Abstract

The traditional position in the United States has been that judgments by courts in that country can be pronounced in U.S. dollars only, whether a foreign currency claim was deemed to be domestic because the claim was payable or arose in some other way in the United States or was foreign because the claim was payable or arose in some other way in a foreign country. If the claim was domestic, the federal courts originally applied the exchange rate prevailing at the date of breach or injury in translating the foreign currency into dollars. The principle relied on for this choice was that the plaintiff should be put into the position he would have been in if payment had been made at the due date or if he had been compensated immediately for tortious injury (or put into the position he would have been in if the tort had not been committed). If the claim was foreign as described above, it was regarded as arising under foreign law. A dollar claim in respect of a foreign claim was asserted for the first time when an action was filed in the United States and was sustained when judgment was given for the plaintiff. Therefore, the appropriate exchange rate was the rate prevailing at the date of judgment. Most State courts in the United States have tended to avoid these niceties and have favored a breach date exchange rate without regard to these distinctions.1 Since Erie Railroad Co. v. Tompkins,2 federal courts have usually followed State jurisprudence in these matters.

Traditional Principles

The traditional position in the United States has been that judgments by courts in that country can be pronounced in U.S. dollars only, whether a foreign currency claim was deemed to be domestic because the claim was payable or arose in some other way in the United States or was foreign because the claim was payable or arose in some other way in a foreign country. If the claim was domestic, the federal courts originally applied the exchange rate prevailing at the date of breach or injury in translating the foreign currency into dollars. The principle relied on for this choice was that the plaintiff should be put into the position he would have been in if payment had been made at the due date or if he had been compensated immediately for tortious injury (or put into the position he would have been in if the tort had not been committed). If the claim was foreign as described above, it was regarded as arising under foreign law. A dollar claim in respect of a foreign claim was asserted for the first time when an action was filed in the United States and was sustained when judgment was given for the plaintiff. Therefore, the appropriate exchange rate was the rate prevailing at the date of judgment. Most State courts in the United States have tended to avoid these niceties and have favored a breach date exchange rate without regard to these distinctions.1 Since Erie Railroad Co. v. Tompkins,2 federal courts have usually followed State jurisprudence in these matters.

Can the original federal jurisprudence be explained in accordance with the following hypothesis? If a foreign currency claim arises under U.S. law, the plaintiff is likely to be a U.S. resident. The breach date rule will favor him if the foreign currency has depreciated after the due date (or the date of injury). If the claim arises under foreign law but is pursued in the United States, the defendant is likely to be a U.S. resident. The judgment date rule will favor him if the foreign currency has depreciated after the due date. In both cases, the reverse will be true, of course, if the foreign currency has appreciated after the due date, but the assumption may have been that the dollar will be stable or the stronger currency, so that the cases are more likely to involve a weakening foreign currency. This assumption seemed to be unchallengeable while the dollar was the hegemonic currency. The function of the currency in the par value system was a further affirmation of belief in the rocklike stability of the dollar. This view of the dollar was supported by the evidence of the leading treaty of the international monetary system. The assumption is an obvious fallacy in present conditions.

American Law Institute

The American Law Institute has published its Restatement of the Foreign Relations Law of the United States as part of the Restatement of the Law Third.3 For the first time, the Restatement contains provisions—three in number—on aspects of international monetary law. The last of these provisions, Section 823, is entitled “Judgments on Obligations in Foreign Currency: Law of the United States.” The American Law Institute is a professional and not a governmental body. The influence of the Institute’s Restatements on courts in the United States is enormous.

Each section of the Restatement is set forth as black-letter law, and is succeeded by a Comment and then Reporters’ Notes. The black-letter section and the Comment are approved by the Council and membership of the Institute and represent the views of the Institute. The Reporters’ Notes contain supporting authority, explanation, and other discussion by the Reporters, but are not subject to review by the Council and membership and are not statements of the Institute.

The Restatement now reflects the fact that the hegemonic role of the U.S. dollar is no longer a postulate of international monetary relations and that the interests of the United States are not promoted by acting on the former assumption. It was easier for English courts to come to such a conclusion at an earlier date with respect to sterling and British interests.

Section 823 of Restatement

Section 823 of the Restatement is brief:

(1) Courts in the United States ordinarily give judgment on causes of action arising in another state, or denominated in a foreign currency, in United States dollars, but they are not precluded from giving judgment in the currency in which the obligation is denominated or the loss was incurred.

(2) If, in a case arising out of a foreign currency obligation, the court gives judgment in dollars, the conversion from foreign currency to dollars is to be made at such rate as to make the creditor whole and to avoid rewarding a debtor who has delayed in carrying out the obligation.

The Comment declares that the traditional rule that courts in the United States are required to render money judgments only in U.S. dollars has been attributed either to a statute of 1792 that seems to have had a different purpose but in any event has been repealed, or to a principle of Anglo-American common law. The British House of Lords, however, has repudiated the alleged principle. The Miliangos case, therefore, has had an influence beyond the Commonwealth.

There has been minimal judicial authority in the United States to support the view that judgments can be expressed in a foreign currency. The Comment strongly suggests that Section 823 is a recommendation rather than a true restatement of the law:

Given a fundamentally changed system of exchange rates, in which all major currencies, including the United States dollar, fluctuate in value against each other…, and given the absence of conclusive authority to the contrary, this section…takes the position that there is no impediment to issuance by a court in the United States of a judgment denominated in a foreign currency. However, a judgment in a foreign currency should be issued only when requested by the judgment creditor, and only when it would best accomplish the objective stated in Subsection (2).4

By pointing out that the pre-Miliangos English practice was not embedded in the English common law and therefore not inherited by American law, the drafters of Section 823 have concluded that they were free to endorse a better practice.

The statements that courts are “not precluded” from granting judgments in foreign currency and that there is “no impediment” to doing so go too far for at least one reason. Some States have statutes that do expressly preclude such judgments, and other States have statutory provisions that have been or could be interpreted to reflect this same intent. This limitation on the authority of courts affects not only the State courts bound by these statutes but also, at least prima facie, the federal courts exercising diversity jurisdiction in the same States.

To overcome the problem created by the absence of uniformity, one commentator has proposed the following alternative to Section 823 of the Restatement:

823. Obligation in Foreign Currency: Law of the United States

(1) Courts in the United States may give judgment on causes of action arising in another state, or denominated in a foreign currency, in U.S. currency, in foreign currency, or in an amount in U.S. currency which is the equivalent of the amount of the obligation in the foreign currency at the time of payment.

(2) Courts should give judgment in the most appropriate currency, taking into consideration:

  • (a) the currency in which the obligation is denominated, if any (“currency of account/payment”);

  • (b) the currency in which the loss was incurred (“expenditure currency”);

  • (c) the currency used by the plaintiff to make payment for the loss when it occurred (“plaintiff’s currency”); and

  • (d) the foreseeability of loss in a particular currency.

(3) If the currency in which judgment is given pursuant to subsections (1) and (2) has depreciated in value as compared to another currency which is related to the cause of action, a court may, in appropriate circumstances, award damages for the loss caused by the depreciation of the judgment currency.

(4) In giving judgment on a foreign currency obligation, a court may award both pre-judgment and post-judgment interest at such rate or rates as shall be appropriate, taking into consideration the statutory rate of interest, if any, otherwise applicable and the rate of interest generally available in the market on investments made in terms of the currency in which judgment is rendered.5

The intent of this proposed Section 823(1) was to impress uniformity on the courts of all jurisdictions in the United States. It may be doubted that this effort would succeed, because the courts might give different weight to the considerations set forth in Section 823(2) and render different judgments under Section 823(1). However, another objective of the proposal is to ensure that judgments would grant the plaintiff the same economic recovery whether the judgment was expressed in a foreign currency or in U.S. dollars. The author regards his proposal as inconsistent with the Miliangos case, perhaps because there is no provision that the ruling exchange rate is the one prevailing at the date of actual payment. Instead, damages could be awarded as compensation for loss suffered because of the depreciation of another currency considered relevant to the cause of action.

