should always be made in the foreign currency where appropriate, but the Supreme Court of Victoria held that the claimant had an option to ask for a judgment in the local currency at the applicable rate of exchange: Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd [1998] VSC 135, rev'd in part, [2001] VSCA 25.

24  See Dicey, Morris & Collins, para 36–067. It follows that the question cannot be treated as a part of the rules dealing with the assessment of damages, for that question is assigned to the applicable law of Art 12(1)(c) of Rome I. It must also be observed that the rule requiring that judgments should be given in sterling was unattractive on other grounds. In particular, it allowed the domestic procedural rules to override the contractual rights of the claimant to payment in a different currency. Whilst the rule in Miliangos is likewise a procedural rule, its application will be in harmony with the substantive rights created by the terms of the contract itself—the point was noted by Lord Wilberforce in Miliangos at 465. In contrast to the statement in the text, it should be noted that the court in Rogers v Markel Corp [2004] EWHC 2046 seems to have regarded the currency of its judgment as a matter to be determined by reference to the law applicable to the contract, rather than English procedural law. It is true that, in practice, the two issues will be closely linked. However, it is submitted that (a) the money of account and the money of payment are matters to be decided by reference to the law that governs the contract; and (b) the form of the judgment, including the currency in which it is expressed, are a matter for the procedural law of the forum.

25  Carnegie v Giessen [2004] All ER (D) 171. It may be important to make it clear in the judgment that the foreign currency concerned is intended to be the money of account, so that any rate of exchange required in connection with local enforcement proceedings will be that prevailing as at the date of payment, rather than the date of judgment. This is necessary to ensure that the claimant retains the economic benefit of the judgment, expressed in the foreign currency concerned. For a case in which this type of difficulty arose, see Trinidad Home Developers Ltd (in voluntary liquidation) v IMH Investments Ltd [2003] UKPC 85.

26  It is, of course, no coincidence that these changes in judicial policy occurred after the collapse of the Bretton Woods system of fixed parities and the era of floating currencies had begun. Indeed, the point was openly made by both Lord Denning in the Schorsch Meier case (see n 12) and the Jugoslavenska decision (see n 11). An essentially similar remark was made by Lord Wilberforce in the Miliangos case (n 14, at 467). Foreign currency decisions that pre-date Miliangos will thus generally no longer be good law: Monrovia Tramp Shipping Co v President of India (The Pearl Merchant) [1979] 1 WLR 59.

27  The Halcyon the Great [1975] 1 WLR 515.

28  Choice Investments Ltd v Jeromnimon [1981] QB 149 (CA).

29  Re a Debtor (No 51–SD 1991) [1992] 1 WLR 1294. This issue has caused some difficulty in Australia, where it now seems to be accepted that a statutory demand may be expressed in a foreign currency but (a) it may be necessary to specify the exchange rate; and (b) the date selected by the creditor to ascertain the rate of exchange cannot be purely arbitrary: see Aldridge Electrical Industries Pty Ltd v Mobitec AB [2001] NSWSC 823 (New South Wales Supreme Court) and earlier authorities there discussed.

30  Re Scandinavian Bank Group plc [1988] Ch 87. It was held to be possible to issue shares with nominal amounts expressed in different currencies notwithstanding Companies Act 1985, s 2(5)(a) which required the division of share capital ‘into shares of a fixed amount’. The decision is discussed in a case note by Instone (1987) 104 LQR 168. The ability to issue share capital in different currencies now enjoys statutory confirmation under s 542(3), Companies Act 2006. The statement by Lord Wright in Adelaide Electric Supply Co v Prudential Assurance Co [1934] AC 122, 146, to the effect that the share capital of an English company must be fixed in sterling, is thus no longer applicable.

