6 February 2017Print This Post

Impact of currency fluctuation on costs awards up in air after judge rejects application this time

Euros: currency fluctuation not accounted for

The novel issue of recovering more in costs to reflect changes in the exchange rate between sterling and the euro since the referendum has come before the High Court again, but this time it was refused.

Mr Justice Coulson also made it clear that when calculating an interim payment on account of costs, the court’s starting point “will almost always be the payee’s approved costs budget”.

The defendant sought the extra costs following the recent decision of Mr Justice Arnold, in which he awarded a successful German claimant an extra £20,000 in costs to compensate for the impact of the falling value of sterling as it had to convert euros into pounds during the case to pay its solicitors.

In MacInnes v Gross [2017] EWHC 127 (QB), Coulson J said the circumstances here were different: Arnold J was dealing with a summary assessment where he had particular figures to consider, and evidence as to how those figures had arisen.

“I have neither: there is simply a claim that, to the extent that the first defendant has suffered such a loss, he is entitled to be compensated. I am instinctively reluctant to make such an open-ended order.”

He said he was also “uncomfortable” with the idea that an award of costs should be treated as an order for compensation, as if it were a claim for damages.

Coulson J continued: “I consider that there are inherent differences between the two regimes, and that orders for costs have never been regarded as compensating the payee for the actual costs that he has paid out. On the contrary, unless the payee has an order in his favour for indemnity costs, he will never recover the actual costs that he has incurred.”

Finally, he did not see the close analogy between ordering interest on costs, which was commonplace, and ordering exchange rate losses due to the particular time that the costs were paid, which was not.

“The paying party can work out in advance the additional risk created by the potential liability to pay interest on costs, but any potential liability to pay currency fluctuations is uncertain and wholly outside his control.

“Furthermore, it might be argued that the generous rate of interest on costs at 4% over base is designed to provide at least some protection to the payee against such events.”

He therefore refused the application to recover any further sums by way of currency fluctuations on costs.

On the interim payment on account of costs, Gavin Mansfield QC, for the claimant, argued that when the costs were assessed by the costs judge, that assessment would “start from scratch”.

He also said that in any event the defendant had incurred considerably more than £570,000 in his approved costs budget – its costs were said to have reached £956,279.

Coulson J rejected these submissions. “One of the main benefits to be gained from the increased work for the parties (and the court) in undertaking the detailed costs management exercise at the outset of the case is the fact that, at its conclusion, there will be a large amount of certainty as to what the likely costs recovery will be.

“One consequence is that, for the purposes of calculating the interim payment on account of costs, the starting point will almost always be the payee’s approved costs budget. Another consequence is that the court assessing the interim payment can ignore the fact that, as here, there may have been significant expenditure on costs by the payee above the budget figure: any increase is a matter for the costs judge and the relatively onerous burden of recovering more than the budget figure is on the payee.

“So when making an interim payment on account of costs in a case with an approved costs budget, the days of the educated guesswork identified by Jacob J in Mars UK Limited v TeKnowledge Limited [1999] 2 Costs LR 44 are now gone.

“Instead the court can be confident that there is a figure for costs which, because it has already been approved, is both reasonable and proportionate.”

In calculating the figure, the judge reduced the £570,000 by 10% – “which I regard as the maximum deduction that is appropriate in a case where there is an approved costs budget” – and then added back £15,000 to reflect the interest on costs he had awarded. That produced an interim payment on account of costs figure of £528,000.

By Neil Rose


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