Cross Border Litigation | In Which Currency Should a Costs Order Be Paid?
The Supreme Court upheld in Process & Industrial Developments Limited (P&ID) v The Federal Republic of Nigeria (Nigeria), the ‘general rule that an order for costs should be made in sterling or in the currency in which the solicitor has billed the client, and in which the client has paid or is liable to pay.’
In the same Judgment, the Supreme Court confirmed the English courts’ power to award costs in a currency other than sterling, but held that, where costs have been incurred and paid in sterling, they can be recovered in sterling without any enquiry into how the receiving party acquired the sterling.
Nigeria successfully set aside two arbitration awards made in favour of P&ID and, in doing so, incurred unassessed costs in of excess of £44million, plus interest. The Judge awarded costs against P&ID to be paid in sterling, but it sought for them to be denominated in naira, Nigeria’s national currency. Given that the value of the naira has fallen dramatically over a number of years, payment in sterling would, it was alleged, present Nigeria with an unfair, substantial financial windfall.
Stuart Southall of KANGS outlines the circumstances leading to the Supreme Court Judgment.
The Background
P&ID had contracted with Nigeria to process gas for power generation and, following allegations that Nigeria had breached the contract, P&ID was awarded, following arbitration, US$6.6 billion plus interest at 7% in 2015 and 2017.
Nigeria mounted a successful challenge in a High Court trial before Knowles J, by which time its liability amounted to a sum in the region of US$11 billion, including accrued interest.
The Judge set the arbitration awards aside under section 68 Arbitration Act 1996, on the ground of serious irregularity, in that they were procured by fraud and contrary to public policy.
Nigeria was awarded its costs of the proceedings, in the region of £44million, in accordance with bills delivered by its English solicitors and payable in sterling.
P&ID argued that Nigeria should only be able to recover costs in its own currency, naira rather than sterling. The contention presented was that, in order to settle its legal fees, Nigeria would have obtained sterling by converting naira.
The value of the naira to sterling had plummeted since the costs had been paid and accordingly, if Nigeria received payment of its costs in sterling, such amount, upon conversion into naira, would effectively have reduced Nigeria’s costs outlay from £44million to £12milllion, thereby creating what it claimed would be an unjust windfall.
P&ID based its contention on the premise that the appropriate currency in which to award costs should be determined in the same way as the currency in which damages would be awarded and paid.
Reported cases, such as Miliangos v George Frank (Textiles) Ltd [1976] and The Despina R and the Folias [1979], stated that the appropriate currency was the one in which the loss was felt.
Additionally, there was an ongoing dispute as to whether Nigeria had converted naira into sterling in order to pay its legal costs or had made the payment from sterling reserves which it held.
P&ID failed in its claim before the court of first instance and on appeal to the Court of Appeal, but it was granted permission to further appeal to the Supreme Court.
The Relevant Law
The Arbitration Act 1996 provides:
S. 68 Challenging the award: serious irregularity.
A party to arbitral proceedings may (upon notice to the other parties and to the tribunal) apply to the court challenging an award in the proceedings on the ground of serious irregularity affecting the tribunal, the proceedings or the award including:
‘the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy.’
The Supreme Court Judgment
The principal arguments maintained by P&ID for consideration by the court were:
- the substantial fall in value of the naira would result in Nigeria, ultimately receiving an enormous unfair ‘windfall’ if payment of costs was made in sterling. The court did not accept this saying “The depreciation of its currency internationally has resulted in a substantial diminution of the domestic purchasing power of the naira in Nigeria since 2019 and especially since 2023.”
- the award of costs to a successful party should be made in the currency which most accurately reflects the loss suffered by that party in funding its litigation. The court found that there was no foundation for the conclusion that it had to conduct an inquiry into the currency which most truly reflected the underlying loss of the receiving party and that an inquiry into the arrangements which a party has made to obtain funds to pay its lawyers, will often be inappropriate and disproportionate. Because Nigeria had been invoiced and had incurred its liability in sterling, and had paid those bills in sterling, the court ought to make a costs order in sterling.
- an order for costs had a substantial relationship to one for damages. The court dismissed this stating that an order for costs is not intended to provide compensation for loss in the same way as awards of damages in tort or for breach of contract. It is a remedy completely at the court’s discretion (ex gratia) in which they take all matters of the case into consideration before making such order.
The Appeal was dismissed with Nigeria being awarded further costs.
Conclusion
Cross border disputes are now a regular occurrence affecting all aspects of commercial trading and international life. Inevitably, this will result in defeated parties facing very substantial legal fees they will be required to settle, and no doubt, will result in disputes as to the correct currency for payment.
In so far as UK courts are concerned, it is clear that Costs Orders should reflect the currency in which clients are billed and this Judgment under review seeks to promote clarity where cross-border disputes are concerned.
However, the Supreme Court’s acknowledgment that costs can, in principle, be recovered in any currency seems to leave plenty of scope for contention in the future.
Ensuring that every contract prepared for the purposes of cross-border trading contains carefully considered clauses in anticipation of potential dispute and covering both arbitration and costs clauses clearly remains essential to avoid uncertainty as far as possible.
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