31  On the principle of nominalism generally, see Part III.

32  The point was made in Monrovia Tramp Shipping Co v President of India [1978] 2 Lloyd's Rep 193, 197, affirmed by the Court of Appeal [1979] 1 WLR 59. On changes brought by the Miliangos decision, see Morris, ‘English Judgments in Foreign Currency: A Procedural Revolution’ (1977) 41 Law and Contemporary Problems No 2.44.

33  Re Telewest Communications plc [2004] BCC 342 (Ch D).

34  The availability of damages in this type of case is discussed at para 9.36.

35  Rogers v Markel Corp [2004] EWHC 2046, paras 17–19. Although the court reached the correct conclusion, it is submitted that it fell into error when it held that the currency in which the award had to be expressed was determined by Virginia law as the law applicable to the contract. The form and content of the award are plainly matters of English procedural law.

36  See the fifth edition, 357, n 90.

37  It is perhaps for this reason that standard forms of loan agreement in use in the international financial markets contain an explicit and independent indemnity provision which seeks to create a further right of recourse under these circumstances.

38  The point was made in President of India v Lips Maritime Corp [1987] 3 All ER 110. A claim for damages in respect of foreign currency depreciation between the due date and the date of judgment was rejected in Rogers (n 35), although largely on the ground that the issue had been raised at too late a stage of the proceedings.

39  On the debtor's option to pay in sterling, see para 7.41. It would be absurd if the debtor's option to pay a judgment debt in sterling only arose once execution proceedings had started.

40  In Scotland, see Commerzbank AG v Large [1977] SLT 219 (First Division of the Inner House); for a discussion of some of the diffculties posed by this decision, see Black, 94–8. In Ireland, see Northern Bank Ltd v Edwards (1984) IR 284. In Australia, see: Maschinenfabrik Augsburg-Nürnberg v Altiker Pty Ltd (1984) 3 NSWLR 152; Australian and New Zealand Banking Group Ltd v Cawood (1987) 1 Qd R 131; Brown Boveri (Australia) Pty Ltd v Baltic Shipping Co [1989]1 Lloyd's Rep 518; Mazzoni v Boyne Smelters Ltd [1998] 1 Qd R 76. In New Zealand, see: American Express Europe Ltd v Bishop [1988] NZ Recent Law 87; Brintons Ltd v Feltex Furnishings of New Zealand Ltd (No 2) [1991] 2 NZLR 683; Airwork (NZ) Ltd v Vertical Flight Management Ltd [1999] 1 NZLR 641; and see further authorities cited by Black, 138–42. In Canada, see: the Courts of Justice Act 1990, s 121 provides for conversion of the foreign currency judgment into Canadian dollars immediately before the judgment is satisfied. Canadian courts had formerly adopted that rate of exchange as at the date of judgment—see Batavia Times Publishing Co v Davis (1978) 88 DLR (3d) 144 affirmed without opinion (1980) 102 DLR (3d) 192; Clinton v Ford (1982) 137 DLR (3d) 281; Williams & Glyn's Bank Ltd v Belkin Packaging Ltd (1979) 108 DLR (3d) 585, reversed on other grounds (1981) 123 DLR (3d) 612; Dino Music AG v Quality Dino Entertainment Ltd [1994] 1 WWR 137; Ticketnet Corp v Air Canada (1997 154 DLR (4th Cir) 271 (Ontario Court of Appeal). In India, see Forasol v Oil & National Gas Commission [1984] AIR 241 (Supreme Court of India), although the ability to award judgments in foreign currencies was found to be fettered by exchange control regulations: see the discussion of this issue by Black, 135–9. In Malaysia, see: Owners of Cargo carried in the ship ‘Gang Chen’ v The Ship ‘Gang Chen’ [1998] 6 MLJ 492; Inter Diam Pte Ltd v PJ Diamond Centre Sdn Bhd [2002] 4 AMR 4613. In Singapore, see: Wardley Ltd v Tunku Adnan [1991] 1 SLR 721 and other cases noted by Black, 129–31. In South Africa, see: Murata Machinery Ltd v Capelon Yarns Pty Ltd (1986) 4 SA 671 (C); Elgin Brown and Hamer Pty Ltd v Dampskibsselkabet Torm Ltd (1998) 4 SA 671 (N) and Mediterranean Shipping Co Ltd v Speedwell Shipping Co Ltd (1989) (1) SA 164 (D). In Zimbabwe, see: Makwindi Oil Procurement Ltd v National Oil of Zimbabwe Ltd (1988) (2) SA 690. Cyprus: Lamaignere v Selene Shipping (1982) 1 CLR 227. For further authorities, see Dicey, Morris & Collins, para 36R-060, and the application of the Miliangos case before the courts of other countries is discussed in detail by Gold in Legal Effects of Fluctuating Exchange Rates (IMF, 1990) ch 14. On the procedural rules applicable to a claim expressed in a foreign currency, see Civil Procedure Rules 1998, Pt 16, Practice Directions, para 11. In Hong Kong, the Miliangos rule is encapsulated in a Practice Direction (PD 16.2), which requires that foreign currency judgments should be given in the relevant currency but must provide the option of payment in Hong Kong dollars at the rate of exchange on the date of actual payment.

