The Proper Currency for Costs: Guidance from the UK Supreme Court

Regular readers of the legal press may well recall a scandal involving an arbitration between The Federal Republic of Nigeria (“FRN”) and Process and Industrial Developments Limited (“P&ID”), in which the High Court found that arbitral awards, which totalled USD 11 billion by the time of trial, in favour of P&ID should be set aside because they had been procured by fraud.

The latest round in that litigation raises an issue of general importance to practitioners in international disputes: in particular, in what currency should awards of costs be paid? This was highly material in this case since FRN’s own currency, the naira, had fallen in value substantially since 2019 and P&ID was facing a costs liability in excess of £44 million.

In practice, international parties who litigate in England and Wales expect to engage local lawyers who will require to be paid in the local currency, which is sterling, because that is also the currency in which those lawyers have to pay their own bills. That is also what happened in this case: FRN paid its English solicitors in sterling. Before the Supreme Court, there was argument about whether FRN had converted naira into sterling to pay its lawyers but the Supreme Court declined to resolve the dispute, finding that such disputes would give rise to satellite litigation.

However, there is no statutory provision or rule which requires parties to pay their bills in sterling or to seek recovery of costs in sterling.

There appears to be only one decision in which the High Court awarded costs in a currency other than sterling, which is Cathay Pacific Airlines Limited v. Lufthansa Technik AG [2019] EWHC 715 (Ch). Lufthansa had been charged in euros and paid in euros and the Court awarded Lufthansa its cost in euros.

So far, this all seems rather obvious. A party can be awarded costs in the currency in which it was charged and paid them.

But the decision in Cathay appears to suggest a different principle is at work, namely that “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.” This is a recipe for argument, especially where international parties are involved and the opportunity arises to engage in currency arbitrage and enquiries into funding.

P&ID argued (unsuccessfully) that an award of costs was a kind of compensation, which it is now generally accepted can be paid in any relevant currency sought, and so the principle set out in Cathay applied and FRN should be awarded its costs in naira – not sterling.

The Supreme Court rejected this argument, noting that the ability to recover costs was only a right to contribution:

“An award of costs is no indemnity. It is a statutorily authorised award of a contribution toward the costs incurred in litigating in the courts of England and Wales.”

The Supreme Court noted further that all kinds of costs inherent in funding litigation, most obviously the fees or interest payable to a commercial funder, could not be recovered any more than the costs of converting one currency into another to pay lawyers’ bills. There would be no investigation into such matters because an award of costs had a technical meaning, citing a Court of Appeal decision from 1987 to the effect that “costs” had “a restricted meaning which could almost be described as conventional in a certain pragmatic sense”.

The Supreme Court has therefore foreclosed all such arguments. But parties should always think ahead about such issues and how they will fund their costs and seek to recover those costs if successful. As this case amply demonstrates, there is no limit to the ingenuity or determination of parties who face substantial costs bills.

Simon Winter, Partner