New York Law

The Comment in the Restatement mentions a reporter’s note on a New York statute in which he expressed the view that there was no impediment to the entry of judgments in foreign currency. Section 27 of the New York Judiciary Law used to read as follows:

In all judgments or decrees rendered by any court for any debt, damages or costs, in all executions issued thereupon, and in all accounts arising from proceedings in courts the amount shall be computed, as near as may be, in dollars and cents, rejecting lesser fractions; and no judgment, or other proceeding, shall be considered erroneous for such omissions.

The sentence has been retained, but has become one of two subdivisions, the second of which took effect on July 20, 1987 as an amendment of the statute:

(b) In any case in which the cause of action is based upon an obligation denominated in a currency other than currency of the United States, a court shall render or enter a judgment or decree in the foreign currency of the underlying obligation. Such judgment or decree shall be converted into currency of the United States at the rate of exchange prevailing on the date of entry of the judgment or decree.6

The second sentence would seem to be unnecessary unless the effect is to give the defendant the option to discharge a judgment either in the amount of the foreign currency expressed in the judgment or in the U.S. dollar equivalent at the date the judgment was entered. The interpretation that the defendant has this option would be consistent with the Miliangos decision except for the important difference that the exchange rate would be the one prevailing at the date of judgment under New York law instead of the date of actual payment as required by Miliangos.

A decision of the New York Supreme Court7 discusses New York law on this topic as it stood before the amendment of Section 27 of the Judiciary Law. The judgment was delivered on February 17, 1988 but did not refer to the amended Section 27. The reason was that the issue before the court was the choice of the exchange rate to be applied to a judgment of December 2, 1986, namely, a judgment that preceded the amendment. The decision of February 17, 1988 is of continuing interest because it illustrates the disposition, and the reasoning, of courts to apply an exchange rate that was in effect at a date later than the date of breach in order to mitigate somewhat the unfortunate consequences of the absence of authority to express judgments in a foreign currency. The decision is of further interest because it is authority for the view that Section 823 of the Restatement is not a correct formulation of present law in the United States unless the law of a jurisdiction has been changed by statute to conform with the Restatement or courts have been persuaded by the Restatement.8

The plaintiff was a small Swiss company that manufactured machinery, for which it charged Swiss francs. The plaintiff sued the American defendant for deliveries in respect of which the defendant had delayed payments for more than three years. The court had found that the defendant owed 71,224 Swiss francs plus interest. The issue was the exchange rate between the U.S. dollar and the Swiss franc to be applied to the amount of the defendant’s liability. The court framed the issue as the choice to be made between the traditional breach date rule of New York and the more modern judgment day rule of federal practice. Between the date of the last invoice and the date of judgment the U.S. dollar had lost about one third of its exchange value against the Swiss franc.

The court regarded it as settled law that the state and federal courts had no power to award judgments in a foreign currency, and no case had been found as authority for such a power. The court noted that the law had been criticized, that English law was now different, and that the Restatement, then in draft, recommended a similar change in American law. An award that would make the plaintiff whole was unavailable in New York or anywhere else in the United States at that time, and therefore the rules for choosing an exchange rate had to be considered so as to produce a result as close as possible to the effect of a judgment expressed in Swiss francs.

The court then turned to the decline of U.S. hegemony and the unstable dollar.

Many of the problems which flow from the unavailability of foreign money judgments are actually a result of worldwide currency fluctuations over which the courts have no control. Until recently, the dollar was the pre-eminent and pre-eminently stable currency in the world, the currency against which, at least from the Bretton Woods Agreement of 1944, all other were measured.9

The court explained that the United States had been required to supply the world with sufficient U.S. dollars to permit steady growth and the accumulation of reserves. (There was, of course, no legal requirement of this character.) The balance of payments deficits of the United States had reduced its international competitiveness and had led to termination of the official convertibility of the dollar on August 15, 1971. The U.S. dollar floated and its exchange value fell, sometimes sharply, against other currencies. The United States had suffered economic decline and had lost political hegemony. This bleak analysis by the court was obviously intended to justify the conclusion that the old law had to be reconsidered:

The reasons for past judicial confidence that a dollar award would make foreign plaintiffs whole have thus been, and continues to be, seriously undermined by the realities of the world economy. A situation, apparently continuing into the foreseeable future, where the dollar is as likely to be devalued as foreign currency once was, requires rethinking of the premises underlying the breach-date rule and its continued viability.10

The theme that runs through this part of the judgment is not the advantages to the United States of a change in the rule that would encourage access to its courts and choice of its law in a world in which the United States no longer exercises hegemony. Rather, the theme is the fair treatment of foreign litigants and respect for the principles on which the law of damages rests. In a footnote,11 for example, the point is made that foreign litigants should receive equal treatment with domestic litigants whose causes of action involve domestic transactions with dollar values. Parties who do not receive dollar amounts payable to them sue to recover dollars, and by receiving judgments in dollars do not suffer the losses (and do not enjoy the windfall profits) that may occur in foreign currency cases.

The court held that the cases supporting choice of the exchange rate prevailing at the date of breach were based on the supposition that the rule produced equitable results for both parties. There was authority in support of the judgment date rule when the breach date rule did not produce equitable results. The court concluded that New York courts had not subscribed rigidly to the breach date or any other rule. The guiding principle was to do justice to the parties, which called for consideration of the fluctuation of exchange rates when appropriate. In current conditions, the court leaned in favor of the judgment date rule:

In a time of substantial fluctuation in the value of the dollar against other currencies, as now, the real New York ‘rule’ may well require increasing use of the date of judgment as the appropriate time for measuring conversion of a plaintiff’s foreign currency entitlement into dollars.12

The court clearly considered the judgment date rule preferable “[u]nless and until courts are empowered to award judgments in the foreign currency denominated by the parties,”13 and the court applied the judgment date rule in the instant case.

Section 27 of the New York Judiciary Law as amended now authorizes, and indeed requires, courts to express judgments in the foreign currency of an obligation. But the statute requires also that the court apply the judgment date rule for translation of the foreign currency into U.S. dollars. This requirement can undermine the principle of equity that the court cited as the rationale and justification of the judgment date rule. In the instant case, judgment for the plaintiff was given on December 2, 1986, but it was not until February 17, 1988 that the court decided to apply the exchange rate prevailing at the earlier date. Fluctuations in the exchange rate between the Swiss franc and the U.S. dollar in this period, the length of which was occasioned by the slowness of the judicial process, were ignored, even though by the time of actual payment the effect of ignoring the prevailing exchange rate at that date might have been highly disadvantageous for the plaintiff.

There is now at least one later case14 in which a court, in this case a federal court, has expressed its judgment in a foreign currency. In proceedings resulting from the Amoco Cadiz disaster, a District Court in Illinois gave judgment on October 5, 1987 for the plaintiff and expressed the judgment in sterling as the currency in which the plaintiff felt its loss. The plaintiff instituted a motion on October 14, 1987 for clarification of the judgment, and argued that such a judgment was inappropriate because an American forum can give judgment in U.S. dollars only. On January 12, 1988 the court disagreed with this contention and decided that the statement of the judgment in sterling would remain the order of the court.

Restatement Further Considered

Section 823 of the Restatement does not provide explicitly that the plaintiff has an option to request judgment either in U.S. dollars or in the foreign currency in which the obligation owed to the plaintiff is denominated or in which he felt the loss, but the Comment asserts that there is such an option. For this proposition, the Reporters’ Notes cite a working paper of the English Law Commission. The Reports of that Commission and the British Columbia Commission, which were issued long before publication of the Third Restatement, reject such an option. The Reports explicitly conclude that, under the Miliangos doctrine, a plaintiff should not be able to obtain an English judgment in sterling in respect of a claim that should properly be expressed in a foreign currency.15 In the opinion of the English Law Commission, an option would be unfair treatment of the defendant, because the plaintiff would always choose the currency that was more favorable to him. The implication of this objection is that the plaintiff might be overcompensated, which would constitute unfair treatment of the defendant.