41  BGHSt NJW 1980, 2017.

42  See Grundman, Muenchener Kommentar sec 245, para 96. The right to pay in euro is negated if the contract contains a requirement for effective payment in the foreign currency of obligation.

43  BHPB Freight Pty Ltd v Cosco Oceania Chartering Pty Ltd (No 4) [2009] FCA 1448 (Federal Court of Australia).

44  Dunortier Frères v Council of the European Community [1982] ECR 1733.

45  Coinage Act 1792, s 20. For an argument to the effect that this type of provision does not prevent the entry of judgments expressed in a foreign currency, see Becker, ‘The Currency of Judgments’ 25 AJCL 152.

46  The section was generally interpreted as precluding foreign currency judgments: see the discussion in Black, 147–9.

47  See, eg, BV Bureau Wijsmuller v US (1976) 487 F Supp 156, 176; Re Good Hope Chemical Corp (1984) 747 F 2d 806, 809, cert denied (1985) 471 US 1102; Trinh v Citibank NA (1985) 623 F Supp 1526, 1536; Newmont Mines Ltd v Adriatic Insurance Co (1985) 609 F Supp 295, 126. See also Fils et Cables d'Acier de lens v Midland Metals (1984) 584 F Supp 240, 246; Vishipco Line v Chase Manhattan Bank NA (1981) 660 F 2d 854, 865. The requirement for conversion into US dollars has also been applied when enforcing a foreign judgment expressed in a currency other than dollars: Competex SA v LaBow (1985) 613 F Supp 332 (SDNY) affirmed (1986) 783 F 2d 333 (2nd Cir).

48  Barton v National Life Assurance Co of Canada (1978) 413 NYS 2d 807.

49  Waterside Ocean Navigation Co Inc v International Navigation Ltd (1984) 737 F 2d 150 (2nd Cir).

50  Mitsui & Co Ltd v Oceantrawl Corp (1995) 906 F Supp 202 (SDNY). It may be observed that the decisions just noted involved the enforcement of foreign awards, as opposed to a judgment on the merits given by the US court itself. For further examples, see Waterside Ocean Navigation Co v International Navigation Ltd 737 F2d 150 (2nd Cir, 1984), and other cases noted by Black, 179.

51  See the discussion of Hicks v Guinness at para 8.10. Section 4 of the Uniform Foreign-Money Claims Act expressly permits the parties to select the currency which is to be used to meet any claims arising out of their transaction. In the absence of such a stipulation, judgments may be given in foreign money but the debtor has the option to settle in US dollars by reference to the exchange rate as at the date of payment. According to the introductory note: ‘The principle of the Act is to restore the aggrieved party to the economic position it would have been in had the wrong not occurred.’ The Act has, however, won only limited acceptance and, in particular, it has not been adopted in New York.

