This blog post is by James Beeton of 12 King’s Bench Walk.
This case concerned a short but important point in relation to the summary assessment of costs in the aftermath of the Brexit vote in June 2016 – namely, the impact of the dramatic decline in the exchange rate between the pound and the euro since the issue of proceedings.
C, a German company, had received a decision in its favour in patent proceedings and the court was required to summarily assess its costs. It was common ground that an average figure of 93.5% was appropriate in terms of the percentage of C’s overall recovery. Arnold J assessed costs (net of the agreed reduction) in the total figure of £458,000. However, he then considered an argument by C premised on the fact that it had had to exchange euros into pounds in order to pay its solicitors’ bills. A schedule of the invoices by C’s solicitors set out the sums that had been paid by C over the course of the proceedings. They illustrated ‘a substantial move in the exchange rate which is adverse to [C] as the paying party’ given that C had been required to exchange euros into pounds in order to pay its bills.
D declined the invitation to make payment in euros. In those circumstances, C sought an order compensating it for the losses suffered as a result of the movement of the exchange rate. D argued that, as a matter of principle, an order for costs was designed to compensate a party for costs incurred in litigating in England and Wales; it should therefore be expressed in sterling regardless of the source of the funds from which the costs were to be paid.
Arnold J rejected that argument, preferring C’s submission that the point of an order for costs was to put the receiving party back into the position it would have been if it had not had to expend the costs. He found, on the basis of the House of Lords decision in Miliangos v George Frank (Textiles) Ltd  AC 443, that a court was not bound to make an order for costs in sterling. Moreover, he found convincing C’s ‘powerful analogy’ between an award of interest on costs and an award of exchange rate losses on costs. The conclusion was that:
‘If it is a foreign company which has had to exchange its local currency into sterling in order to pay costs as the litigation has gone on, then it seems to me in principle the successful party is entitled to be compensated for any additional expenditure it has had to incur as a result of exchange rate losses in the same way as it is entitled to be compensated by way of interest for being kept out of the money.’
Practical arguments identified by D could not deflect from the basic principle identified above, but they did support a cautious approach to quantification in such cases. Arnold J accepted that he would not be in a position to predict what the exchange rate would be at the date of payment.
The approach he adopted was therefore as follows:
- C calculated its exchange rate loss at €29,602, which equated to £25,193.
- Applying the agreed percentage figure of 93.5%, that gave a figure of £23,555.
- Arnold J rounded this figure down again, this time to £20,000, to recognise the possibility that by the date of payment the exchange rate would have appreciated again.