The assumption the Restatement makes about the plaintiff’s conduct if he has an option and the mistaken understanding of English law seem to have been inspired by the thought that if the foreign currency has appreciated against the U.S. dollar since the claim arose the plaintiff will be justified in claiming the foreign currency. If, however, the foreign currency has depreciated against the dollar, the plaintiff will demand, and will be justified in demanding, dollars. The Comment states that while the preference of the creditor is to be taken into account, the decision on the currency to be awarded must be made by the court. In making its decision, the court is to be guided by the principle of ensuring that neither party receives a windfall or is penalized as a result of the translation of currency ordered by the court.16

This reasoning leads the Institute to distinguish between cases in which the currency of the obligation (whether in contract or in tort) has appreciated or depreciated against the U.S. dollar for the purpose of choosing the appropriate exchange rate. If the foreign currency has depreciated after the breach or injury, judgment should be given in dollars at the rate of exchange prevailing on the date of breach or injury. Only that rate will give the plaintiff the advantage he justly seeks in opting for dollars. If the foreign currency has appreciated, judgment should be given for the nominal amount of the foreign currency at the rate of exchange prevailing on the date of judgment or the date of payment. Once again, this rate will give the plaintiff the advantage he justly seeks by opting for the foreign currency. The Comment makes the reservation, however, that the court is free to depart from these guidelines when the interests of justice would be served, as, for example, when a plaintiff refrains from pursuing remedies in the country in which the obligation arose in expectation of a more advantageous result in the United States.

From this account of the Restatement, it will be apparent that there are differences beyond those already mentioned between the Restatement and the Reports of both the English and the British Columbia Law Commissions. The Reports endorse the exchange rate prevailing on only one date for the translation of foreign currency obligations into the currency of the forum: the rate at the date of actual payment, which for practical reasons is the rate at the date when execution of a judgment is ordered if execution is necessary. The Restatement distinguishes between judgments expressed in a foreign currency and judgments expressed in U.S. dollars. A judgment expressed in a foreign currency may be satisfied either in that currency or by payment of an equivalent amount in dollars calculated at the rate of exchange prevailing on the date of actual payment. For judgments expressed in dollars on foreign money obligations the Restatement recognizes the possible application of the exchange rate prevailing on three different dates—breach, judgment, and actual payment—among which the choice to be made is the one that would best serve the ends of justice in the circumstances of the case. The courts are taken to have broad discretions in choosing the appropriate date, although the Restatement does not go so far as to allow the choice of any date between breach and judgment or actual payment even if justice requires such a choice in exceptional circumstances.

There are two major differences in underlying ideas between the Restatement on the one hand and the two Law Commission Reports on the other hand. First, as noted already, the two Reports subscribe to the view that claims properly regarded as foreign currency claims are fundamentally different from claims properly regarded as claims to the currency of the forum, and the distinction must be rigidly observed in dealing with the legal consequences of them. The Restatement makes no such assumption.

Second, although all three documents subscribe to the idea of restitutio in integrum, the two Reports accept the necessity for some moderate qualification of it in circumstances that are expected to be rare, while relying on the rate of interest, and possibly damages for breach in some circumstances, to compensate the plaintiff for any shortcoming in restitutio in integrum. The British Columbia Report also invokes the possibility that an increase in purchasing power of the currency of judgment may provide compensation. The subject of interest has been discussed in the preceding chapter of this volume. The two Commissions emphasize that the compensating benefit for any shortcoming in their views is greater certainty, particularly for the mercantile and financial communities. The Restatement is not dedicated to certainty at the cost of the views it holds about what restitutio in integrum requires.

The difference in approach to the problem of the proper currency of judgments may be a consequence of different approaches to restitutio in integrum. All three documents purport to seek a solution of the problem that will ensure that neither the plaintiff nor the defendant will suffer an unfair disadvantage or enjoy an unfair advantage. Fairness is judged by comparison with the situation the parties would have been in had there been prompt discharge of a foreign money obligation in that currency arising from breach of contract or tort.

The Reports of the two Commissions, however, do not insist on a thorough application of this view of restitutio in integrum. The initial postulate of the Miliangos case, which the two Commissions accept, is that a plaintiff entitled to an amount in a foreign currency—namely, a currency foreign to the forum—must receive that amount in the foreign currency. The character of the claim does not change and become a claim to the foreign currency or the currency of the forum, at the option of the plaintiff, or a claim to the currency of the forum without an option on the part of the plaintiff. Therefore, the plaintiff must receive the number of units of the foreign currency obligation or an amount of the forum currency at the time of actual payment that will enable the plaintiff at that time to purchase the number of units of the foreign currency to which he is entitled. The defendant has the option to pay in either currency, because the plaintiff will be at no disadvantage whatever is the currency in which the judgment is satisfied, given the fact that his right is to a nominal amount of foreign currency.

The Reports of the two Commissions recognize that it would be more advantageous for the plaintiff if the breach date rule were applied when the currency of the forum has appreciated against the foreign currency by the time of actual payment. This solution, it is held, would overcompensate the plaintiff, because if the plaintiff could recover an amount of the forum currency calculated at the exchange rate prevailing at the date of breach, the plaintiff would be able to purchase more of the foreign currency at the time of actual payment than the nominal amount of the obligation in foreign currency. This result is considered unfair to the defendant, and is prevented by the Miliangos doctrine.

The Commissions accept the fact that, given certain changes in exchange rates, the breach date rule can be shown to be more advantageous for the plaintiff, or the payment date rule more advantageous for the defendant. The Commissions expect such situations to be less frequent, and they prefer a single solution—the payment day rule in all circumstances—in the interests of simplicity and clarity. It seems clear that the Miliangos decision was overwhelmingly influenced by the expectation that sterling would go on being a depreciating currency and by the desirability, therefore, of ensuring that the plaintiff should receive enough sterling to enable him to obtain the nominal amount of the foreign currency obligation.

The Restatement does not start from the assumption that a foreign currency claim must retain that character and cannot be transformed into a U.S. dollar claim. To the extent that the Restatement is guided by an initial principle, it is, as noted above, a principle of restitutio in integrum, as that concept is understood by the drafters, from the zealous pursuit of which no shortcoming is permitted. This principle has led the drafters of the Restatement to grant the plaintiff an option to claim either the foreign currency or dollars, even though in the case of a contractual obligation the option would seem to give the plaintiff the opportunity to make a unilateral change in the terms of the contract. The justification of the option is said to be that the plaintiff, in advancing his claim, will choose the currency that is more favorable to him and therefore the currency that will truly give him the advantage he would have had by prompt payment in the money of a foreign currency obligation. It is true that the plaintiff’s choice is not necessarily binding on a court, but the court must take the plaintiff’s preference into account.

The rationale of the Restatement on the plaintiff’s choice of currency and restitutio in integrum seems to be that if the plaintiff had received the foreign currency to which he was entitled without delay, the plaintiff would have had the option of retaining or of disposing of that currency. In view of the delay, the assumption about his conduct should be the one more favorable to him. If the foreign currency has depreciated against the dollar since the due date, the assumption should be that he would have disposed of it promptly on the due date. He will then claim dollars, and the exchange rate prevailing at the date of breach will assure him of the same amount of dollars as he would have received had he been able to dispose of the foreign currency at that date.

If the foreign currency has appreciated against the dollar since the due date, the more favorable assumption for the plaintiff is that he would have retained the foreign currency had it been paid on the due date. He will then claim the foreign currency, and the dollar equivalent will be calculated at the exchange rate prevailing at the date of actual payment. In that way, he will obtain the same number of dollars as he would have been able to obtain had he received the foreign currency at the due date, retained it, and disposed of it at the exchange rate prevailing at the date of actual payment.

The approach to the problem of the choice of exchange rate is sometimes said to be that the objective is to put the plaintiff into the position he would have been in if the breach or other wrongdoing had not occurred or if he had been compensated at once. The objective of the approach outlined above would be more exactly described as an attempt to put the plaintiff into the more favorable position he might have been in if he had had the opportunity to choose. The logical conclusion of this approach would be that the plaintiff should be entitled to claim the exchange rate most favorable to him that prevailed at any time in the period beginning on the date of breach and ending on the date of actual payment. In short, the plaintiff would be entitled to claim the solution not merely more favorable but most favorable to him.

This approach ignores the practice normally followed by the plaintiff in managing his receipts of foreign exchange, even if there is evidence of what he would have done with his receipts. The approach must also be understood to mean that it does not unfairly penalize the defendant, even though normally a more advantageous solution for one party is a less advantageous solution for the other.