52  It may be noted that, where the court elects to give judgment in US dollars in such a case, s 823(2) requires the court to select an exchange rate that makes the creditor whole and avoids rewarding the debtor for his delay in meeting the obligation. The guidance note to section 823 states that ‘the date used for conversion should depend on whether the currency of obligation has appreciated or depreciated relative to the dollar. In general, if the foreign currency has depreciated since the injury or breach, judgment should be given at the rate of exchange applicable on the date of injury or breach; if the foreign currency has appreciated since the injury or breach, judgment should be given at the rate of exchange applicable on the date of judgment or the date of payment’. This rule would operate in favour of the claimant or creditor and is considered by Black, 167.

53  See Agfa-Gevaert AG v AB Dick & Co 879 F2d 1518 (7th Cir, 1989); Ingersoll Milling Machines Co v Granger 833 F2d 680 (7th Cir, 1987); The Amoco Cadiz 954 F2d 1279 (7th Cir, 1992) at p 1328. See also the discussion of this point by Black, 179.

54  In some respects, this distinction may be seen as artificial and even absurd—see Rosenn, Law and Inflation (University of Pennsylvania, 1982) 282 and literature there cited. It must, however, be said that the distinction continues to find support. The court which heard Re Good Hope Chemical Corp (1984) 747 F 2d 806, cert denied (1985) 471 US 1102, expressed the point neatly when it observed (at 811) that ‘the judgment day rule applies only when the obligation arises entirely under foreign law. If, however, at the time of breach the plaintiff has a cause of action arising in this country under American law, the breach day rule applies’. This formulation was quoted with approval in ReliaStar Life Insurance Co v IOA Re Inc and Swiss Re Life Canada 303 F3d 874 (2002) (Court of Appeals for the 8th Cir); since the claim in that case arose within the US, the breach-date rule applied, and the amount of the Canadian dollar obligation at issue in that case accordingly had to be converted into US dollars as at the date of the failure to pay. See also In re National Paper & Type Company of Puerto Rico 77 BIL 355 (Bankruptcy DPR, 1987).

55  269 US 71 (1925). The Supreme Court noted that its decision was consistent with that of the House of Lords in The Volturno [1921] AC 544 (HL). As noted at n 26, that decision is no longer good law.

56  That the right to payment in US dollars is an optional right of the claimant has been confirmed by the decision in ReliaStar Life Insurance Company v IOA Re Inc and Swiss Re Life Canada (n 54), explaining and following Hicks v Guinness and concluding that the District Court is not compelled to give judgment in US dollars.

57  The Verdi (1920) 268 Fed 908 (District Court, Southern District of New York).

58  (1926) 272 US 517. There were earlier decisions to the same effect. In The Vaughan and Telegraph 14 Wall 258 (1872), a cargo of barley shipped from Canada had a value of C$2,436 at the time and place of shipment. The cargo was lost owing to a collision in the Hudson River. Since the US and Canadian dollars were then of equal value, the District Court gave judgment for the plaintiffs for US$2,436 and interest. When the case came before the US Court of Appeals, the US currency had so depreciated that C$2,436 was equivalent to US$4,896.36; the Court of Appeals thus gave judgment for the latter sum in US dollars. By the time the case had reached the Supreme Court, the US dollar had greatly appreciated so that US$4,896.36 would produce much more than the original Canadian dollar amount. Nevertheless, the Supreme Court (by a majority) upheld the decision of the Court of Appeals on the grounds that the judgment was correct when rendered and any hardship to the debtors was caused by their own delay in payment. In The Hurona (1920) 268 Fed 911, the District Court was confronted with a French franc loan repayable in Marseilles; since the contract was due to be performed in France and the breach had occurred there, the rate of exchange prevailing as at the date of judgment was applied. See also the decision in The Saigon Maru (1920) 267 Fed 881 (District Court, District of Oregon).

