Cost awards currency question answered by UK Supreme Court

Madelaine Power of Pinsent Masons was commenting after the court confirmed (9-page / 252KB PDF) that when awarding costs in litigation in the UK, courts should generally make such awards in the currency that the successful party actually incurred its expenditure in – not its home currency or based on a hypothetical conversion.

The Supreme Court case arose from a high-profile arbitration between Process & Industrial Developments Limited (P&ID) and The Federal Republic of Nigeria.

P&ID secured arbitral awards totalling $6.6 billion plus interest after Nigeria allegedly breached a gas processing contract. In 2023, however, the Commercial Court overturned the award, ruling that it was obtained through false evidence, corrupt payments, and the improper retention of leaked documents.

Section 68 of the Arbitration Act 1996 provides parties with the right to challenge arbitral awards on the basis of ‘serious irregularity’ – which includes the award being obtained by fraud or the award or the way in which it was procured being contrary to public policy.

Following Nigeria’s success, the court ordered P&ID to pay Nigeria’s legal costs, which totalled approximately £44.1 million. However, a further dispute arose as to the currency P&ID should pay those costs in.

Nigeria argued for payment in pound sterling, as its English solicitors invoiced and were paid in sterling. P&ID argued for naira, Nigeria’s national currency, claiming Nigeria converted naira into sterling and that paying in sterling would create a windfall due to currency depreciation.

Both the Commercial Court and the Court of Appeal considered that the costs should be awarded in sterling. Now, the Supreme Court has ruled in unanimous agreement.

The Supreme Court focused on the principle of indemnity, which it said “simply prevents a party from recovering in an award of costs sums for which it has not incurred a liability to its own lawyers”. It went on to state, however, that “an award of costs is no indemnity”, considering instead that it is “a statutorily authorised award of a contribution toward the costs incurred in litigating in the courts of England and Wales” and to be distinguished from a damages award – which is to recognise the full value of a party’s loss from wrongdoing or breach of contract.

The court said that “what is seen as proportionate in the ascertainment of a party’s loss in a trial which determines the parties’ substantive rights is not an indication of what is appropriate or proportionate in the making of an order for costs”.

The court rejected arguments that decisions on which currency to award costs should factor in currency fluctuations or who funded the litigation.

“It is consistent with the nature of the court’s costs jurisdiction and with legal certainty that there be a general rule that an order for costs should be made in sterling or in the currency in which the solicitor has billed the client and in which the client has paid or there is a liability to pay,” the Supreme Court said. “That reflects the liability which the party has incurred by litigating in the English courts.”

“There may, nonetheless, be circumstances in which the court chooses not to award costs in the currency in which the receiving party has paid its lawyers. If the court considers that the parties’ choice of the currency of payment is abusive or otherwise inappropriate, the court could properly make the costs order in sterling notwithstanding the party’s use of that other currency,” it added.

An example it gave is where a party speculatively uses a currency neither it nor its lawyers have a real connection to with a view to profiting from an appreciation in its value.

Power said the decision highlights the discretionary nature of costs orders, reinforcing the principle that costs orders are case-management tools, not compensatory remedies, and added that it aligns with the approach taken in damages claims, where compensation is assessed in the currency of loss.

“For businesses, this ruling should serve as a prompt to ensure invoices and payment records specify the currency used for legal costs and to factor exchange rate exposure into litigation budgets, especially in cross-border disputes,” Power said. “In light of this judgment, businesses can expect courts in the UK to prioritise the currency of actual expenditure, not the client’s home currency, when making costs awards. Claims based on hypothetical conversions or currency depreciation are unlikely to succeed.”