The problems of the appropriate exchange rate for calculating the equivalence of one currency in terms of another and damages for loss following upon a change in exchange rate are separate problems, but they are confused in a footnote to the judgment of the United States Court of Appeals for the First Circuit in a case17 discussed in Chapter 10. The case was one in which the court applied the breach date rule. The footnote is interesting for a number of reasons: The failure to distinguish between the two problems mentioned above; the consideration of certainty, which the Reports of the English and British Columbia Commissions have emphasized; and views that the Restatement has not accepted. The full text of the footnote is as follows:

The object of the breach day rule is to restore the plaintiff to the position he would have enjoyed had the contract not been breached. See Hicks, 269 U.S. at 80, 46 S.Ct. at 47 (“The loss for which the plaintiff is entitled to be indemnified is ‘the loss of what the contractor would have had if the contract had been performed’”); Note, Conversion Date of Foreign Money Obligations, 65 Colum. L.Rev. 490, 493 (1965). The breach day rule, however, may fail to fully compensate plaintiffs like K & L who would have retained the foreign currency, which appreciated in value relative to the dollar, had the agreement been performed. To put K & L as nearly as possible in the position it would have enjoyed had the contract not been breached, we would have to use the judgment day rate of exchange, a result not reconcilable with our reading of Supreme Court precedent.

We recognize that more flexibility in determining the “breach date” for the purpose of awarding full compensation in cases like this, i.e., permitting a court to use the judgment day rate of exchange in order to give the plaintiff its full measure of expectancy damages, might be desirable. But we also believe that because this is a rule governing commercial transactions, the parties’ interest in a clearly defined rule, which affords them some degree of certainty, should be weighted heavily. Thus, we believe that the “breach date” selected should indeed be the date at which the contract is broken and the loss incurred, rather than some other date that gives plaintiffs like K & L the fullest possible recovery.18

Choice Among Exchange Rates

The Restatement sees the problem of the exchange rate as the choice to be made among the rates prevailing at the dates of breach, judgment, and payment. In England, if execution of a judgment is necessary, the rate of exchange is the rate prevailing on the date when the court authorizes execution. A delay before actual execution is levied is still possible, and exchange rates may change after the court authorizes execution. The English Law Commission considered the possibility of a procedure by which a judgment creditor would be able to choose from time to time later exchange rates prevailing after execution is ordered and before actual payment is received. The Commission concluded that while such a procedure would be desirable, the question whether difficulties would make it impracticable deserved further investigation. The Commission foresaw also a procedure by which the creditor could withdraw proceedings for the execution of a judgment and reinstitute them later so as to get the benefit of a more favorable exchange rate. Such a procedure, however, could involve disadvantages for the creditor.19

Some jurisdictions take account of rates of exchange prevailing at other dates if considerations of fairness as seen by the court make it desirable to do so. For example, Belgian courts can express judgments, with certain exceptions, only in Belgian currency. In some cases the court has decided that an obligation in U.S. dollars is to be translated into Belgian francs at the highest rate prevailing on the date when the summons in the suit was served, so as to avoid unfairness to the plaintiff because of the subsequent depreciation of the dollar. Another approach has been to apply the highest exchange rate prevailing on the date of actual payment, provided it is not less than the highest rate on the date when the summons was served. These solutions are applied pursuant to the doctrine of the Cour de Cassation that if a contract is governed by Belgian law, and delay occurs in the payment of a foreign currency obligation, the court may award damages and in doing so take into account depreciation of the currency since the due date.20

In an action to enforce the sterling judgment of an English court, the U.S. Court of Appeals for the Second Circuit raised21 the question whether the appropriate rate of exchange was the one prevailing on the date the complaint was filed or the date the American judgment is rendered. The court preferred the American judgment date as between these alternatives, because it is the date on which the sterling obligation is transformed into a U.S. dollar obligation. The court noted the argument that this date might enable a party to benefit by delaying the entry of judgment because of his expectations about future exchange rates. The court responded to this objection by attempting to show that this conduct was unlikely for financial reasons, and also that a party could protect himself against risks imposed on him by the other party’s delay.

In Germany, the Bundesgerichtshof (Federal Supreme Court), which tends to prefer to express judgments in deutsche mark, at least in tort cases, applies the rate of exchange prevailing at the time of judgment or of the last oral proceedings in the court hearing the factual evidence. Not all lower courts have followed this jurisprudence, some preferring the date of actual payment.22

Finally, it will be recalled that Section 131, subsection 3 of Ontario’s Courts of Justice Act authorizes the court to depart from applying the exchange rate prevailing on the day before actual payment and instead to apply the exchange rate ruling at any other date that would be equitable in the circumstances of the case if the basic rule would be inequitable to any party.

Currency of Account and Currency of Payment

The Restatement authorizes courts to give judgment in the currency in which the obligation is denominated or the loss was incurred. This formulation may mean that the currency of account and not the currency of payment is the currency to be awarded if they are not the same. The English Law Commission has reached a somewhat similar conclusion. For debts and liquidated damages for breach of a contract that specifies a currency as both the currency of account and the currency of payment, that currency is deemed to be the appropriate judgment currency. If the currency of account and the currency of payment are different, the currency of account is to be awarded, although the English Law Commission stated this view somewhat tentatively.

If the claim is for unliquidated damages for breach of a contract governed by English law, the Commission concludes that the appropriate currency is the one that is designated, explicitly or implicitly, as both the currency of account and the currency of payment. If no such currency was designated, the appropriate currency is the currency in which the plaintiff felt the loss or which most truly expresses his loss. This latter principle applies to claims for damages in tort.

Restatement Criticized

On February 12, 1986 the United States Court of Appeals for the Second Circuit delivered a judgment in Competex S.A. (in Liquidation) v. LaBow23 in which the court sharply criticized some aspects of what has become Section 823 of the Restatement. The court was reacting to Tentative Draft No. 6, the last Tentative Draft preceding the Institute’s approval of the Third Restatement, but there were no substantive differences between the draft and the final text of Section 823.

LaBow, a resident of New York, lost a large amount of money speculating on the London Metal Exchange. His broker, Competex, a Swiss corporation, satisfied LaBow’s debts. Competex obtained a default judgment in England for £187,929.82, and then brought this action in the federal courts in New York to recognize and enforce the judgment. The lower federal court held that the English judgment was entitled to recognition and enforcement. The court held also that New York State law applied and that the breach date rule governed translation of the sterling amount of the English judgment into U.S. dollars. (The case was decided before the amendment of Section 27 of New York’s Judiciary Law took effect on July 10, 1987.) The court reasoned that the American claim was based on the English judgment and not on the underlying contract between LaBow and Competex, because the original cause of action had merged in the English judgment. Therefore, the creditor’s American claim accrued on the date of entry of the English judgment, at which date the exchange rate was £1 = $2.20. The court entered judgment for $583,201.78.

Between the dates of the two judgments, the exchange rate for sterling had depreciated against the U.S. dollar, and at the date of the American judgment the rate was £1 = $1.50. The pound sterling continued to depreciate. The debtor moved for a clarification of the American judgment and for a declaration that he was entitled to satisfy the American judgment by paying the amount of the English judgment in sterling. The debtor borrowed the necessary amount of sterling and made this payment while his motion was pending. The lower court denied the motion, holding that the American judgment could be satisfied only by payment of the U.S. dollar amount of that judgment. The court credited the amount of sterling the debtor had paid, and for this purpose it applied the exchange rate prevailing on the date of payment, which was £1 = $1.20. This calculation left an unpaid balance of approximately $236,000. The defendant appealed, moving for relief from the American judgment.

The Court of Appeals pointed out that the issue before it was solely whether denial of the debtor’s motion was correct. This issue was not equivalent to an appeal that questioned the bases for the lower court’s judgment and, in particular, the lower court’s application of the breach date rule for selecting the rate of exchange. Nevertheless, the question of the correct rate of exchange could not be ignored altogether, because a determination of the question whether a foreign judgment was satisfied turned on the rationale of the rule on the choice of exchange rate for the translation of currencies.

Under New York’s breach date rule (then in force), a New York court applied the exchange rate prevailing on the date of the English judgment. The rationale of the New York rule, the court continued, was that the creditor must be made whole by protecting him against fluctuations in exchange rates. Had the debtor discharged the English judgment in sterling on the date of the judgment, the creditor could have exchanged the sterling for U.S. dollars on that date, and avoided loss because of the subsequent depreciation of sterling.