59  At 519. The judgment relies in part upon the earlier Supreme Court decision in Chicago, Milwaukee & St Paul Railway Co v McCaull-Dinsmore Co (1920) 253 US 97.

60  At 520.

61  Thornton v National City Bank (1930) 45 F 2d 127, 130; Tillman v Russo-Asiatic Bank (1931) 51 F 2d 1023, 1025; Royal Insurance Co v Compania Transatlantic Espanola (1932) 57 F 2d 288, 292; The Integritas [1933] AMC 165 (District Court, District of Maryland, 1933); The Macdonough [1934] AMC 234 (District Court of New York); Indian Refinery Co v Valvoline Oil Co 75 F 2d 797 Court of Appeals, (7th Cir); The West Arrow [1936] AMC 165 (US Circuit Court of Appeal, 2d 1936) and other cases referred to and followed in Reissner v Rogers (1960) 276 F 2d 506 where the Court of Appeals, District of Columbia Circuit said (at 511): ‘The view urged here that Deutsche Bank has been misread and that it really establishes as a conversion date the date on which the claim was filed has been considered and rejected in several of the cases cited above. We think that the question is now to be regarded as settled and that we are bound to apply the judgment date rule in cases like the present.’ More recent cases include The Island Territory of Curaçao v Solitron Devices Inc (1973) 356 F Supp 1, at 14 and Gutor International AG v Raymond Packer Co (1974) 493 F 2d 938, 943. Despite this line of authority and in spite of an argument based upon the terms of this footnote, the House of Lords in Re United Railways of Havana and Regla Warehouses Ltd [1961] AC 1007 expressed the view that the Supreme Court had selected the date on which the suit was brought as the date on which the rate of exchange must be fixed (see in particular at 1048 and 1052). It is true that Holmes J did not specifically mention the rate as at the date of judgment, but he was so understood by Mr Justice Sutherland (speaking for the minority), and by many later judges and commentators. Even if he was misunderstood at the time, continuous practice over an extended period has produced what must be considered the true interpretation: see Jones (1969) iii The International Lawyer 277. The point was corrected by Lord Wilberforce in the Miliangos case [1976] AC 443, 469.

62  See Zimmerman v Sutherland (1927) 274 US 253, 255, and 257; see also Sutherland v Mayer (1926) 271 US 272. The distinction was also very sharply drawn in the ReliaStar case (n 54). It is submitted that the distinctions implied by the Hicks and Deutsche Bank cases should no longer stand; both cases involved a monetary obligation and should now be treated on the same footing. The distinction has nevertheless been defended in the High Court of Australia, which observed that it ‘would appear to allow courts to select the rule that, in the particular case, will prevent the loss due to fluctuating exchange rates being borne by the injured party or the party not in breach’: Re Griffiths [2004] FCAFC 102, para 51. But the two decisions of the US Supreme Court simply provide different rules that apply in different situations, according to the place of payment. They do not provide the court with an element of choice of discretion. The decision in Re Griffiths is also noted in another context: see n 91.

