Exchanges rates and interest rates are interesting, and important, especially in high-value cases.
So one might suppose that a (nominally) Nigerian company involved in a high-stakes London-based arbitration against the Government of Nigeria, and anticipating that it might seek recognition and enforcement of the award elsewhere than in Nigeria, would have given attention during the arbitration to (i) the proper currency of the award, (ii) the convertibility of the award currency into the currency of the enforcing jurisdiction upon entry of judgment confirming the award, (iii) the relevant reference date for currency conversion and (iv) the applicability of the interest rate utilized in the award to the calculation of post-award/pre-judgment interest.
But that did not occur in the arbitration underlying the latest in a series of decisions from a federal district court in Washington concerning US enforcement of the award. (Continental Transfert Technique Ltd. v. Government of Nigeria, 2012 WL 1005203 (D.D.C. Mar. 27, 2012)).
It appears Claimant did not consider the difficulty in having a US judgment awarding Nigerian currency — equivalent to US $250 million at the award-date exchange rate — until after the US judgment had been entered. Claimant’s problem touched off a dispute over the power of the federal court to provide a solution, either as a clerical correction or substantive amendment of the judgment.
The award creditor who has obtained a confirming US judgment may discover only in its dealings with the execution authorities — the US Marshal’s office in the district where assets may be found — that the Marshal is unwilling or unable to execute the judgment except in the strictest compliance with its terms. The Marshal’s Office is not in the business of making calculations, conversions, or interpretations. Further, when one arrives at the Marshal’s office with a judgment confirming an arbitral award, the award itself is quite useless. The Marshal is interested only in what the Judgment provides.
In this case the Claimant, presumably upon discovering that the Marshal would not convert Nigerian currency to dollars and select an exchange rate, asked the Court to rectify the matter as correction of a “clerical error” in the Judgment. The Court denied this relief, ruling that at least the reference date for conversion, if not convertibility itself, was a matter of substantive rights not yet adjudicated, and any change in the Judgment would therefore need to meet the stiffer legal standard for substantively amending it as opposed to clerically correcting it. The Court left open whether amendment could be possible an invited another round of briefs.
One approach used by arbitral tribunals in addressing the conversion issue is to secure to the creditor the amount in the creditor’s national currency that it would have had if the debtor had fully performed its commercial obligation. (See H. Smit, Substance and Procedure in International Arbitration, 65 Tul. L. Rev. 1309 (1991), republished at www.translex.org/128900). One might also suppose that tribunals, extending this practice, would sometimes give their award in a currency in which the debtor ordinarily holds its cash reserves, even if not its own national currency.
In all events there are potentially arbitrable issues of fact regarding the timing of currency conversion, and the creditor who fails to present the issue to the arbitral tribunal bears risk that an enforcing court will only convert the currency as of the date of the judgment confirming the award. (See, in this regard, a brief discussion of exchange rate issues in an article by Noel Matthews, James Nicholson, and Alexandre Riviere of FTI Consulting, titled “Calculating Pre-Judgment Interest,” in Global Arbitration Review’s The European & Middle Eastern Arbitration Review 2012. The authors observe: [F]luctuations in exchange rates may mean that it may make a significant difference to the final sum claimed whether the damages are translated into hard currency at the date of breach, at the then-prevailing exchange rate, at the date of the hearing or award, or periodically as lost cash flows would have been realized. The determination of which method is appropriate may require a tribunal to take a position on whether the claimant would have translated its losses into hard currency at an earlier or later date.”)
The award creditor in Continental v Nigeria also did not obtain a clear ruling from the arbitral tribunal on the rate applicable to post-award, pre-judgment interest. The stakes are significant, as the tribunal gave pre-award interest at 18 percent, and there have been nearly four years of post-award proceedings in the UK and US courts with more to come. In the latest decision, the federal court in Washington rejects the notion that its judgment might be “clerically corrected” to apply the pre-award interest rate to the post-award, pre-judgment period.
Arbitration counsel are wise to specify in their submissions to the tribunal that the desired rate of pre-award interest should apply up to the date the award is satisfied. If so stated, a judgment confirming the award, in order to carry out its terms, should provide for pre-judgment interest at the pre-award rate specified by the tribunal.