The breach date rule, however, did more, the court held, than protect the creditor against loss because of the depreciation of sterling. The rule generously allowed the creditor to benefit if sterling appreciated by the time the creditor obtained execution of the English judgment against the debtor’s assets in England. The “game of creditor’s choice” was possible, however, only if the debtor had property in both jurisdictions sufficient to satisfy an English or an American judgment in accordance with the creditor’s choice of the place of satisfaction. If the debtor had property only in the United States, the creditor had no choice but to seek execution of an American judgment in the United States. The American court would apply the rate of exchange prevailing on the date of the English judgment, because that date would be taken to be the date of breach. The creditor was unable in such a case to benefit from the appreciation of sterling after the date of the English judgment by obtaining execution of that judgment in England. The creditor would receive the dollar equivalent at the time of breach and not sterling that he could exchange for dollars at a profit. In these circumstances, the breach date rule became one of neutrality between the parties and not a rule that gave the creditor a choice that he could exercise for his profit.

Tentative Draft No. 6 of the Restatement, the court said, went further by allowing the creditor to benefit from fluctuations in exchange rates even though the debtor did not have property in both jurisdictions. According to the draft, the court continued, if sterling depreciated after the English judgment was entered, the American court should follow the breach date rule and apply the rate of exchange prevailing on the date of the English judgment. The rule was neutral in such circumstances because the creditor did not suffer as a result of the depreciation of sterling. He obtained the U.S. dollar equivalent as at the date of breach and not an amount reduced because of the subsequent depreciation of sterling. The draft advanced the proposition, however, that if sterling appreciated after the date of the English judgment, the American court should apply the rate of exchange prevailing on the date of the American judgment. The creditor in such a case obtained the benefit of the appreciation of sterling, even though he could not get satisfaction of the English judgment in England. This result was not neutral. Under the approach of the Restatement, the debtor need not have property in England for the creditor to be allowed to engage in currency speculation without risk. The court regarded the posture of Tentative Draft No. 6 as remarkable, in view of the principle it advanced that neither party should receive a windfall or be penalized as a result of the choice of exchange rates.

The court did not accept the argument that the debtor could avoid consequences that were unfavorable for him by satisfying the English judgment at once. To accept the argument would mean that the debtor had to give up any legal objections he might have in American proceedings to the enforceability of the English judgment.

The court said that the “gamesmanship” of the breach date rule it found objectionable could be avoided by a rule of general application that was truly neutral between the parties. The court did not clarify its concept of neutrality, but it seems to have meant that the creditor should not receive any benefit, or the debtor suffer any detriment, because the creditor sought satisfaction in one jurisdiction rather than another in which satisfaction could be obtained. The concept of neutrality does not seem to have meant that the parties had to be placed in the position they would have been in if the breach or the tort had not occurred or if the creditor had been compensated without delay, although there is no reason to think that the court was dissenting from this formulation as an apt expression of fairness or restitutio in integrum.

If, in the Competex case, the English judgment was regarded as primary, which was considered in principle the superior view, neutrality could be achieved, the court held, by entering the American enforcing judgment in sterling (first solution), or, alternatively, by entering the American judgment in an amount of U.S. dollars determined on the basis of the exchange rate prevailing on the date of payment of the American judgment (second solution). If the American judgment was regarded as primary, neutrality could be achieved by translating the English judgment into dollars at the exchange rate prevailing on the date of the American judgment (third solution).

The court noted that judgments can be entered in a foreign currency in England, France, and Germany. This rule was obviously attractive in offering a neutral solution by preserving the original judgment as inviolate and by placing on both parties the risk of fluctuations in the exchange rate of the currency of the original judgment, but the rule had received little support in the United States for a procedural reason. Most American courts had assumed that judgments must be entered in U.S. dollars, but the court thought that this assumption should be re-examined in view of the repeal of Section 20 of the Coinage Act of 1792:

The money of account of the United States shall be expressed in dollars or units, dimes or tenths, cents or hundredths, . . . and all accounts in the public offices and all proceedings in the courts shall be kept and had in conformity to this regulation.

Notions of sovereignity and this provision had been the main objections to the expression of judgments in a foreign currency.

The first and second neutral solutions, the court said, were economically equivalent to each other. Indeed, as shown by the Miliangos case, the first solution becomes the second solution when execution is sought in the currency of the forum of a judgment expressed in a currency foreign to the forum. There was some opinion in the United States, however, that judgments could be entered only for a sum certain and not for an amount to be determined in the future, even if an objective criterion was prescribed for this determination, but the federal rules of procedure contained no prohibition of this latter practice.

The court declared that courts wishing to avoid the procedural objections to the first or second solution could apply the third solution. The creditor receives under an American judgment the equivalent of what he would have received had he sought execution of the English judgment (as of the date on which he obtains the American judgment). It is true that the creditor may be speculating on the choice of date at which to obtain the American judgment, but the gains or losses will be the same in England and in the United States, so that there is no inducement for forum shopping. The court reinforced this argument with the following example. The plaintiff holds an English judgment for one pound sterling and the value of one pound has depreciated from $1 to $0.60 by the date of the American judgment. The American court enters judgment for $0.60, and the plaintiff loses $0.40. If the plaintiff had executed on his English judgment, the effect of the exchange rate prevailing at the time of actual payment, which the English court would apply, would again be that the plaintiff loses $0.40. Conversely, if the value of one pound appreciates to $1.30, the American court enters judgment for $1.30, and the plaintiff enjoys a gain of $0.30, which is what he would receive by executing on his English judgment.

After this analysis, the court concluded that it would have preferred to select either the second or the third solution. However, the court held that it was not free to choose an ideal solution, because the court had to apply the rule of the New York State courts. Furthermore, the court’s only function was to review the denial of the debtor’s motion.

The court held that New York’s choice of the breach date rule for determining the appropriate exchange rate clearly implied that New York required satisfaction of a New York enforcing judgment by payment of the U.S. dollar amount specified in that judgment and did not consider an enforcing judgment to be satisfied by payment of the amount of foreign currency specified in the underlying foreign judgment. The breach date rule protects the judgment creditor against fluctuations in currency values even by going to the length of allowing him to speculate without risk. It was from this rationale of the rule that the court drew the deduction that New York would not permit the creditor’s preference to be negated by the debtor’s option to pay in depreciated pounds the nominal amount of the English judgment. The Court of Appeals upheld the judgment of the lower court, even though it rested on a solution that was not neutral according to the Court of Appeals.

In a footnote, the court expressed the opinion that the same result would be reached in jurisdictions following the judgment date rule. The reason would be that the underlying sterling obligation is converted into a U.S. dollar obligation once the American enforcing decision is delivered. This reason would have been sufficient to dispose of the case under the breach date rule without relying on the implication of favorable treatment for the plaintiff the court deduced from that rule, which the court did not admire but found unavoidable. The footnote is particularly interesting because the amended Section 27 of the New York Judiciary Law has adopted the court’s so-called third option (the judgment date rule).

The strongest impression conveyed by the Second Circuit court’s decision is the desire for a neutral solution between the parties in the sense of neutrality as understood by the court. The idea that the plaintiff should have preferential rather than neutral treatment was strongly opposed. In particular, the court was critical of the option the Restatement concedes to the plaintiff. The Restatement mentions the tendency of the courts to prevent the innocent party from suffering loss as the result of fluctuating exchange rates, but this approach may be different from the Second Circuit court’s desire for a neutral solution. The Reporters show that they were aware of the Competex case, but though they noted the court’s disagreement with their views, the Reporters did not modify their approach.

The reasoning in the Competex case is involved and not clear, but one version of it might have a bearing on an issue discussed earlier in this chapter. The issue is whether the remedy of restitutio in integrum should be applied according to some abstract principle, such as giving the plaintiff an option with respect to the currency of his claim, which would entitle him to choose the solution more favorable to him on the basis of exchange rates, because he would have been in that position had the claim been settled on time. The discussion of a neutral solution in the Competex case implies that the actual circumstances of the case should be taken into account, such as the plaintiff’s ability in that case to obtain satisfaction in England of the English judgment in the plaintiff’s favor. The answer to that question would depend on whether the defendant had assets in England against which the plaintiff could have obtained satisfaction of the judgment in full. If this understanding of the court’s analysis is correct, the reasoning would support the approach that the plaintiff’s normal practice in managing his receipts should be taken into account in applying the remedy of restitutio in integrum.