63  See the cases mentioned in n 53. See also Paris v Central Chiclera SàRL (1952) 193 F 2d 950 (CCA 5th Cir) with note in (1952) 61 Yale LJ 758 and the interesting decision in The Tamaroa (Shaw Savill Albion & Co v The Friedricksburg) (1951)189 F 2d 952 (CCA 2d) also [1951] AMC 1273. In 1944, a collision occurred between a British and a US ship in British territorial waters. The British ship was repaired in the US at a cost of US$118,000 which was paid to the repairers on behalf of the British Government and debited by it to the owners at the sterling equivalent of £29,000. In 1951, following the devaluation of sterling, the owners were awarded $82,000, which was by then the dollar equivalent of £29,000. By a majority, the court applied the judgment-date rule. It is submitted that this decision is open to much doubt. It may be that the US dollar was the proper money of account for the claim, in which event US$118,000 should have been awarded and no question of conversion would have arisen; alternatively, the court should have awarded the damages expressed in sterling in accordance with the approach later adopted in The Texaco Melbourne [1994] 1 Lloyd's Rep 473 (HL). The latter approach would appear to be more appropriate. The case is discussed by Brandon (1953) ICLQ 313. Another example is Conte v Flota Mercante del Estado (1960) 277 F 2d 664 (CCA, 2d) where the court applied Argentine law both to the questions of liability and quantum, stating (at 761) that: ‘conversion is made at the rate prevailing at the date of judgment, but we determine the amount to be converted as would the foreign court’. In Trinh v Citibank NA (1985) 623 Supp 1526, the court stated that in non-diversity cases federal courts consistently applied the judgment-date rule. That rule was applied in Black Sea & Baltic General Insurance Co v S/S Hellenic (1984) AMC 1055 and Vlactos v M/V Proso (1986) AMC 269. On the other hand, in The Gylfe v The Trujillo (1954) 209 F 2d 386 (CCA 2d), it was held that, where repairs were paid in foreign currency, the rate as at the date of the expenditure (rather than the date of judgment) should be applied. A similar approach was adopted in Jamaica Nutrition Holdings Ltd v United Shipping Co (1981) 643 F 2d 376 (CCA, 5th Cir); Seguros Banvenez SA v S/S Oliver Drescher (1985) AMC 2168 (CCA, 2nd Cir); and Nissto Co Ltd v The Stolthorn (1986) AMC 269.

64  Such a view becomes plausible if it is remembered that Professor Beale's territorial theory always exercised great influence on Mr Justice Holmes—see, eg, his opinion in Slater v Mexican National Railway Co (1904) 194 US 120. In The Verdi (1920) 268 Fed 908, it was apparently believed that the mere fact that the tort was committed in New York meant that the damages were payable there. In The West Arrow [1936] AMC 165 (US Circuit Court of Appeal, 2d 1936), the court seems to have assumed that, as the breach occurred in Holland and the ensuing obligation was expressed in Dutch guilders, it was performable in Holland. In Det Forenede Dampskibs Selskab v Insurance Co of North America (1928) 28 F (2d) 449 (SDNY), affirmed 31 F 2d 658, cert denied (1929) 280 US 571, it was held that the right to contribution in general average ‘crystallised upon the termination of the voyage, and since the voyage ended in an American port, the owner became then and there entitled to receive contribution in dollars. This indebtedness arose in the United States was payable in its currency and subject to its laws’. Therefore the rate of exchange prevailing on the date of the termination of the voyage was applied. See also Nevillon v Demmer (1920) 114 Misc 1, 185 NY Supp 443, where francs which were promised in a note and were payable in Paris were converted into dollars at the rate of exchange prevailing at the commencement of the action because the notes ‘became payable in dollars [sic] upon the plaintiff's demanding of the defendant their payment in this State. The commencement of the action was equivalent to such a demand’.

65  See the ReliaStar decision (n 54).

66  The Integritas [1933] AMC 165 (District Court of Maryland).

67  Compania Engraw Commercial E Industrial SA v Schenley (1950) 181 F 2d 876. Yet the First Circuit and a New York District Court did not hesitate to apply the judgment-date rule in diversity cases: Gutor International AG v Raymond Packer Co (1974) 493 F 2d 938, 943; The Island Territory of Curaçao v Solitron Devices Inc (1973) 356 F Supp 1, 14.

68  The position in relation to New York is considered at para 8.16.

69  See the Curaçao case mentioned in n 67; Application of United Shellac Corp (1950) 97 NY Supp 2d 817; Bonnell v Schultz (1950) 95 NY Supp 2d 617; Sirie v Godfrey 196 App Div 529, (1921) 188 NY Supp 52; Metcalf v Mayer 213 App Div 607, (1925) 211 NY Supp 53; although see Orlick v Wiener Bankverein 204 App Div 432, (1923) 198 NY Supp 413.