Section 10(a) of the Uniform Foreign-Money Claims Act rejects the solution adopted in the Competex case. It will be seen that the Act requires judgments to be expressed in the foreign currency of a foreign money claim and authorizes the judgment debtor to pay the amount of the foreign currency set forth in the judgment or the U.S. dollar equivalent on the day before actual payment. This approach combines the Second Circuit court’s first and second solutions instead of treating them as alternative solutions.

The Act provides that its rule applies to judgments to enforce a foreign judgment expressed in a foreign currency that is recognized in the enacting State as enforceable. The rule applies whether or not the foreign judgment confers an option on the debtor to pay an equivalent amount of U.S. dollars. Section 10(c) provides that satisfaction of or partial payment made upon the foreign judgment must be credited against the amount of foreign currency specified in the foreign judgment, notwithstanding the entry of judgment in the enacting State. If foreign currency is paid, it is credited against the foreign currency amount of the foreign judgment. If dollars are paid, the equivalent in foreign currency at the exchange rate applicable under the Act is credited against the foreign currency amount of the judgment (Section 7(d)).

The authors of the commentary on the January 23, 1989 draft of the Act regarded the Competex decision as one that awarded the plaintiff drastic overcompensation. The drafters comment on the similarity between the Competex case and the decision of the English Court of Appeals in Société des Hotels Le Touquet Paris-Plage v. Cummings.24 In both cases, the issue was the effect of paying the foreign judgment or the foreign currency debt to the creditor in the foreign country after suit was pending or judgment was entered in the forum state. In the Competex case, the debtor paid the amount of the English judgment after the American judgment was entered and received credit only for the U.S. dollars spent to procure the foreign currency. In the English case, the defendant’s plea of payment in full was sustained.25 The commentary pointed out that the cases could be distinguished because the payment in the American case was made after the American enforcing judgment was entered, while in the English case payment was made before any judgment was delivered. The authors of the commentary on the draft of January 23, 1989 thought that this distinction did not justify different results. The English Law Commission, however, recommends that this distinction should be observed once an order is entered to enforce an English judgment on a foreign currency claim. After that step is taken, the defendant should not be allowed to argue that he has satisfied his liability in full by paying the original amount of his liability in the foreign currency.

The Act includes a provision (Section 10(d)) that deals with the treatment of judgments among States of the Union. A judgment entered in U.S. dollars only in the court of State A must be enforced in State B (the forum State) by a judgment in dollars only even if the judgment in State A was entered on a foreign currency claim. This rule is designed to comply with the full faith and credit clause of the U.S. Constitution. A dollar judgment of a sister State on a foreign currency claim must be enforced as entered in that State whatever rule the court of that State may have followed for the translation of the foreign currency claim into dollars.

The Miliangos doctrine, including the form of judgment in cases covered by the doctrine, would seem to permit the defendant to pay the amount of a foreign currency debt (including a foreign judgment debt) after English proceedings are brought to collect the debt. The English Law Commission, however, has concluded, although there is no decision under present law, that, as noted earlier, a judgment debtor should not be allowed to pay the amount of the foreign debt once an English court has ordered enforcement of the judgment.

Earlier, the Commission had taken a different view on the ground that even in such circumstances it remained true that a debtor against whom the creditor had a foreign currency claim had no concern with sterling. In its Report, however, the Commission explained that a distinction had to be made between the situation before and after enforcement of a judgment is ordered. Before that date, the debtor has no concern with sterling, and so the judgment tells him that if he decides to discharge the judgment debt in sterling he must do so at the rate of exchange prevailing at the date of actual payment, but payment in the foreign currency of the amount awarded in that currency is permissible. The situation is different once enforcement is ordered. It is ordered only in sterling, so that the debt is then transformed into a fixed sum of sterling, calculated at the exchange rate prevailing at the date of the order, and the debtor’s obligation is no longer measured by reference to the foreign currency of the judgment. The foreign currency judgment debt may revive in its original form only if the enforcement proceedings are withdrawn or if they have failed (for example, because the debtor has no assets that the sheriff’s officer can reach). Furthermore, the judgment creditor is not precluded from accepting the foreign currency if he wishes, even if the enforcement procedure is extant.26

The difference between the Uniform Act and the position taken by the English Law Commission is that the rule according to which a cause of action merges in a judgment does not apply to an enforcing judgment under the Uniform Act but does apply under English law according to the English Law Commission. In its Report, the Commission recognized that under its rule a creditor would suffer a loss if the exchange rate for the foreign currency appreciated against sterling after enforcement was ordered. By contrast, the creditor would profit if the exchange rate for the foreign currency depreciated against sterling. The creditor’s risks would be balanced. To allow the debtor an option to pay the amount of foreign currency specified in the judgment instead of the sterling amount for which enforcement is ordered would free him from risk. The debtor should not be allowed this benefit. To paraphrase the court’s language in the Competex case, to allow the option would be to concur in a “game of debtor’s choice.”

Uniform Foreign-Money Claims Act

The Uniform Foreign-Money Claims Act prepared under the auspices of the U.S. National Conference of Commissioners on Uniform State Laws is a meticulous codification of a proposed uniform law on foreign money claims and is far broader in scope and detail than any present statute in the field. Only the leading features of this admirable instrument that are relevant to this monograph are discussed here.

A Prefatory Note to the Act explains that a Uniform Act among American jurisdictions has become desirable because foreign currency claims have increased greatly as a result of the growth in international trade; exchange rates involving the U.S. dollar fluctuate more over shorter periods than in the past; American jurisdictions differ from most of the major trading partners of the United States in the treatment of foreign currency claims; and the lack of uniformity among states in resolving problems of such claims stimulates forum shopping and creates uncertainty in the law.

American courts, the Prefatory Note continues, have applied the breach date or the judgment date rule in translating foreign currency into the U.S. dollar. Many other countries, however, apply the payment-date rule, and the merits of this approach have begun to be recognized in the United States and are accepted by the Uniform Act.

A simplified version of the facts in the Competex case is then presented as follows to show the wildly disparate results of the three approaches to making an injured person whole:

An American citizen owes £18,790 to a British company. The creditor sues in New York; sterling is depreciating against the dollar. The three rules work as follows:

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Judgment is given for $41,338 on the basis of the breach date rule, which is equivalent to £34,449 on the date of payment, and represents an excess of £15,659 over the actual loss.

The Prefatory Note draws the following inferences from this example. If the payment date rule applies, the creditor is recompensed with his own currency or the equivalent in dollars; the debtor bears the risk of depreciation, or reaps the benefit of appreciation, of his currency. If the breach date or judgment date rule applies, the creditor bears the risk of fluctuation in the exchange value of a currency not of his own selection. The real issue is who should bear the risk of fluctuation if the parties have not agreed on the currency that governs their relationship. In those circumstances, the Act gives the aggrieved party the amount to which he is entitled in his own currency or in the currency in which he suffered the loss. The principle of the Act is restoration of the aggrieved party to the economic position he would have had if the wrong had not occurred. If the cause of action is a tort, courts should enter judgment in the currency customarily used by the injured person.

The payment day rule, on which the Act is based, meets the reasonable expectations of the parties involved. It places the aggrieved party in the position it would have been in financially but for the wrong that gave rise to the claim. States which adopt it will align themselves with most of the major civilized countries of the world.

The solution may meet the reasonable expectations of the parties, although that is a supposition. Another supposition can be made: if the creditor had received his own currency without delay, he could have invested it in a currency that was not depreciating. For example, in the case cited above if a breach had not occurred and the creditor had received the £18,790 to which he was entitled he could have purchased and held $41,338. In effect, therefore, the authors of the Restatement would argue that the aggrieved party is not placed in the position he would have been in if the breach had not occurred.

The Act provides in Section 3 that the effect of its provisions may be varied by agreement of the parties at any time before or after the commencement of an action, distribution proceeding, or the entry of judgment. The parties are free, for example, to agree upon the currency to be used in a transaction giving rise to a foreign currency claim, and may use different currencies for different aspects of the same transaction. The parties may agree that the rate of exchange applicable in proceedings involving their transaction shall be the rate prevailing at some date other than the one that would apply under the Act in the absence of agreement. After entry of judgment, the parties may agree upon how the judgment is to be satisfied. In short, the parties have full freedom to agree on all aspects of a claim when foreign currency is involved, whether the claim is contractual, quasicontractual, tortious, or based on any other form of liability.