70  Competex SA v LaBow (1986) 783 F 2d 333 and the numerous cases there referred to; Vishipco Line v Chase Manhattan Bank NA (1981) 660 F 2d 854. See also Trinh v Citibank NA (1985) 623 Supp 1526 affirmed without reference to the point, 850 F 2d 1164 (6th Cir); Re Good Hope Chemical Corp (1984) 747 F 2d 806, 809 (1st Cir).

71  However, para 823 of the Restatement (Third) of the Foreign Relations Law (1987) should not serve as a guide, for it provides that conversion should ‘be made at such rate as to make the creditor whole and not to avoid rewarding a debtor who has delayed in carrying out the obligation’. Whilst the objective is apparently laudable, this would introduce into a purely procedural rule an element of substantive justice which should properly be determined by reference to the applicable law. It must, however, be said that the provision was cited with approval in ReliaStar Life Insurance Company v IOA Re Inc and Swiss Re Life Canada (n 54).

72  In Paris v Central Chiclera (1952) 193 F 2d 960, a Mexican supplier sued a US buyer who had defaulted on a contract to purchase a quantity of gum. The contract price was expressed in Mexican pesos. At the time of the breach, US$1 could be purchased with 4.7 pesos; by the time of the judgment, 8.62 pesos were required for that purpose. The US Court of Appeals required the use of the exchange rate as at the date of judgment, which reduced the value of the award by some 40 per cent and effectively allowed the US buyer to benefit from his own breach.

73  This followed the decision in Teca-Print AG v Amacoil Machinery Inc (1988) 525 NYS 2d 535 and a report by a Committee of the New York Bar Association, (1986) 18 New York University Journal of International Law and Politics 812.

74  By the same token, the judgment debtor would benefit from any depreciation of the relevant foreign currency during this period.

75  954 F2d 1279 (7th Cir, 1992).

76  Notwithstanding the reference to ‘the currency in which the loss is felt’, the court regarded it as an inflexible rule that this refers to the currency in which the contract or transaction was denominated, and is thus narrower in scope than the corresponding English test. The court accordingly favoured certainty and predictability over a more open-textured approach: see the discussion in Black, 182.

77  See, eg, In re a Debtor, No 21 of 1950 (No 2) [1951] Ch 612.

78  CPR r 40.13, discussed in Fearns (t/a ‘Autopart International’) v Anglo-Dutch Paint & Chemical Co Ltd and others [2010] EWHC 2366 (Ch), paras 36–38.

79  Fearns, at para 39.

80  It may be noted in passing in passing that, in such a case, it could be argued that the necessary set-off could be effected with reference to the date of the accident, rather than the date of judgment, so that different rates of exchange would apply. Yet it seems wrong in principle to use exchange rates in effect before the respective liabilities have actually been quantified. It may also be noted that interest from the date of the accident until the date of the judgment should be added before the set-off is calculated: The Botany Triad and the Lu Shan [1993] 2 Lloyd's Rep 259. This factor may, likewise, have a significant impact on the outcome because the interest rates applicable to the two currencies may differ throughout the period in question. On the identification of the rate of interest to be used in such cases, see para 9.46.

81  The Khedive (1882) 7 App Cas 795 (HL).

82  See the first instance decision in The Despina R [1978] QB 396, at 414. For decisions to similar effect, see The Transoceanica Francesca and Nicos V [1987] 2 Lloyd's Rep 155 and The Botany Triad and Lu Shan [1993] 2 Lloyd's Rep 259. For a discussion of the more difficult decision in Smit Tak International BV v Selco Salvage [1988] 2 Lloyd's Rep 389, see the judgment in Fearns (para 8.22), at paras 44–49.

83  The first instance decision in The Despina R (n 82) contemplated that the court also had an option to give judgment in sterling. It seems that this option should no longer apply in the light of the developments considered at para 8.05.

84  [2010] EWHC 2366 (Ch).