Under Section 4, if the parties have not selected the proper currency of the claim, that currency is to be determined, normally in the order shown, as the currency:

  • (1) regularly used between the parties as a matter of usage or course of dealing; or

  • (2) used at the time of a transaction in international trade, by trade usage or common practice, for valuing or settling transactions in the particular commodity or service involved; or

  • (3) in which the loss was ultimately felt or will be incurred by the plaintiff.

A comment explains that prior dealings between the parties may indicate the desired currency of the claim, but if there is no such dealings it is appropriate to use the currency indicated by trade usage or custom for like transactions. The third choice is said to be taken from English cases. The example cited is the use of U.S. dollars by a French company to buy Japanese yen for ship repairs, in which case the loss is felt in the depletion of the claimant’s dollar resources.

Section 5 of the Act deals with determination of the amount of contractual claims when the money of account and the money of payment are different. If the foreign currency of payment is measured by reference to a specified amount of a different currency,27 the amount to be paid is determined on the basis of the exchange rate between the two currencies on “the conversion date.” (The concept of the conversion date is discussed later.) If the parties have provided that the calculation is to be made on the basis of the exchange rate prevailing on a date prior to default,28 that exchange rate applies but only to payments made within a reasonable time after default, which must not exceed 30 days. After that period, the calculation is made at the bank-offered spot rate on the conversion date.

A limited period after default for application of the exchange rate prescribed by the parties is intended to prevent the use of an exchange rate that may differ substantially from the exchange rate prevailing on the conversion date as defined by the Act. What is meant by a reasonable time after default can be a difficult question. Perhaps in deciding what is a reasonable time in the circumstances of a case, a court might take into account the extent of the departure of the current exchange rate from the exchange rate prescribed by the contract. If this interpretation is correct, it might have been advisable to include language to express it in the text. The question then would have been whether the terminal date of 30 days after default served a useful purpose.

The Act provides that if, because of unexcused delay in payment of a judgment or arbitral award, the amount received by the creditor is not equivalent to the amount of foreign currency specified by the contract, the court or arbitrator shall have jurisdiction, and shall exercise it, to amend the judgment or award. The kind of case envisaged by this provision is one in which a loan is made by a Japanese bank to an American borrower; the loan is made with dollars purchased by the bank with yen; and the agreement provides that repayment by the borrower is to be made in the amount of dollars that, when received by the bank, would enable it to purchase the same amount of yen as was used to make the advance in dollars.

A person may assert a claim, whether as plaintiff or defendant, in a foreign currency, but if a foreign currency is not asserted, the claim is deemed to be made in U.S. dollars (Section 6(a)). The opposing party may prove that the proper money of a claim is other than the one asserted (Section 6(b)), but there is a serious ambiguity that is not clarified by the comments. The ambiguity exists because of the use of the word “asserted.” It is not clear whether contest by the opposing party is confined to the assertion of a foreign money claim against him or extends also to the claim that the claimant “makes” in U.S. dollars. The latter interpretation is probably intended.

The Uniform Act might appear to accept the principle of the Restatement that the plaintiff has an option with respect to the money of his claim. This reading would be mistaken, because the opposing party would be allowed to prove that the proper money of the claim was other than the foreign currency that has been asserted or perhaps the dollar. Furthermore, the determination of the proper money of the claim is declared by Section 6(d) to be a question of law. Therefore, the court determines the proper money of the claim on the facts of the case. Here again, however, there is a serious ambiguity. It arises because of the phrase “if contested” in a comment. It is not clear whether the court determines the proper money in all cases, because this issue is a question of law, or only if there is a contest on it between the parties.

Section 7 takes up a central issue in matters of foreign currency claims. The Act chooses a solution close to the Miliangos doctrine. If a foreign money claim is successful, the judgment or award must be expressed in the money of the claim. The judgment is payable in that foreign currency, or, at the option of the debtor, in the amount of U.S. dollars necessary to purchase the amount of the foreign currency at the exchange rate on the “conversion date” at a “bank-offered spot rate” as defined by the Act. Each payment in dollars must be accepted and credited against the amount of foreign currency expressed in the judgment. The amount of the credit is the amount of the foreign currency that could be purchased with the dollars at a bank-offered spot rate of exchange at or near the close of business on the conversion date for that payment.

The definition of the “conversion date” is a concept that has many uses under the Act.

“Conversion date” means the banking day next preceding the date on which money, in accordance with this [Act], is

(i) paid to a claimant in an action or distribution proceeding;

(ii) paid to the official designated by law to enforce a judgment or award on behalf of a claimant; or

(iii) used to recoup, set-off, or counterclaim in different moneys in an action or distribution proceeding.

The choice of the banking day next before the date of actual payment29 is taken from the Ontario statute.

Three other definitions must be quoted:

“Bank-offered spot rate” means the spot rate of exchange at which a bank will sell foreign money at a spot rate.30

“Spot rate” means the rate of exchange at which foreign money is sold by a bank or other dealer in foreign exchange for immediate or next day availability or for settlement by immediate payment in cash or equivalent, by charge to an account, or by an agreed delayed settlement not exceeding two days.31

Rate of exchange” means the rate at which money of one country may be converted into money of another country in a free financial market convenient to or reasonably usable by a person obligated to pay or to state a rate of conversion. If separate rates of exchange apply to different kinds of transactions, the term means the rate applicable to the particular transaction giving rise to the foreign-money claim.32

The second sentence of the definition of “rate of exchange” contemplates the existence of multiple rates of exchange for the currency. The applicable rate is then the one that applied to the particular transaction giving rise to the foreign currency claim. If there are multiple rates of exchange, the exchange markets must be controlled by the monetary authorities. What then is meant by a “free financial market” in the first sentence? The expression can mean a market free from official control or it can mean a market to which the obligor has unimpeded access for the exchange transaction in which the obligor wishes to engage.33 On the first hypothesis, the definition would seem to exclude from the scope of the Act cases involving a foreign currency in which the debtor has access only to a controlled exchange market for that currency and there exists notwithstanding the control a unitary rate of exchange. Problems involving such a currency may arise, and perhaps they would be settled by the law of the forum State apart from the Act. If this assumption is correct, the pre-existing law would not become defunct. For this reason, an enacting State should avoid abrogation of the pre-existing law even though it is made subject to the Act when applicable.34 It is probable, however, that the drafters intend the second hypothesis: a “free financial market” is one to which an obligor has unimpeded access, whether or not there is official control of the market.

Another comment on the definitions is that if the relevant exchange rate is one of the rates in what the IMF regards as a multiple currency system, or if the exchange rate is considered a discriminatory currency arrangement, there is no requirement that the exchange rate must be consistent with the IMF’s Articles.35 This solution is supported by the English case entitled Lively Ltd. and Another v. City of Munich36 and should be endorsed.

The comment on the provision authorizing judgments to be expressed in a foreign currency and dealing with consequential problems (Section 7) notes that the proposed Act, if adopted, would change the law in at least 18 States, in which statutes can be construed as requiring all currency values in legal proceedings to be expressed in U.S. dollars. New York State is listed among these 18, but although the law of that State requires judgments to be expressed in a foreign currency in appropriate circumstances, the law differs from the Act. Under the New York statute, for example, an amount of foreign currency in a judgment must be translated into dollars at the exchange rate prevailing on the date the judgment is entered.

Section 8 of the January 23, 1989 draft of the Act contained provisions on incidental and consequential damages, all of which have been deleted from the final text. The draft provisions that have been abandoned without any substituted treatment of the topics are of sufficient interest to merit the summary and discussion that appear in the remaining paragraphs of this chapter.

According to the earlier draft, if the currency of the claim is not the currency in which the plaintiff keeps his funds, the damages that can be recovered can include an amount equivalent to (i) the costs reasonably incurred after the defendant’s default under any forward exchange contract or option entered into by the plaintiff so as to enable him to obtain the currency notwithstanding the default, or (ii) the interest paid on loans not exceeding the equivalent of the amount of interest due from the date of default to the date of payment.

In the absence of agreement to the contrary, the plaintiff asserting a foreign currency claim can recover damages if he shows that (i) he has suffered a loss in relation to another currency because of depreciation of the currency of the claim by delay in payment, and (ii) the defendant should have known of the plaintiff’s need of the other currency, or (iii) the defendant knew that the plaintiff regularly converted the currency of the claim into the other currency on receipt. In such circumstances, the plaintiff can recover damages equivalent to the difference between the amount of the other currency obtainable at the rate of exchange prevailing on the date when payment was due and the amount obtainable at the rate of exchange prevailing on the judgment date. The ratio decidendi of the New Zealand Naylor case and possibly the English Ozalid case resembles this principle of the January 23, 1989 draft and may have inspired the attempt to give statutory force to the principle.

Furthermore, the plaintiff was not precluded from recovering other damages available under the substantive law applicable to the case according to the private international law of the forum. The purpose of allowing the plaintiff to recover damages for loss attributable to changes in exchange rates, as well as the treatment of interest by the Act, may have been to compensate the plaintiff to some extent if he suffered detriment because of the combined effect of a judgment in foreign currency and application of the exchange rate prevailing at the date of actual payment in accordance with other provisions of the draft.

In President of India v. Lips Maritime Corporation,37 the English House of Lords rejected a claim to general damages for late payment that caused an exchange loss. There was no finding, however, that the plaintiff had made it known to the defendant that sterling paid under the contract would be exchanged at once for U.S. dollars. The contract fixed the exchange rate for translating the money of account (the U.S. dollar) into the money of payment (sterling). The House of Lords treated this exchange rate as binding at all times under the contract. The final version of the Uniform Act, however, creates a presumption that a rate of exchange fixed by contract is applicable only for a reasonably brief period after the due date. After that period expires, the market exchange rate at the time of actual payment must be applied.

The provisions on damages of the draft Uniform Act may have been deleted because the topic is too controversial and because it is seen as part of the broader law of damages, on which probably there is much diversity among the various jurisdictions. It is likely that each jurisdiction continues to be free to apply its own law on damages and that this consequence is recognized by Section 13 of the Act, which is entitled Supplementary General Principles of Law and is formulated as follows:

Unless displaced by particular provisions of this [Act], the principles of law and equity including the law merchant, and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating causes supplement its provisions.

Damages are not mentioned but the word “including” should not be interpreted to confine the supplementary principles of law to those listed after that word. Nevertheless, it is not clear whether the law relating to damages would fall within the scope of “other validating…causes.”

1

Ronald A. Brand, “Restructuring the U.S. Approach to Judgments on Foreign Currency Liabilities: Building on the English Experience,” Yale Journal of World Public Order (New Haven, Connecticut), Vol. 11 (1985), at pp. 140–43.

2

304 U.S. 64, 58 S.Ct. 817, 82 L Ed 1188 (1938).

3

American Law Institute Publishers (St. Paul, Minnesota, 1987).

4

Third Restatement, Vol. 2, p. 332.

5

See Brand (cited in footnote 1 above), p. 184 (footnotes omitted). For a discussion of the specialized contexts in which courts in the United States and Congress have whittled away at the rule that judgments can be expressed only in U.S. currency, see Brand, at pp. 164–69.

6

McKinney’s Consolidated Laws of New York Annotated, Book 29, Judiciary Law, 1989 Cumulative Pocket Part (St. Paul, Minnesota). For a discussion of the amendment, see Jennifer Freeman, “Judgments in Foreign Currency—A Little Known Change in New York Law,” The International Lawyer (Chicago), Vol. 23, No. 3 (1989), pp. 737–53.

7

Teca-Print A.G. v. Amacoil Machinery, Inc., 525 N.Y.S.2d 535 (Sup. 1988).

8

See, for example, James R. Silkenat, “The Restatement and International Monetary Law: The Practitioner’s Perspective,” The International Lawyer (Chicago), Vol. 22, No. 1 (1988), at pp. 33–34.

9

Teca-Print A.G. v. Amacoil Machinery Inc., 525 N.Y.S.2d, at p. 538, footnote omitted.

10

Ibid., pp. 538–39.

11

Ibid., footnote 4 on p. 538.

12

Ibid., p. 540.

13

Ibid.

14

In Re Oil Spill by the Amoco Cadiz off the coast of France on March 16, 1978, MDL No. 376 (U.S. District Court for the Northern District of Illinois, Eastern Division, 1988 U.S. Dist., LEXIS 214).

15

English Law Commission Report, paragraphs 3.9 to 3.11, and 6.2(2)(a); British Columbia Report, pp. 56–57.

16

Another approach to achieve the same objective is an option of a different character, particularly if judgments must be expressed in the currency of the forum. The creditor is allowed to choose between the exchange rate prevailing at the due date and at the date of actual payment for the purpose of translating the foreign currency of his claim into the currency of the forum. For a discussion of some Argentine cases, see Journal du Droit International (Paris), No. 2 (1988), pp. 463–68. For a similar option, see Article 75, paragraph 3(c) and (d) of the proposed United Nations Convention on International Bills of Exchange and International Promissory Notes.

17

In re Good Hope Chemical Corporation, 747 F.2d 806 (1984).

18

Ibid., footnote 8 on pp. 812–13.

19

English Law Commission Report, paragraphs 5.59–5.63, 6.2(12).

20

42 Revue Critique de Jurisprudence Belge, Premier Trimestre (1988), p. 103, note 198; S.A. Philipp Brothers, Belgium v. Ferromak Import-Export Transit und Handelsvertretungen, Austrian GmbH, Journal des Tribunaux (1988) 655. There are said to be inconsistencies in Yugoslav law. Article 395 of the 1978 Law on Contractual Relations provides that a monetary claim denominated in foreign currency contrary to Yugoslav law can be enforced by translating the claim into Yugoslav currency at the rate of exchange prevailing when the loan arose. Under Section 206 of the 1978 Implementing Law and the Supreme Court’s interpretation of it, however, the rate of exchange prevailing at the date of discharge of the claim must be taken into account. Some courts have explained that the first of these principles applies to claims between Yugoslav nationals, while the second principle applies to the claims of foreign creditors. The latter claims are not contrary to Yugoslav law, although they can be discharged only in Yugoslav currency.—Note by M. Cigoj, Droit et pratique du commerce international—International trade law and practice, Vol. 8, No. 4 (1982), p. 704–705. The differentiation seems to be designed to impose a sanction for breach of Yugoslav law.

21

Competex, S.A. (in Liquidation) v. LaBow, 783 F.2d 333 (2nd Cir. 1986), at p. 338, footnote 11.

22

Michael Alberts, “Schadensersatz und Fremdwährungsrisiko” [Compensation for damages and foreign exchange risk], Neue Juristische Wochenschrift, Vol. 42, No. 10 (March 8, 1989), pp. 609–15.

23

783 F.2d 333 (2nd Cir. 1986).

24

[1923] 1 K.B. 451 (Ct. App. 1921).

25

But see Madeleine Vionnet et Cie. v. Wills [1940] 1 K.B. 72 (C.A.).

26

Paragraphs 5.63–5.69, 6.4(13).

27

For example, “pay 5,000 Swiss francs in pounds sterling.”

28

For example, “pay on November 30, 1989, 5,000 Swiss francs in pounds sterling at the exchange rate prevailing on June 30, 1989.”

29

Section 1(3).

30

Section 1(2).

31

Section 1(11).

32

Section 1(10).

33

Compare the definition of the U.S. Internal Revenue Service for tax purposes. (Temp. Reg. §1.988-lT(d)(4).) The definition of “spot rate” for the purpose of this regulation is “a rate demonstrated to the satisfaction of the District Director to reflect a fair market rate of exchange available to the public for currency under a spot contract in a free market and involving representative amounts.”

34

Perhaps Section 13 preserves the pre-existing law for cases in which the Act does not apply, although this consequence is not made explicit.

35

Article VIII, Section 3 of the IMF’s Articles.

36

[1976] 3 All E.R. 851; Joseph Gold, The Fund Agreement in the Courts, Volume II (Washington: International Monetary Fund, 1982), pp. 236–42.

37

[1987] 3 W.L.R. 572.