85  This reflects an observation made by the court in Fearns. However, in line with the process outlined in The Despina R (n 19), this sum would have had to be expressed in sterling.

86  See paras 64–66 of the judgment. Even then, the positive balance in favour of Mr Fearns was eliminated by a costs order made against him, but this point is not relevant to the present discussion.

87  This contrasts sharply with the rules discussed earlier in this chapter, where the date of judgment or payment may be applied. Such a rule could operate unjustly between competing claimants to a single fund. The rule outlined in the text was pressed by Belgium in the Case of Barcelona Traction Light & Power Ltd (Belgium v Spain) [1970] ICJ Rep 3, but the Court did not find it necessary to determine the point.

88  The law applicable to a trust is that selected in the trust deed or, in the absence of such a selection, the law with which the trust is most closely connected—see the Recognition of Trusts Act 1987 and the discussion of that subject by Dicey, Morris & Collins, ch 29.

89  This may be regarded as a question as to the interpretation and effect of a trust, or conceivably as a matter touching the administration of the trust, but in each case, the law applicable to the trust would govern the subject: Chellaram v Chellaram [1985] Ch 409 and other cases noted by Dicey, Morris & Collins, para 29–012.

90  Re Dynamics Corp of America [1976] 1 WLR 757 (on which see case note by Mann, (1976) 92 LQR 165), reviewing a number of earlier authorities; Re Lines Bros Ltd [1983] Ch 1. This line of authority was subsequently followed and applied in Re Amalgamated Investment & Property & Co Ltd [1985] Ch 349 and, in the case of a personal insolvency, in Re a Debtor, ex p Ritchie Bros Auctioneers v The Debtor [1993] 2 All ER 40. The rule is now embodied in Insolvency Rules 1986, r 6.111, which provides that ‘for the purpose of proving a debt incurred or payable in a currency other than sterling, the amount of the debt shall be converted into sterling at the official exchange rate prevailing on the date of the bankruptcy order’. On this rule, see Fletcher, The Law of Insolvency (Sweet & Maxwell, 3rd edn, 2002), 271–2.

91  For the most recent decision applying the Re Dynamics Corporation line of authority, see Re Telewest Communications plc [2004] EWHC (Comm) 924 where the court held that, for the purposes of a scheme of arrangement, sterling and US dollar bondholders were not to be treated as separate classes of creditors merely because one set of bondholders could be disadvantaged by applicable exchange rates. See also Re Griffiths [2004] FCAFC 102 (Federal Court of Australia), where the authorities are examined in some depth. Other Australian decisions to similar effect include Re Gresham Corporation Pty Ltd [1990] 1 Qd R 306; Re Capel, ex p Marac Finance Australia Ltd [1994] FCA 890; Fisher v Madden (2002) 54 NSWLR 179 (new South Wales Court of Appeal). The rule is discussed by Black, 54–5.

92  Germany: see Federal Supreme Court, 22 June 1989, BGHZ 108, 123; Netherlands: Hoge Raad, 4 February 1977, NJW 1978, 66.

93  Wyse v Pioneer Cafeteria Feeds Ltd (1965) 340 F 2d 719, 725. The decision on this point is inadequately reasoned and is open to the objection that different rates of exchange would be applied to different claims.

94  Re Hawkins [1972] 3 WLR 255. Similarly, where a limitation fund was established in a shipping case, the rate was established as at the date of the fund's constitution: The Abadesa [1968] P 656; The Mecca [1968] P 665.

95  [1923] Ch 466.

96  See 474 (Russell J), 479 (Lord Sterndale MR), and 485 (Warrington LJ). It is noteworthy that the amounts owing by the mortgagor were due and payable long before the date of the Master's certificate.

97  Montreal Trust Co v Abitibi Power & Paper Co Ltd (1944) Ontario Reports 515, 523–5.

98  Brazzill v Willoughby [2010] EWCA Cir 561 (CA). The discussion in the text is a brief summary of a more complex case.